SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
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
[X] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
TransFinancial Holdings, Inc.
(Name of Registrant as Specified In Its Charter)
(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: Common
Stock, par value $0.01 per share
(2) Aggregate number of securities to which transaction applies: 3,252,370
shares of Common Stock based on the number of shares outstanding on October
28, 1999
(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): The filing fee of $3,530 was
calculated pursuant to Rule 0-11(c)(1) of the Securities Exchange Act of
1934, as amended, and is the product of multiplying (a) 1/50 of 1% by an
amount equal to (b) the sum of (x) the product of 3,252,370 shares of
Common Stock less the 374,458 shares of Common Stock owned by COLA
Acquisitions, Inc. and certain related parties by $6.03 per share and (y)
the aggregate amount anticipated to be paid to certain persons holding
options to purchase shares of Common Stock in consideration of cancellation
of such options.
(4) Proposed maximum aggregate value of transaction: $17,650,000
(5) Total fee paid: $3,530
[X] Fee paid previously with preliminary materials.
[X] 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: $3,530
(2) Form, Schedule or Registration Statement No.: Preliminary Proxy
Statement under Regulation 14A
(3) Filing Party: TransFinancial Holdings, Inc.
(4) Date Filed: October 29, 1999
<PAGE>
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED DECEMBER 10, 1999
TRANSFINANCIAL HOLDINGS, INC.
8245 NIEMAN ROAD, SUITE 100
LENEXA, KANSAS 66214
(913) 859-0055
December ___, 1999
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
TransFinancial Holdings, Inc. (the "Company") to be held at the Marriott Hotel,
10800 Metcalf Avenue, Overland Park, Kansas, on January __, 2000 at 10:00 a.m.,
local time.
At the Special Meeting, you will be asked to consider and vote upon the
merger of COLA Acquisitions, Inc. ("COLA Acquisitions") with and into the
Company, with the Company as the surviving corporation. Pursuant to the merger,
you will be entitled to receive $6.03 in cash, without interest, for each of
your shares of common stock of the Company. COLA Acquisitions was formed in
connection with the proposed merger by three of the Company's current directors,
Timothy P. O'Neil, Roy R. Laborde and William D. Cox. Its stock will be directly
or beneficially owned by Messrs. O'Neil, Laborde and Cox and certain of their
family members or trusts for their benefit other than certain individual
retirement accounts for their benefit (the "IRAs"). COLA Acquisitions and these
trusts and individuals other than the IRAs are sometimes referred to as the
"Buyout Group."
The Buyout Group currently owns approximately 9.2% of the Company's
outstanding common stock, and the IRAs currently own approximately 2.3% of the
Company's common stock. Messrs. O'Neil, Laborde and Cox currently hold
exercisable options which, if exercised, would give them ownership of an
additional 1.7% of the Company's common stock. COLA Acquisitions proposed the
merger in order to acquire the entire equity interest in the Company.
In June 1999, the Board of Directors formed a Special Committee of
independent directors to avoid any conflict of interest in evaluating the
fairness to the stockholders of the Company of a potential management buyout
proposal. The members of the Special Committee are Harold C. Hill, Jr., J.
Richard Devlin and Clark D. Stewart. Each of these members is a director of the
Company. None of the members is an employee of the Company, has a commercial
relationship with the Company or is affiliated with the Buyout Group. The
Special Committee negotiated the terms of the transaction, on behalf of the
Company, with members of the Buyout Group.
The Board of Directors of the Company, acting on the unanimous
recommendation of the Special Committee, has unanimously approved the Merger
Agreement between COLA Acquisitions and the Company. THE SPECIAL COMMITTEE AND
THE FULL BOARD OF DIRECTORS BELIEVE THAT THE TERMS AND PROVISIONS OF THE MERGER
AGREEMENT AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF
<PAGE>
THE COMPANY AND ITS STOCKHOLDERS (OTHER THAN THE BUYOUT GROUP AND THE IRAs).
THEREFORE, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
The accompanying Proxy Statement explains the proposed merger and provides
specific information concerning the Special Meeting. Please read these materials
carefully. In addition, you may obtain information about the Company from
documents that the Company has filed with the Securities and Exchange
Commission.
You will have the right to dissent and to seek appraisal of the fair value
of your shares if the merger is consummated and you comply with the Delaware law
procedures explained on pages ___ to ___ of the accompanying Proxy Statement.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES REGULATOR, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES REGULATOR PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Whether or not you plan to attend the Special Meeting, I urge you to sign,
date and promptly return the enclosed proxy card to ensure that your shares will
be voted at the meeting. If you sign, date and return your proxy card without
indicating how you want to vote, your proxy will be counted as a vote in favor
of the Merger Agreement. Your proxy may be revoked at any time before it is
voted by submitting to the Secretary of the Company a written revocation or a
proxy bearing a later date, or by attending and voting in person at the meeting.
Even if you plan to attend the Special Meeting, please sign, date and return
your proxy card.
The merger is an important decision for the Company and its stockholders.
The merger cannot occur unless the Merger Agreement is approved and adopted by
the affirmative vote of the holders of a majority of all outstanding shares of
Common Stock.
On behalf of the Board of Directors, I thank you for your consideration of
these matters and urge you to vote FOR adoption of the Merger Agreement and the
transactions contemplated thereby.
Sincerely,
Harold C. Hill, Jr.
Chairman, Special Committee of
Independent Directors
The Proxy Statement is first being mailed to stockholders on December __, 1999.
2
<PAGE>
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED DECEMBER 10, 1999
TRANSFINANCIAL HOLDINGS, INC.
8245 NIEMAN ROAD, SUITE 100
LENEXA, KANSAS 66214
(913) 859-0055
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Notice is hereby given that a Special Meeting of Stockholders of
TransFinancial Holdings, Inc., a Delaware corporation (the "Company"), will be
held at the Marriott Hotel, 10800 Metcalf Avenue, Overland Park, Kansas on
January __, 2000 at 10:00 a.m., local time, for the following purpose:
To consider and vote upon the approval and adoption of the Agreement and
Plan of Merger (the "Merger Agreement"), between the Company and COLA
Acquisitions, Inc. ("COLA Acquisitions"), dated as of October 19, 1999, and the
transactions contemplated thereby. COLA Acquisitions was formed in connection
with the proposed merger and its stock will be owned by Timothy P. O'Neil, Roy
R. Laborde, William D. Cox and certain of their family members or trusts for
their benefit other than certain individual retirement accounts for their
benefit (the "IRAs"). (COLA Acquisitions and these trusts and individuals other
than the IRAs are sometimes referred to as the "Buyout Group.") Each of Messrs.
O'Neil, Laborde and Cox is currently a director of the Company, and Mr. O'Neil
is the President and Chief Executive Officer of the Company. The Merger
Agreement provides for, among other things, the merger of COLA Acquisitions with
and into the Company, with the Company as the surviving corporation and with
stockholders of the Company (other than the Buyout Group and the IRAs) entitled
to receive $6.03 in cash, without interest, for each share of the Company's
common stock. The Merger Agreement is more fully described in the accompanying
Proxy Statement and is attached to the Proxy Statement as Annex A.
Stockholders of the Company who do not vote in favor of the Merger
Agreement will have the right to dissent and to seek appraisal of the fair value
of their shares if the merger is consummated and they comply with the Delaware
law procedures explained in the accompanying Proxy Statement.
Only holders of record at the close of business on November 15, 1999 are
entitled to notice of and to vote at the Special Meeting or any adjournment(s)
or postponement(s) thereof. Any stockholder will be able to examine a list of
the holders of record, for any purpose related to the Special Meeting, during
ordinary business hours during the ten day period before the Special Meeting.
The list will be available at the offices of the Company.
Stockholders may vote in person or by proxy. The accompanying Proxy
Statement explains the merger in detail and is accompanied by a proxy card. In
order to assure that your vote will be counted, please sign, date and return the
enclosed proxy card promptly in the
<PAGE>
enclosed prepaid envelope, whether or not you plan to attend the Special
Meeting. Your proxy may be revoked at any time before it is voted by submitting
to the Secretary of the Company a written revocation or a proxy card bearing a
later date, or by attending and voting in person at the Special Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY, ACTING UPON THE UNANIMOUS
RECOMMENDATION OF A SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS, HAS APPROVED
THE MERGER AGREEMENT AND THE MERGER AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
By Order of the Board of Directors
Mark A. Foltz
Corporate Secretary
Lenexa, Kansas
December ___, 1999
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING. PLEASE
DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME. A TRANSMITTAL FORM
FOR THE PURPOSE OF EXCHANGING YOUR SHARES FOR THE MERGER CONSIDERATION WILL BE
SENT TO STOCKHOLDERS FOLLOWING COMPLETION OF THE MERGER.
2
<PAGE>
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE MERGER.......................................1
SUMMARY......................................................................4
SPECIAL FACTORS...........................................................4
THE SPECIAL MEETING.........................................................9
THE MERGER AGREEMENT.....................................................10
DISSENTERS' RIGHTS OF APPRAISAL..........................................12
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
OF THE COMPANY...........................................................13
INFORMATION CONCERNING THE SPECIAL MEETING..................................14
TIME, PLACE, DATE.........................................................14
PURPOSE OF THE SPECIAL MEETING............................................14
RECORD DATE; VOTING AT THE MEETING; QUORUM................................15
REQUIRED VOTE.............................................................16
ACTION TO BE TAKEN AT THE MEETING.........................................16
PROXY SOLICITATION........................................................17
THE PARTIES.................................................................17
THE COMPANY...............................................................17
COLA ACQUISITIONS.........................................................19
SPECIAL FACTORS.............................................................19
BACKGROUND OF THE MERGER..................................................19
RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS;
FAIRNESS OF THE MERGER....................................................34
THE BUYOUT GROUP'S PURPOSE AND REASON FOR THE MERGER......................41
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE.....................43
CERTAIN PROJECTIONS.......................................................49
FORWARD-LOOKING INFORMATION...............................................51
CERTAIN EFFECTS OF THE MERGER.............................................53
PLANS FOR THE COMPANY AFTER THE MERGER....................................54
CONDUCT OF THE BUSINESS OF THE COMPANY IF THE MERGER IS NOT CONSUMMATED...55
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................55
ACCOUNTING TREATMENT......................................................57
FINANCING OF THE MERGER...................................................57
REGULATORY REQUIREMENTS; THIRD PARTY CONSENTS.............................59
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER....................59
FEES AND EXPENSES.........................................................60
THE MERGER AGREEMENT........................................................61
THE MERGER; MERGER CONSIDERATION..........................................61
THE EXCHANGE FUND; PAYMENT FOR SHARES OF COMMON STOCK.....................62
TRANSFERS OF COMMON STOCK.................................................63
TREATMENT OF OPTIONS......................................................64
CONDITIONS................................................................64
REPRESENTATIONS AND WARRANTIES............................................65
COVENANTS.................................................................65
(i)
<PAGE>
INDEMNIFICATION AND INSURANCE.............................................66
ACQUISITION PROPOSALS; FIDUCIARY OBLIGATIONS OF DIRECTORS.................66
TERMINATION...............................................................67
FEES AND EXPENSES.........................................................68
DIRECTORS AND OFFICERS OF THE COMPANY FOLLOWING THE MERGER;
CERTIFICATE OF INCORPORATION; BYLAWS...................................68
AMENDMENT/WAIVER..........................................................68
DIRECTORS AND EXECUTIVE OFFICERS OF COLA ACQUISITIONS.....................69
DISSENTERS' RIGHTS OF APPRAISAL.............................................69
MARKET FOR THE COMMON STOCK.................................................73
COMMON STOCK MARKET PRICE INFORMATION; DIVIDEND INFORMATION...............73
COMMON STOCK PURCHASE INFORMATION.........................................74
SECURITIES OWNERSHIP........................................................76
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............76
BENEFICIAL OWNERSHIP OF COMMON STOCK BY CERTAIN PARTIES RELATED
TO THE BUYOUT GROUP....................................................78
MANAGEMENT..................................................................79
INDEPENDENT ACCOUNTANTS.....................................................81
STOCKHOLDER PROPOSALS.......................................................81
WHERE YOU CAN FIND MORE INFORMATION.........................................82
OTHER BUSINESS..............................................................83
AVAILABLE INFORMATION.......................................................84
ANNEX A AGREEMENT AND PLAN OF MERGER........................................A-1
ANNEX B FAIRNESS OPINION....................................................B-1
ANNEX C SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW.................C-1
ANNEX D ANNUAL REPORT ON FORM 10-K..........................................D-1
ANNED E QUARTERLY REPORT ON FORM 10-Q, AS AMENDED...........................E-1
(ii)
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WITH WHOM IS THE COMPANY MERGING?
A: COLA Acquisitions was formed in connection with the proposed merger by
Timothy P. O'Neil, Roy R. Laborde and William D. Cox. Mr. O'Neil is
President and Chief Executive Officer of the Company. Mr. Cox and Mr.
Laborde are Chairman and Vice Chairman, respectively, of the Company's
Board of Directors. COLA Acquisitions will merge with and into the Company,
with the Company as the surviving corporation. COLA Acquisitions and its
owners, who will consist of Mr. O'Neil, Mr. Laborde and Mr. Cox and certain
of their family members and trusts for their benefit other than the IRAs,
are referred to in this Proxy Statement as the "Buyout Group." On the
effective date of the merger, the Company will be owned entirely by the
Buyout Group and the IRAs.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Stockholders of the Company (other than the Buyout Group, the IRAs and any
stockholders who validly dissent from the Merger) will be entitled to
receive $6.03 per share in cash, without interest, for each share of the
Company's Common Stock. A Special Committee of the Board of Directors,
consisting of three independent directors, negotiated the terms of the
Merger Agreement with COLA Acquisitions.
Q: WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR THE MERGER
AGREEMENT?
A: A Special Committee of the Board of Directors has reviewed the terms of the
Merger Agreement and has considered various positive and negative factors
associated with the Merger. Based upon its analysis of those factors, the
Special Committee unanimously recommended to the full Board of Directors
that the Merger be approved. Based upon the Special Committee's
recommendation, the Board of Directors is now unanimously recommending that
you vote for approval of the Merger Agreement. To review the background and
reasons for the Merger in greater detail, see pages ___ to ___.
Q: WHAT IS REQUIRED TO APPROVE THE MERGER AGREEMENT?
A: For the merger to occur, the holders of a majority of all outstanding
shares of Common Stock must approve and adopt the Merger Agreement at the
Special Meeting. COLA Acquisitions must complete the financing for which it
has received a commitment from certain lenders and other customary
conditions must be met. To review the conditions to the merger in greater
detail, see pages ___ to ___.
<PAGE>
Q: WHAT DO I NEED TO DO NOW?
A: Please sign, date and mail your proxy card in the enclosed return envelope
as soon as possible, so that your shares may be represented at the Special
Meeting.
Q: WHAT RIGHTS DO I HAVE IF I OPPOSE THE MERGER?
A: Stockholders who oppose the merger may dissent and seek appraisal of the
fair value of their shares, but only if they comply with all of the
Delaware law procedures explained on pages ___ to ___.
Q: WHO CAN VOTE ON THE MERGER?
A: All stockholders of record as of the close of business on November 15, 1999
will be entitled to notice of and to vote at the Special Meeting to approve
and adopt the Merger Agreement and the transactions contemplated thereby.
Q: SHOULD I SEND IN MY STOCK?
A: No. After the merger is completed, we will send you a transmittal form and
written instructions for exchanging your share certificates.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how
to vote. You should follow the directions provided by your broker regarding
how to instruct your broker to vote your shares.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. Just send in a written revocation or a later dated, signed proxy card
before the Special Meeting or simply attend the Special Meeting and vote in
person.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. If the
Merger Agreement is approved and the other conditions to the merger are
satisfied, we expect to complete the merger shortly following the Special
Meeting.
Q: WHAT ARE THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO ME?
A: The Merger does not qualify for tax deferment. For most stockholders, the
Merger will result in a capital gain or loss. To review the federal income
tax consequences to stockholders in
2
<PAGE>
greater detail, see pages ___ to ___. Because determining the tax
consequences of the Merger can be complicated, you should consult your tax
advisor in order to understand fully how the Merger will affect you.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING?
A: We do not expect that there will be any other matters voted upon at the
Special Meeting.
Q: WHERE CAN I FIND ADDITIONAL INFORMATION CONCERNING THE COMPANY'S BUSINESS
AND FINANCES?
Copies of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 and Quarterly Report on Form 10-Q, as amended, for the
quarterly period ended September 30, 1999 are attached as Annexes D and E,
respectively, to this Proxy Statement. In addition, as discussed on pages ___ to
___, you may obtain information about the Company from other documents filed
with the Securities and Exchange Commission.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have more questions about the Merger or would like additional copies
of this Proxy Statement, you should contact Timothy P. O'Neil or Mark A.
Foltz at the Company's offices at 8245 Nieman Road, Suite 100, Lenexa,
Kansas 66214, (913) 859-0055.
3
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SUMMARY
This summary highlights selected information from this document. This
summary may not contain all of the information that is important to you. To
understand the merger fully and for a more complete description of the terms of
the merger, you should read this entire document carefully and the other
documents to which you are referred. See the sections of this document entitled
"WHERE YOU CAN FIND MORE INFORMATION" and "AVAILABLE INFORMATION" on pages ___
and ___.
Throughout this document, the term "Merger Agreement" refers to the
Agreement and Plan of Merger, dated as of October 19, 1999, between the Company
and COLA Acquisitions, Inc. (a copy of which is included at the back of this
document as Annex A), the term "Merger" refers to the merger of COLA
Acquisitions, Inc. with and into the Company, with the Company as the surviving
corporation, and the term "Merger Consideration" refers to the $6.03 per share
in cash, without interest, to be received by stockholders (other than the Buyout
Group, the IRAs and any stockholders who validly dissent from the Merger and
seek appraisal of their shares in accordance with the Delaware law requirements
explained in this Proxy Statement ("Dissenting Stockholders")) in the Merger.
COLA Acquisitions, Inc. will be owned by the Buyout Group. For ease of
reference, we sometimes refer in this document to COLA Acquisitions, Inc. as
"COLA Acquisitions," to TransFinancial Holdings, Inc. as the "Company" (or the
"Surviving Corporation" upon consummation of the Merger), to COLA Acquisitions,
Timothy P. O'Neil, Roy R. Laborde, William D. Cox and certain of their family
members and trusts for their benefit other than the IRAs as the "Buyout Group"
and to certain individual retirement accounts for the benefit of members of the
Buyout Group as the "IRAs." We also refer to stockholders of the Company other
than the Buyout Group and the IRAs as the "Public Stockholders." We are also
using the term "Common Stock" to mean the Company's common stock, par value
$0.01 per share, and the term "Options" to mean all outstanding options to
acquire Common Stock of the Company.
SPECIAL FACTORS
PURPOSE AND EFFECTS OF THE MERGER
The Buyout Group's purpose for the Merger is to acquire all of the shares
of Common Stock in the Company that they do not already own. Though other
alternatives, such as a tender offer for the Common Stock, were available and
were considered, the Buyout Group sought to structure the transaction as a
merger because it would enable the Buyout Group to obtain financing on the best
terms possible, preserve the tax basis of the Company's assets and its net
operating loss carryovers, and possibly reduce transaction costs. If the Merger
is completed, the Company's Common Stock would cease to be publicly traded and
Public Stockholders (other than any Dissenting Stockholders) would receive $6.03
per share in cash, without interest. Following the Merger, all of the
outstanding capital stock of the Company, as the surviving corporation in the
Merger, would be owned by the Buyout Group and the IRAs.
4
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RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
In June 1999, Mr. O'Neil, Mr. Laborde and Mr. Cox informed the Company's
Board of Directors (the "Board of Directors") that they had an interest in
exploring the possibility of organizing a management buyout of the Company.
Because three of the seven members of the Board of Directors anticipated taking
part in such a management buyout, the Board of Directors sought to avoid the
potential conflicts of interest involved by forming a special committee of
independent directors (the "Special Committee") to receive, study, negotiate and
make recommendations to the Board of Directors in connection with any proposed
acquisition of the Company by the Buyout Group or any other prospective
acquiror. The Special Committee is comprised of Harold C. Hill, Jr., J. Richard
Devlin and Clark D. Stewart. Each is a director of the Company. None of the
members of the Special Committee is an employee of the Company, has a commercial
relationship with the Company or is affiliated with the Buyout Group.
The Board of Directors, acting on the unanimous recommendation of the
Special Committee, has unanimously approved the Merger Agreement and the Merger
and recommends that you vote to approve and adopt the Merger Agreement and the
transactions contemplated thereby. The Board of Directors believes that the
Merger and the terms and provisions of the Merger Agreement (including the $6.03
per share cash purchase price) are fair to and in the best interests of the
Company and the Public Stockholders.
FACTORS CONSIDERED BY THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS
In reaching their decision to approve and recommend adoption of the Merger
Agreement, the Special Committee and the Board of Directors considered a number
of factors. The factors considered by the Board of Directors and the Special
Committee which supported their determination to approve and recommend the
Merger Agreement include, among others, the following:
- the final offer of $6.03 per share from the Buyout Group was the
highest and best proposal received from parties submitting proposals
to acquire the Company;
- the final offer of $6.03 per share from the Buyout Group was the
result of a competitive bidding process;
- the final offer of $6.03 per share from the Buyout Group provides a
premium to Public Stockholders of 46% over the closing price on the
last full trading day before the Buyout Group's initial offer was
announced;
- the opinion of William Blair & Company, L.L.C. ("William Blair")
addressed to the Special Committee and Board of Directors that, as of
October 18, 1999, the $6.03 per share in cash to be received by the
Company's stockholders (other than those stockholders who are or will
become affiliates or stockholders of COLA
5
<PAGE>
Acquisitions) in connection with the Merger was fair to such
stockholders from a financial point of view;
- the Buyout Group's transaction structure involving a one-step merger
provides time for other interested third parties to submit alternative
proposals;
- the Merger Agreement was the product of negotiation between the Buyout
Group and the Special Committee;
- approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock;
- the financial performance and prospects of the Company's business as
currently operated as a public company, including recent losses
suffered by the Company and the competitive disadvantages suffered by
the Company's transportation subsidiary, Crouse Cartage Company, which
has historically generated a majority of the Company's revenues;
- the limited trading market for the Company's Common Stock;
- the previous inability to locate a potential buyer for Crouse Cartage
Company;
- the Special Committee's ability under the Merger Agreement to withdraw
recommendation of the Merger if fiduciary duties so require;
- the availability of dissenters' rights of appraisal for stockholders
under Delaware law; and
- the public company costs currently imposed upon the Company.
In addition to the foregoing positive factors which supported the
determination of the Board of Directors and the Special Committee to approve and
recommend the Merger Agreement, the Board of Directors and the Special Committee
considered the following negative factors, which the Board of Directors and the
Special Committee viewed as insufficient to outweigh the positive factors:
- if the Merger is consummated, the Public Stockholders would no longer
have an equity interest in the Company and would not participate in
any potential earnings and growth of the Company;
- certain officers and directors of the Company have potential and
actual conflicts of interest in connection with the proposed Merger;
- the Merger may be a taxable event to most of the Company's
stockholders; and
6
<PAGE>
- the Buyout Group's obligation to consummate the Merger is subject to
the condition that the Buyout Group obtain the financing for the
Merger described herein or other financing not more onerous to the
Buyout Group.
Factors considered by the Special Committee and the Board of Directors are
set forth in more detail on pages ___ to ___.
FAIRNESS OPINION OF WILLIAM BLAIR
William Blair delivered to the Company's Special Committee and Board of
Directors a written opinion, dated October 18, 1999, that as of such date, based
upon and subject to the various considerations, assumptions and limitations
stated therein, the $6.03 per share in cash to be received by the stockholders
of the Company (other than those stockholders who are or will become affiliates
or stockholders of COLA Acquisitions) was fair to such stockholders from a
financial point of view. The William Blair opinion is included as Annex B at the
end of this Proxy Statement. Please read this opinion carefully. To review the
considerations, assumptions and limitations of William Blair's opinion in
greater detail, see pages ___ to ___.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The members of the Buyout Group currently contemplate that, prior to the
Merger, each of them will contribute to COLA Acquisitions all of the shares of
Common Stock beneficially owned by them, other than certain shares currently
held by the IRAs for their benefit, to the extent that they have not already
done so. If such equity contributions are made to COLA Acquisitions in the
manner currently contemplated by the Buyout Group and required by the Merger
Agreement, upon consummation of the Merger, the Buyout Group and the IRAs will
collectively own 100% of each of three classes of stock of the Surviving
Corporation. Messrs. O'Neil, Laborde and Cox will collectively own 100% of the
Surviving Corporation's Class C Stock, which will possess sole voting rights.
The IRAs and Messrs. O'Neil, Laborde and Cox will collectively own 100% of the
Surviving Corporation's Class A Stock, which will entitle them to full equity
participation in the Surviving Corporation. All members of the Buyout Group and
the IRAs will own shares of the Surviving Corporation's Class B Stock, which,
together with the Class C Stock, will participate in any dividends or
distributions from the Surviving Corporation up to a maximum of $15.00 per
share. This ownership structure will result from the conversion of all of the
outstanding shares of common stock of COLA Acquisitions and shares of Common
Stock held by the IRAs into shares of stock of the Surviving Corporation. Such
conversion shall occur by operation of the Merger Agreement.
Pursuant to the Merger Agreement, COLA Acquisitions is required from and
after November 30, 1999 until the closing of the Merger or termination of the
Merger Agreement to have a minimum capitalization of at least 276,850 shares of
Common Stock. In the event that any shares of Common Stock beneficially owned by
members of the Buyout Group (other than Messrs. O'Neil, Laborde and Cox) are not
contributed to COLA Acquisitions prior to consummation of the Merger and are not
converted into shares of the Surviving Corporation by
7
<PAGE>
operation of the Merger Agreement, such shares will be cashed out in the Merger
in accordance with the terms of the Merger Agreement.
The members of the Buyout Group have relationships, or interests in the
Merger, that are different from your interests as a stockholder or that may
present a conflict of interest. For a description of these interests and fees
paid to the Special Committee, see pages ___ to ___. The Special Committee and
the Board of Directors were aware of these interests and considered them in
recommending and approving the Merger.
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, the Merger will be
accounted for in accordance with the "purchase method" of accounting.
FINANCING OF THE MERGER
At the closing of the Merger, COLA Acquisitions expects to pay an
aggregate purchase price of approximately $17.6 million to the Public
Stockholders and the holders of Options to acquire Common Stock. In addition,
the parties anticipate that the Company and COLA Acquisitions will require
approximately $1.3 million to pay for the Company's and COLA Acquisitions'
expenses and costs relating to the Merger Agreement and the transactions
contemplated thereby. On September 30, 1999, COLA Acquisitions obtained a
commitment from LaSalle Bank, N.A. ("LaSalle"), to arrange, fund and administer,
subject to certain specified conditions, senior credit facilities aggregating up
to approximately $38.0 million in order to finance the Merger, refinance
existing debt and provide working capital for the Surviving Corporation (the
"Commitment Letter"), of which $10 million will be provided by Bankers Trust
Company of Des Moines, Iowa ("Bankers Trust"). It is a condition to COLA
Acquisitions' obligation to consummate the Merger that it has obtained the
financing for the Merger described in the Commitment Letter or other financing
not more onerous to COLA Acquisitions. For a discussion of certain terms of the
Commitment Letter and other factors relating to the financing of the Merger, see
pages ___ to ___.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The Merger does not qualify for tax deferment. For most stockholders, the
Merger will result in a capital gain or loss. Because determining the tax
consequences of the Merger can be complicated, you should consult your tax
advisor in order to understand fully how the Merger will affect you.
8
<PAGE>
THE SPECIAL MEETING
VOTING
A special meeting of stockholders of the Company will be held at 10:00
a.m., local time, on January __, 2000 at the Marriott Hotel, 10800 Metcalf
Avenue, Overland Park, Kansas (the "Special Meeting"). At the Special Meeting,
the holders of the Company's outstanding Common Stock will vote on a proposal to
approve and adopt the Merger Agreement and the transactions contemplated
thereby. Each share of Common Stock is entitled to one vote per share.
Unless contrary instructions are indicated, proxies will be voted FOR the
approval and adoption of the Merger Agreement and the transactions contemplated
thereby. As explained below in the section entitled "DISSENTERS' RIGHTS OF
APPRAISAL," a vote in favor of the Merger Agreement means that the stockholder
owning those shares will not have the right to dissent and seek appraisal of the
fair value of the shares. The Company does not know of any matters, other than
as described in the Notice of Special Meeting of Stockholders, which are to come
before the Special Meeting. If any other matters are properly presented at the
Special Meeting for action, including, among other things, consideration of a
motion to adjourn such meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the Merger), the persons
named in the enclosed proxy card and acting thereunder generally will have
discretion to vote on such matters in accordance with their best judgment.
Delaware law requires that the holders of a majority of the voting power of
all outstanding shares of Common Stock vote to approve and adopt the Merger
Agreement. By the terms of the Merger Agreement, the Merger is also subject to a
number of conditions other than stockholder approval. See "THE MERGER AGREEMENT
- - Conditions." At the present time, the Company does not anticipate waiving any
of the material conditions of the Merger.
Under the terms of the Merger Agreement, the current officers of the
Company will be the officers of the Surviving Corporation following consummation
of the Merger. Members of the Buyout Group currently own 300,288 shares of
Common Stock, representing approximately 9.2% of the outstanding shares of
Common Stock as of the Record Date (as defined below), and the IRAs currently
own approximately 2.3% of the Company's Common Stock. Messrs. O'Neil, Laborde
and Cox currently hold exercisable options which, if exercised, would give them
ownership of an additional 1.7% of the Company's Common Stock. To review a more
detailed description of the interests of the members of the Buyout Group and
certain other persons in connection with the Merger, see pages ___ to ___. The
Company has been advised that members of the Buyout Group owning Common Stock
intend to vote all shares in favor of the Merger Agreement and the transactions
contemplated thereby. The members of the Board of Directors who are not members
of the Buyout Group also intend to vote all their shares (6,500 shares or less
than one percent of the outstanding shares of Common Stock as of the Record
Date) in favor of the Merger Agreement and the transactions contemplated
thereby.
The Board of Directors set the close of business on November 15, 1999 as
the record date for determining who is entitled to vote at the Special Meeting
(the "Record Date"). On the
9
<PAGE>
Record Date, there were 3,252,370 shares of Common Stock outstanding and
entitled to vote held by approximately 1,200 stockholders of record.
THE MERGER AGREEMENT
THE MERGER CONSIDERATION
If the Merger is completed, the Public Stockholders, other than any
Dissenting Stockholders, will be entitled to receive $6.03 per share in cash for
their Common Stock, without interest.
CONDITIONS TO THE MERGER
There are a number of conditions that must be satisfied before either the
Company or COLA Acquisitions is obligated to complete the Merger, including,
among others, the following:
- the Merger must be approved by a majority of the voting power held by
the stockholders of the Company; and
- there can be no legal restraints or prohibitions that prevent
completion of the Merger.
There are additional conditions that must be satisfied or waived before
COLA Acquisitions is obligated to complete the Merger, including:
- COLA Acquisitions must obtain the financing described in the
Commitment Letter or other financing not more onerous to it;
- holders of not more than 5% of the outstanding shares of Common Stock
exercise dissenters' appraisal rights;
- the Company must comply with the Merger Agreement; and
- the Company must issue all shares of stock earned, as of the effective
date of the Merger, by employees pursuant to the Company's employee
benefit plans.
There are additional conditions that must be satisfied before the Company
is obligated to complete the Merger, including:
- COLA Acquisitions must comply with the Merger Agreement; and
- the representations and warranties made by COLA Acquisitions in the
Merger Agreement must be true and correct in all material respects.
10
<PAGE>
TERMINATION OF THE MERGER AGREEMENT
The Company (acting through the Special Committee) and COLA Acquisitions
may agree at any time to terminate the Merger Agreement. In addition, either the
Company (acting through the Special Committee) or COLA Acquisitions may
terminate the Merger Agreement if:
- a final court order or other governmental action prohibits the Merger;
or
- the other party materially fails to comply with the Merger Agreement.
The Company (acting through the Special Committee) may terminate the Merger
Agreement if:
- the Special Committee determines, under certain circumstances and
before the approval of stockholders required by the Merger Agreement,
that it is necessary to terminate the Merger Agreement in order to
comply with its fiduciary duties to the Company's stockholders.
To review the circumstances under which the Special Committee may terminate
the Merger Agreement in order to comply with its fiduciary duties to the
Company's stockholders, see page ___.
COLA Acquisitions may terminate the Merger Agreement if:
- the Board of Directors withdraws, modifies or changes its
recommendation in favor of the Merger; or
- the Board of Directors recommends or resolves to recommend an
alternative Acquisition Proposal (as defined in the Merger Agreement)
to the Company's stockholders.
ACQUISITION PROPOSALS
The Company and its subsidiaries will not solicit or knowingly encourage
any Acquisition Proposal except in certain circumstances including:
- if the Company or the Special Committee receives an unsolicited,
written indication of a willingness to make an Acquisition Proposal at
a price and upon terms that the Special Committee reasonably concludes
are more favorable than the Merger and the Special Committee
reasonably concludes financing for the Acquisition Proposal will
likely be obtained, then the Company or the Special Committee may
provide information to such person pursuant to an appropriate
confidentiality agreement if failure to do so would be inconsistent
with the Special Committee's fiduciary duties; and
11
<PAGE>
- the Company or the Special Committee may engage in discussions and
negotiations with any person concerning an Acquisition Proposal if the
Special Committee concludes that the failure to engage in discussions
or negotiations would be inconsistent with the Special Committee's
fiduciary duties.
FEES AND EXPENSES
COLA Acquisitions will be paid $500,000 and reimbursed up to a maximum
amount of $200,000 for its costs and expenses incurred in connection with the
transactions contemplated by the Merger Agreement if the Merger Agreement is
terminated:
- by COLA Acquisitions because the Special Committee either withdraws,
modifies or changes its recommendation that the stockholders of the
Company approve the Merger Agreement or recommends an alternative
Acquisition Proposal to the Company's stockholders;
- by the Company (acting through the Special Committee), in order for
the Special Committee to comply with its fiduciary duties to the
Company's stockholders in connection with an alternative Acquisition
Proposal; or
- by COLA Acquisitions because the Company has materially breached the
Merger Agreement as a result of the action or inaction of the Special
Committee and has failed to promptly cure that breach.
DISSENTERS' RIGHTS OF APPRAISAL
Any stockholder who does not wish to accept $6.03 per share in cash in the
Merger has the right under Delaware law to have the "fair value" of his, her or
its shares determined by the Delaware Chancery Court. This "right of appraisal"
is subject to a number of restrictions and technical requirements. Generally, in
order to exercise appraisal rights:
- you must NOT vote in favor of the Merger; and
- you must make a written demand for appraisal in compliance with
Delaware law BEFORE the vote on the Merger.
Merely voting against the Merger will not protect your right of appraisal.
Annex C to this Proxy Statement contains the Delaware statute relating to your
right of appraisal. Failure to follow all of the steps required by this statute
will result in the loss of your right of appraisal. The Delaware law
requirements for exercising appraisal rights are explained on pages __ to __.
Because compliance with the requirements may be complicated, any stockholder who
desires to exercise appraisal rights is urged to consult a legal advisor before
exercising such rights.
12
<PAGE>
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following table sets forth selected consolidated financial data for the
Company and its subsidiaries (i) as of and for the nine months ended September
30, 1999 and 1998 and (ii) as of and for each of the five fiscal years in the
period ended December 31, 1998. No separate financial information is provided
for COLA Acquisitions since COLA Acquisitions is a special purpose entity formed
in connection with the Merger and has no independent operations. No pro forma
data giving effect to the Merger have been provided because the Company does not
believe such information is material to stockholders in evaluating the proposed
Merger and Merger Agreement since (i) the proposed Merger Consideration is all
cash and (ii) if the Merger is completed, the Company's Common Stock would cease
to be publicly traded.
The financial information for the Company as of and for each of the five
fiscal years in the period ended December 31, 1998 has been derived from audited
consolidated financial statements of the Company. The financial information as
of and for the nine months ended September 30, 1999 and 1998 has been derived
from unaudited consolidated financial statements of the Company and, in the
opinion of management, includes all adjustments (consisting only of a normal
recurring nature) necessary to present fairly the information set forth therein.
Operating results for such unaudited interim periods should not be considered
indicative of results to be expected for the full fiscal year.
The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements, accompanying
notes and other financial information included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 and the Company's
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999.
Copies of the Form 10-K and Form 10-Q, as amended, are enclosed with this Proxy
Statement as Annexes D and E, respectively.
<TABLE>
<CAPTION>
As of and For the Nine
Months Ended
September 30, As of and For the Fiscal Years Ended December 31,
------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT (In Thousands, Except Per Share Data)
Operating Revenue....... $ 119,412 $ 113,652 $ 151,701 $ 133,223 $ 113,693 $ 96,847 $ 95,772
========= ========= ========= ========= ========= ======== ========
Income (Loss) from
Continuing Operations... $ (1,528) $ (2,137) $ (2,027) $ 1,100 $ 85 $ 2,810 $ 5,495
Income from Discontinued
Operations.............. -- -- -- -- -- $ 3,576 $ 54,845
--------- --------- --------- --------- --------- -------- --------
Net Income (Loss)....... $ (1,528) $ (2,137) $ (2,027) $ 1,100 $ 852 $ 6,386 $ 60,340
========= ========= ======== ========= ========= ======== ========
Basic Earnings (Loss)
per Share:
Continuing Operations $ (0.44) $ (0.38) $ (0.39) $ 0.18 $ 0.13 $ 0.38 $ 0.73
Discontinued Operations -- -- -- -- -- $ 0.48 $ 7.27
--------- --------- --------- --------- --------- -------- --------
Total ................ $ (0.44) $ (0.38) $ (0.39) $ 0.18 $ 0.13 $ 0.86 $ 8.00
========= ========= ======== ========= ========= ======= ======
13
<PAGE>
As of and For the Nine
Months Ended
September 30, As of and For the Fiscal Years Ended December 31,
------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
(In Thousands, Except Per Share Data)
Diluted Earnings (Loss)
per Share:
Continuing Operations.... $ (0.44) $ (0.37) $ (0.39) $ 0.18 $ 0.12 $ 0.37 $ 0.72
Discontinued Operations.. -- -- -- -- -- $ 0.48 $ 7.21
--------- --------- --------- --------- --------- -------- --------
Total ................. $ (0.44) $ (0.37) $ (0.39) $ 0.18 $ 0.12 $ 0.85 $ 7.93
========= ========= ======== ========= ========= ======= ======
BALANCE SHEET DATA
Working Capital....... $ 5,511(2) $ 19,965 $ 19,018 $ 32,066 $ 41,870 $ 60,930 $ 62,285
======== ======== ======== ======== ========= ======== ========
Total Assets ......... $ 81,193 $ 79,308 $ 77,763 $ 89,755 $ 86,812 $ 88,426 $ 85,399
======== ======== ======== ======== ========= ======== ========
Short-Term Debt(1).... $ 17,272(2) -- $ 300 $ 2,500 -- -- --
======== ======== ========
Long-Term Debt........ -- $ 10,000 $ 9,700 -- -- -- --
======== ========
Shareholders' Equity.. $ 46,951 $ 50,964 $ 51,074 $ 72,485 $ 74,561 $ 80,280 $ 77,419
======== ======== ======== ======== ========= ======== ========
Book Value per Share.. $14.44 $ 12.96 $ 12.99 $ 12.03 $ 11.69 $ 10.62 $ 10.25
======== ======== ======== ======== ========= ======== ========
Cash Dividends per
Common Share.......... -- -- -- -- -- -- --
</TABLE>
(1) Short-term debt includes line of credit borrowings outstanding and
current maturities of long-term debt.
(2) The Company's $15.0 million term loan was classified as current
maturities of long-term debt based on the current principal repayment
schedule which calls for the balance outstanding to be due on
September 30, 2000.
INFORMATION CONCERNING THE SPECIAL MEETING
TIME, PLACE, DATE
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of the Company of proxies from the holders of shares of
the Company's Common Stock for use at the Special Meeting to be held at 10:00
a.m., local time, on January __, 2000, at the Marriott Hotel, 10800 Metcalf
Avenue, Overland Park, Kansas, or at any adjournment(s) or postponement(s)
thereof, pursuant to the enclosed Notice of Special Meeting of Stockholders.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the stockholders of the Company will be asked to
consider and vote upon the approval and adoption of the Merger Agreement and the
transactions contemplated thereby. A copy of the Merger Agreement is attached to
this Proxy Statement as Annex A. The Merger Agreement provides for the merger of
COLA Acquisitions with and into the Company,
14
<PAGE>
with the Company as the Surviving Corporation. Pursuant to the Merger Agreement,
each Public Stockholder (other than Dissenting Stockholders) will be entitled to
receive $6.03 per share in cash, without interest.
The Special Committee consisting of Messrs. Hill, Devlin and Stewart was
appointed by the Board of Directors to review and evaluate the terms of the
Merger and to report to the Board of Directors regarding the fairness of the
Merger to the holders of Common Stock. Messrs. Hill, Devlin and Stewart are not
members of the Buyout Group and will not have any continuing equity interest in
the Surviving Corporation. The Special Committee concluded that the terms and
provisions of the Merger Agreement and the Merger are fair to and in the best
interests of the Company and the Public Stockholders, and unanimously
recommended that the Board of Directors approve the Merger Agreement and the
transactions contemplated thereby. At a meeting held on October 19, 1999, acting
on the unanimous recommendation of the Special Committee, the Board of Directors
concluded that the terms and provisions of the Merger Agreement and the Merger
are fair to and in the best interests of the Company and the Public
Stockholders, approved the Merger Agreement, and unanimously recommended that
the stockholders approve and adopt the Merger Agreement and the transactions
contemplated thereby. The Special Committee and the Board of Directors, in
reaching their respective decisions, considered a number of factors, including
the opinion of William Blair, the investment banking firm that advised the
Special Committee, that, as of the date of such opinion and based upon and
subject to various considerations, assumptions and limitations stated therein,
the Merger Consideration to be received in the Merger was fair to the
stockholders of the Company (other than those stockholders who are or will
become affiliates or stockholders of COLA Acquisitions) from a financial point
of view. A copy of William Blair's opinion is attached as Annex B to this Proxy
Statement. See "SPECIAL FACTORS - Recommendation of the Special Committee and
Board of Directors; Fairness of the Merger" and "SPECIAL FACTORS - Opinion of
Financial Advisor to the Special Committee."
BASED ON THE UNANIMOUS RECOMMENDATION OF ITS SPECIAL COMMITTEE, THE BOARD
OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
RECORD DATE; VOTING AT THE MEETING; QUORUM
The Board of Directors has fixed the close of business on November 15, 1999
as the Record Date for the Special Meeting. Only stockholders of record as of
the close of business on November 15, 1999 will be entitled to notice of and to
vote at the Special Meeting.
As of the close of business on the Record Date, the Company had outstanding
3,252,370 shares of Common Stock, held of record by approximately 1,200
registered holders. Holders of the Common Stock are entitled to one vote per
share. The presence in person or by proxy of the holders of at least a majority
of the voting power of the outstanding Common Stock entitled to vote at the
Special Meeting constitutes a quorum. Broker non-votes and shares as to which a
stockholder abstains will be included in determining whether there is a quorum
at the Special
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<PAGE>
Meeting. Because the Merger Agreement must be approved by holders of a majority
of all outstanding shares of Common Stock, however, a broker non-vote or
abstention will have the same effect as a vote against approval of the Merger
Agreement.
REQUIRED VOTE
Under Delaware law, the Merger Agreement must be approved and adopted by
the affirmative vote of the holders of a majority of the voting power of the
outstanding shares of Common Stock of the Company. The members of the Buyout
Group currently own 300,288 shares of Common Stock, representing approximately
9.2% of the outstanding shares of Common Stock as of the Record Date. Messrs.
O'Neil, Laborde and Cox currently hold exercisable options which, if exercised,
would give them ownership of an additional 1.7% of the Company's Common Stock.
See "SPECIAL FACTORS - Interests of Certain Persons in the Merger." The Company
has been advised all members of the Buyout Group owning Common Stock intend to
vote their shares in favor of the Merger Agreement and the transactions
contemplated thereby. The members of the Board of Directors who are not members
of the Buyout Group also intend to vote all their shares (6,500 shares or less
then one percent of the outstanding shares of Common Stock as of the Record
Date) in favor of the Merger Agreement and the transactions contemplated
thereby.
Failure to return an executed proxy card or to vote in person at the
Special Meeting or voting to abstain will constitute, in effect, a vote against
approval and adoption of the Merger Agreement and the transactions contemplated
thereby, for purposes of Delaware law. Similarly, broker non-votes will have the
same effect as a vote against approval and adoption of the Merger Agreement and
the transactions contemplated thereby.
ACTION TO BE TAKEN AT THE MEETING
The enclosed proxy card is solicited on behalf of the Board of Directors.
The giving of a proxy does not preclude the right to vote in person should any
stockholder giving the proxy so desire. Stockholders have an unconditional right
to revoke their proxy at any time prior to the exercise thereof, either by
filing with the Company's Secretary at the Company's principal executive offices
a written revocation or a duly executed proxy bearing a later date or by voting
in person at the Special Meeting. Attendance at the Special Meeting without
casting a ballot will not, by itself, constitute revocation of a proxy. Any
written notice revoking a proxy should be sent to TransFinancial Holdings, Inc.,
8245 Nieman Road, Suite 100, Lenexa, Kansas 66214, Attention: Mark A. Foltz,
Corporate Secretary.
All shares of Common Stock represented at the Special Meeting by properly
executed proxies received prior to or at the Special Meeting, unless previously
revoked, will be voted at the Special Meeting in accordance with the
instructions on the proxies. Unless contrary instructions are indicated, proxies
will be voted FOR the approval and adoption of the Merger Agreement and the
transactions contemplated thereby. As explained below in the section entitled
"DISSENTERS' RIGHTS OF APPRAISAL," a vote in favor of the Merger Agreement
16
<PAGE>
means that the stockholder owning those shares will not have the right to
dissent and seek appraisal of the fair value of the shares. The Company does not
know of any matters, other than those described in the Notice of Special Meeting
of Stockholders, which are to come before the Special Meeting. If any other
matters are properly presented at the Special Meeting for action, the persons
named in the enclosed proxy card and acting thereunder generally will have
discretion to vote on such matters in accordance with their best judgment. The
Merger is also subject to a number of conditions. See "THE MERGER AGREEMENT -
Conditions."
PROXY SOLICITATION
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Special Meeting of Stockholders and the enclosed proxy card will be
borne by the Company. The Company is requesting that banks, brokers and other
custodians, nominees and fiduciaries forward copies of the proxy material to
their principals and request authority for the execution of proxies. The Company
may reimburse such persons for their expenses in so doing. In addition to the
solicitation of proxies by mail, the directors, officers and employees of the
Company and its subsidiaries may, without receiving any additional compensation,
solicit proxies by telephone, telefax, telegram or in person.
No person is authorized to give any information or make any representation
not contained in this Proxy Statement, and if given or made, such information or
representation should not be relied upon as having been authorized.
COMPANY STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES REPRESENTING SHARES
OF COMMON STOCK WITH THEIR PROXY CARD. IF THE MERGER IS CONSUMMATED, THE
PROCEDURE FOR THE EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMMON STOCK
WILL BE AS SET FORTH IN THIS PROXY STATEMENT. SEE "THE MERGER AGREEMENT--THE
EXCHANGE FUND; PAYMENT FOR SHARES OF COMMON STOCK" AND "THE MERGER AGREEMENT
- --TRANSFERS OF COMMON STOCK."
THE PARTIES
THE COMPANY
The Company was organized in Delaware in April 1976 and is headquartered in
Lenexa, Kansas. The Company operates in three industry segments:
- transportation, through, its subsidiary Crouse Cartage Company and its
affiliates ("Crouse");
- financial services, primarily through its insurance premium finance
subsidiary, Universal Premium Acceptance Corporation ("UPAC"); and
17
<PAGE>
- industrial technology, through its subsidiary, Presis, L.L.C.
("Presis").
Transportation. Crouse, headquartered in Lenexa, Kansas, is a regional
motor common carrier of general commodities in less-than-truckload ("LTL")
quantities in 15 states in the north central and mid-west portion of the United
States. In 1998, Crouse entered into a strategic partnership arrangement with a
southeastern regional LTL carrier that enables Crouse to offer its customers
service in 7 south eastern states. Crouse also offers motor common carrier
service for truckload quantities of general and perishable commodities
throughout the 48 contiguous United States.
Financial Services. UPAC, headquartered in Lenexa, Kansas, is engaged in
the business of financing the payment of insurance premiums. UPAC offers
financing of insurance premiums primarily to commercial purchasers of property
and casualty insurance who wish to pay their insurance premiums on an
installment basis. Whereas some insurance carriers require advance payment of a
full year's premium, UPAC allows the insured to spread the payment of the
insurance premium over time. UPAC finances insurance premiums without assuming
the risk of claims loss borne by insurance carriers. When insureds buy an
insurance policy from an independent insurance agent or broker who offers
financing through UPAC, the insureds generally pay a down payment of 20% to 25%
of the total premium and sign a premium finance agreement for the balance, which
is generally payable in installments over the following nine months. Under the
terms of UPAC's standard form of financing contract, UPAC is given the power to
cancel the insurance policies if there is a default in the payment on the
finance contracts and to collect the unearned portion of the premiums from the
insurance carrier. The down payments are usually set at a level determined, in
the event of cancellation of a policy, such that the unearned premiums returned
by insurance carriers are expected to be sufficient to cover the loan balances
plus interest and other charges due to UPAC. As of December 31, 1998, UPAC was
doing business with more than 3,200 insurance agencies or brokers, the largest
of which referred approximately 3% of the total premiums financed by UPAC in
1998. As of September 30, 1999, UPAC was doing business with more than 2,700
insurance agencies or brokers, the largest of which referred approximately 3% of
the total premiums financed by UPAC in the first nine months of 1999.
Industrial Technology. In July 1997, the Company acquired a controlling
interest in Presis and subsequently purchased the remaining minority interests
from the former owners in 1998. Presis is a start-up business involved in
developing technical advances in dry particle processing. "Dry particle
processing" is a process of preparing pigments and other dry powder materials
for incorporation into manufacturing processes in a dry state by breaking down,
or de-agglomerating, the powder particles and physically treating the powder
particle surfaces with non-reactive materials. Presis has working prototypes
that it utilizes for research and testing which will require further engineering
before being placed in commercial operation. In the event the process is
successfully developed, the Company believes that the process could be used to
replace or shorten the current wet milling processes currently used by many
manufacturers to create products such as paints and coatings which require
non-water soluble powders to be blended with water or other liquid mediums.
Presis is attempting to commercialize the process with manufacturers that
already work with all the materials that would be used in the process.
18
<PAGE>
For additional information concerning the Company, see "WHERE YOU CAN FIND
MORE INFORMATION" and "AVAILABLE INFORMATION."
COLA ACQUISITIONS
COLA Acquisitions was incorporated in Kansas on September 30, 1999 by
Messrs. O'Neil, Laborde and Cox in connection with the proposed Merger. COLA
Acquisitions has not been engaged in any activities other than those in
connection with the Merger. The principal office and business address of COLA
Acquisitions is c/o Timothy P. O'Neil, 8245 Nieman Road, Suite 100, Lenexa,
Kansas 66214. The telephone number of COLA Acquisitions is (913) 859-0055.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
On September 1, 1991, the Company acquired all of the outstanding shares
of stock of Crouse Cartage Company from members of the Crouse family. In early
1998, as a result of disagreements between the Board of Directors and members of
the Crouse family, who were officers and employees of Crouse Cartage Company,
regarding the structure and operations of the Company, the Company engaged in
discussions with members of the Crouse family regarding the repurchase of the
family's interest in the Company. The disagreements arose in two principal
areas: (1) the adoption of anti-takeover provisions and (2) the involvement of
members of the Crouse family in the day-to-day operations of Crouse Cartage
Company. The Board of Directors desired to adopt a stockholder rights plan in
order to prevent any future hostile takeover of the Company not approved by the
Board of Directors. Members of the Crouse family opposed the adoption of a
stockholder rights plan. Secondly, management was concerned that the involvement
of certain members of the Crouse family in the day-to-day operations of Crouse
Cartage Company was undermining the ability of David D. Taggart, Chief Executive
Officer of Crouse Cartage Company, to effectively direct its operations. Members
of the Course family disagreed with this concern. At that time, the Crouse
family owned approximately 22% of the outstanding shares of stock of the
Company. During negotiations between the Company and the Crouse family, TJS
Partners, LP ("TJS") offered to sell all of its stock , approximately 14% of the
outstanding shares , to the Company on more favorable terms than those then
being offered by the Crouse family. As a result of the offer from TJS, the
Company and the Crouse family terminated negotiations. The Company decided that
it would not repurchase the shares owned by the Crouse family when another large
stockholder also desired to sell shares to the Company on more favorable terms.
The Company did not negotiate with TJS to repurchase the shares owned by TJS,
because the Crouse family opposed such a repurchase.
On June 30, 1998, several weeks after the termination of negotiations
between the Company and the Crouse family, TJS announced: (1) its agreement to
acquire the shares of Company stock owned by the Crouse family, (2) its
intention to obtain control of the Board
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of Directors and (3) its plans to study possible actions, including without
limitation the liquidation or sale of part or all of the Company's business or
assets. TJS did not undertake to acquire the remaining outstanding shares of
Common Stock as part of its takeover of the Company. In part because of this and
because TJS did not state its intentions with respect to the assets or
operations of the Company, the Board of Directors determined that the takeover
attempt was not in the best interests of the Company and its remaining
stockholders. The Board of Directors was concerned about the failure by TJS to
state its intentions because it could not determine whether the remaining
stockholders would be treated fairly. Those stockholders would no longer have
the protection of an independent Board of Directors to approve or disapprove
policies instituted by TJS after the takeover. In order to prevent the takeover
by TJS, the Company entered into negotiations to acquire the shares of Company
stock owned by the Crouse family and TJS .
On July 23, 1998, the Company entered into an engagement letter with
George K. Baum & Company ("Baum"), an investment banking firm, pursuant to which
Baum was retained to attempt to locate a buyer for Crouse. The decision to
retain Baum to attempt to locate a buyer for Crouse was not directly related to
the Company's attempt to defeat the proposed takeover by TJS. At the time the
Company retained Baum, the Company believed that the negotiations to repurchase
shares of Company stock from the Crouse family and TJS would be successful. The
Company did not request that Baum locate a buyer for Crouse within any
timetable, such as prior to consummation of the takeover or completion of the
repurchase negotiations. The Company had not made a determination to sell Crouse
at the time it retained Baum, but desired to know if Crouse could be sold at a
reasonable price as part of its ongoing consideration of strategic alternatives.
The Company instructed Baum not to contact certain competitors of the Company
whom the Company and Baum agreed would likely have little interest in acquiring
Crouse. The Company and Baum did not believe a regional, unionized
less-than-truckload carrier would be attractive to those competitors,
particularly the non-union and national carriers. The Company was also concerned
with avoiding the release of confidential information and the potential harm to
the business resulting from sale rumors spread by competitors. Baum contacted
seven potential buyers, including trucking and transportation companies and
financial buyers. The Company did not receive any offers for Crouse as a result
of Baum's efforts.
On August 14, 1998, the Company entered into a definitive agreement with
members of the Crouse family to acquire all of the shares of Company stock owned
by the Crouse family and TJS for $9.125 per share, plus reimbursement of certain
expenses, resulting in total consideration of approximately $9.25 per share. The
Board of Directors determined that the repurchase of shares for consideration of
$9.25 was fair to and in the best interests of the Company and its remaining
stockholders in order to prevent the takeover by TJS. During the period of
negotiations between the Company, TJS and the Crouse family (July 7 to August
13), the average closing price of the Common Stock on the American Stock
Exchange was $9.05 per share. The closing price of the Common Stock on August
13, 1998 was $8.50 per share. Payment for the repurchases occurred on September
30, 1998 and December 31, 1998.
On February 19, 1999, the Board of Directors approved the repurchase of up
to 400,000 shares of Common Stock in open market and privately negotiated
transactions. On March 15, 1999, the Board of Directors approved an increase in
the number of shares authorized to be repurchased to 1,030,000 shares. Between
February 25, 1999 and April 15, 1999, the Company
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repurchased 683,241 shares of Common Stock, at an average price of $3.81 per
share. The Company effected the repurchases in order to acquire shares of Common
Stock of the Company at an attractive price.
On April 27, 1999, Mr. O'Neil, Mr. Laborde and Mr. Cox met for the first
time to consider Mr. O'Neil's proposal to acquire the outstanding shares of the
Company. Mr. O'Neil approached Mr. Laborde and Mr. Cox because, among other
things, they were large inside stockholders of the Company. At the conclusion of
the meeting, Mr. Laborde and Mr. Cox agreed to consider such a transaction and
indicated that Mr. O'Neil should investigate the same.
On May 7, 1999, Mr. O'Neil met with representatives of Blackwell Sanders
Peper Martin LLP ("Blackwell Sanders") to discuss the transaction under
consideration and determine the law firm's interest and ability to assist in
such a transaction if it were undertaken.
On May 14, 1999, Messrs. O'Neil, Laborde and Cox met with representatives
of Blackwell Sanders to discuss the factors to be considered in undertaking such
a transaction and to determine if the law firm should be retained in connection
with the same.
On June 1, 1999, at the request of Messrs. O'Neil, Laborde and Cox, a
special meeting of the Board of Directors was called for June 7.
On June 4, 1999, Messrs. O'Neil, Laborde and Cox met to discuss the status
of Mr. O'Neil's investigation. It was determined that if such a transaction were
to occur, any transaction would be made available to other members of the
O'Neil, Laborde and Cox families. It was further determined that
post-transaction ownership would generally be in proportion to the number of
shares of the Company's stock currently owned by the respective parties.
On June 7, 1999, the special meeting of the Board of Directors was held .
Messrs. O'Neil, Laborde and Cox were present at the meeting with representatives
of Blackwell Sanders . On behalf of the Buyout Group, they delivered to the
Board of Directors an unsolicited proposal by which, through a merger with the
Company, an entity to be formed by them would acquire all of the issued and
outstanding stock of the Company in exchange for cash of $5.25 per share. At the
time the proposal was delivered, no commitment for financing for such an
acquisition existed. Mr. O'Neil informed the Board of Directors that the
proposal resulted from the comments of several shareholders, over prior months,
that he or someone else should acquire all of the stock of the Company, that the
costs of public ownership were disproportionate to the Company's size, that the
market did not appear to properly value companies with a capitalization like the
Company, and that holders of large blocks of Company stock had little liquidity.
Mr. O'Neil further stated that he and the other members of the Buyout Group were
interested in making such acquisition only if approved by the Board of
Directors. Mr. O'Neil distributed to the Board of Directors valuations of the
Company which he had prepared based upon going concern, sale and liquidation
bases, and ranging from $4.06 to $4.99 per share. The closing price of the
Company's stock on the American Stock Exchange on the prior business day was
$4.375. In response to the proposal, the Board of Directors established the
Special Committee, comprised of the independent directors of the Company, J.
Richard Devlin, Harold C. Hill, Jr. and Clark D. Stewart, to evaluate the
proposal on behalf of the Board of Directors and to consider any other
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proposals that the Company might receive. The Board of Directors discussed the
scope of the authority of the Special Committee and decided that resolutions
appointing the Special Committee would be circulated for approval by written
consent.
The Special Committee held its first meeting on June 7, 1999. At the
meeting, the Special Committee appointed Harold C. Hill, Jr. as Chairman of the
Special Committee, and retained Morrison & Hecker L.L.P. ("Morrison & Hecker"),
general counsel of the Company, as legal counsel for the Special Committee. The
Special Committee and Morrison & Hecker discussed the procedures to be followed
in analyzing the proposal from the Buyout Group and any other offer from the
Buyout Group or any third party. At the meeting and at subsequent meetings,
Morrison & Hecker advised the Special Committee concerning the Special
Committee's legal responsibilities.
From June 7 until the date the definitive Merger Agreement was signed
between the Company and COLA Acquisitions, Messrs. O'Neil, Cox and Laborde
communicated amongst themselves, sometimes with the participation of
representatives of Blackwell Sanders, with regard to all facets of the proposed
transaction they were pursuing. These discussions concerned matters such as the
structure of post-transaction ownership, the status of the Special Committee's
deliberations, the status of negotiations with LaSalle over the Financing, the
types of transaction structures available to accomplish the transaction and the
appropriate negotiating strategies to pursue.
On June 16, 1999, Mr. O'Neil delivered a letter to the Special Committee
indicating that a commitment letter for financing the Buyout Group's proposal
had been obtained.
On June 16, 1999, the Special Committee met to approve a press release
announcing the proposal of the Buyout Group and the appointment of the Special
Committee, and to discuss the scope of work of and the procedure for selection
of a financial advisor.
On June 18, 1999, by written consent, the Board of Directors formally
authorized the activities of the Special Committee and fixed the compensation of
the members of the Special Committee. The resolutions authorized the Special
Committee to consider the proposal submitted by the Buyout Group and authorized
the Special Committee to discuss or negotiate a possible transaction with the
Buyout Group or third parties, provide confidential or other information to such
third parties, and recommend that an agreement be, or not be, entered into by
the Company with the Buyout Group or a third party, with respect to a
transaction proposal offered to the Company by any party, including management.
On June 21, 1999, the Company, at the direction of the Special Committee,
issued a press release announcing the offer of the Buyout Group to acquire all
of the outstanding shares of stock of the Company at $5.25 per share, and the
appointment of the Special Committee. The closing price of the Company's stock
on the American Stock Exchange on the prior business day was $4.125.
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In the last week of June and the first week of July, the Special Committee
met a number of times to identify and interview investment banking firms that
might serve as financial advisor to the Special Committee.
On July 6, 1999, as part of the process of interviewing investment banking
firms, the Special Committee met with representatives of Baum, who provided a
detailed oral report to the Special Committee of its previous efforts to locate
a buyer for Crouse. Baum reported that it had contacted seven potential buyers,
including trucking and transportation companies and financial buyers. Baum
reported that none of the potential buyers expressed interest in submitting a
proposal to acquire Crouse.
On July 6, 1999, after contacting approximately eighteen investment banking
firms regarding their interest in advising the Special Committee and
interviewing six such investment banking firms, the Special Committee decided to
engage William Blair to act as its financial advisor, subject to negotiation of
an acceptable engagement letter. The Special Committee decided to retain William
Blair based upon its experience and expertise in matters similar to the
transaction proposed by the Buyout Group, its ability to actively market the
Company if requested by the Special Committee and the proposed terms of its
engagement.
On July 9, 1999, the Special Committee met to further review the terms of
the engagement proposed by William Blair, and authorized Mr. Hill and Morrison &
Hecker to negotiate the same.
On July 15, 1999, the Special Committee entered into an engagement letter
with William Blair pursuant to which William Blair was engaged as financial
advisor to the Special Committee, to assist the Special Committee in
negotiations with the Buyout Group and any third party submitting a bid to
acquire the Company, to market the Company or its subsidiaries to potential
buyers upon the request of the Special Committee and, if necessary, to deliver
an opinion as to the fairness, from a financial point of view, of the
consideration offered in a proposed transaction.
On July 16, 1999, the Company, upon the request of the Special Committee,
terminated the engagement of Baum and issued a press release announcing the
engagement of William Blair to act as financial advisor to the Special
Committee.
During the period from July 17, 1999 through August 16, 1999, William
Blair, among other things, reviewed financial and other information concerning
the Company and its subsidiaries. Mr. O'Neil and the other members of management
were informed that William Blair had been engaged by the Special Committee as a
financial advisor on the proposed transaction or any alternative thereto. On
July 22, 1999, representatives of William Blair visited the Company's offices
and met with members of management of the Company and its subsidiaries in order
to obtain an understanding of the operating enterprises and management's view on
the future for such operations. Representatives of William Blair also met with
Mr. O'Neil in his capacity as President and Chief Executive Officer of the
Company to obtain his view of the enterprises and their prospects.
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On July 22, 1999, Morrison & Hecker received a call from a person who
indicated that he and others might have an interest in acquiring the stock of
the Company. As described below, the person submitted a written bid to acquire
the Company on August 13, 1999
On July 23, 1999, Morrison & Hecker received a call from a person who
indicated that he might have an interest in acquiring the premium finance
business of the Company. The caller advised William Blair that he was in the
process of raising a fund for acquisitions. The caller did not indicate a price
at which it would acquire the premium finance business of the Company. The fund
did not then exist, and the caller did not pursue the matter.
On July 27, 1999, William Blair received a letter from an agent for a
wholly-owned subsidiary of a bank expressing a preliminary indication of
interest in acquiring the premium finance business of the Company. The caller
did not indicate a price at which it would acquire the premium finance business
of the Company. William Blair advised that the Special Committee preferred to
consider the sale of the entire Company. The Special Committee preferred to sell
the entire Company because the sale of a portion would have reduced the size of
the Company and thereby exacerbated the burden of the Company's public company
costs. The Special Committee also preferred to sell the entire Company in a
single transaction in order to simplify the transaction, maximize the certainty
that immediate value would be paid to stockholders, and limit the Company's
expenses in the transaction. Nothing more was heard from this caller.
On July 27, 1999, the Special Committee met to consider developments and
the status of the work being performed by William Blair. The Chairman reported
to the Special Committee on the execution of the engagement letter with William
Blair and the meetings between representatives of William Blair and management.
The Chairman also reported on contacts that had been received from potential
bidders.
On July 27, 1999, Morrison & Hecker received a written proposal from
Appalachian Company ("Appalachian") to acquire all of the outstanding stock of
the Company for $7.00 per share in cash, subject to completion of satisfactory
due diligence, stockholder approval (if necessary), compliance with any
applicable provisions of the Company's stockholder rights plan, obtaining
financing on acceptable terms, preparation and execution of definitive
agreements and other customary conditions. The proposal included a letter from a
bank stating that a certain partnership, identified as a sister partnership, had
the ability to purchase assets up to "the low nine (9) figures" and could obtain
from the bank a line of credit in "the mid eight (8) figures."
On August 13, 1999, William Blair received a telephone call from Shell
Ridge Capital Partners ("Shell Ridge") expressing a preliminary indication of
interest in acquiring the premium finance business of the Company. William Blair
advised that the Special Committee preferred to consider the sale of the entire
Company. The caller expressed a willingness to explore a proposal for the entire
Company.
As a follow-up to the call of July 22, 1999, on August 13, 1999, Morrison
& Hecker received a written proposal from Crescendo Capital ("Crescendo") to
acquire all of the outstanding stock of the Company for $6.00 to $6.50 per share
in cash, subject to completion of
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satisfactory due diligence, stockholder approval, compliance with any applicable
provisions of the Company's stockholder rights plan, obtaining financing on
acceptable terms, preparation and execution of definitive agreements and other
customary conditions.
On August 16, 1999, the Special Committee held a meeting at which
representatives of William Blair presented the preliminary conclusions of their
valuation analysis. The preliminary valuation analysis performed by William
Blair consisted of a discounted cash flow analysis, comparable company analysis
and comparable transaction analysis along the lines described in "SPECIAL
FACTORS - Opinion of Financial Advisor to the Special Committee." The
representatives of William Blair indicated that, based on the information that
they had received to date, and based upon the existence of competing proposals
at potentially higher valuations than offered by the Buyout Group, they
considered it appropriate to pursue discussions with third parties. The Special
Committee determined to proceed on this basis.
On August 19, 1999, the Special Committee received a signed confidentiality
agreement of Crescendo. On August 20, 1999, Crescendo was provided certain
information regarding the Company and was requested to submit a preliminary
indication of interest by September 3, 1999 in order to qualify Crescendo for
further due diligence at the Company's offices.
On August 24, 1999, the Special Committee received a signed confidentiality
agreement of Shell Ridge. On August 25, 1999, Shell Ridge was provided certain
information regarding the Company and was requested to submit a preliminary
indication of interest by September 10, 1999 in order to qualify Shell Ridge for
further due diligence at the Company's offices.
On August 30, 1999, a representative of Blackwell Sanders requested a
meeting with a representative of Morrison & Hecker. At the meeting held on the
same day, the representative of Blackwell Sanders presented to Morrison & Hecker
a draft of a proposed Agreement and Plan of Merger governing the transaction
proposed by the Buyout Group. Except as otherwise discussed in the remainder of
this Proxy Statement, the terms of this proposed agreement were the same as
those contained in the final Agreement and Plan of Merger executed on October
19, 1999.
On September 2, 1999, after extensive negotiation, the Special Committee
received a signed confidentiality agreement of Appalachian. On September 2,
1999, Appalachian was provided certain information regarding the Company and was
requested to submit a preliminary indication of interest by September 10, 1999
in order to qualify Appalachian for further due diligence at the Company's
offices.
On September 3, 1999, Crescendo submitted a preliminary, non-binding
indication of interest regarding an acquisition of the Company for an aggregate
purchase price ranging from $19.0 - $21.5 million (or approximately $5.90 to
$6.70 per share), and requested a period of exclusivity in which to complete due
diligence and prepare definitive documents. The request for exclusivity was
declined.
On September 10, 1999, the Special Committee held a meeting to review the
status of the bidding process. Blair informed the Special Committee that Shell
Ridge had requested additional time to respond and that Appalachian had
indicated that it would rely upon its initial
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letter as its preliminary indication of interest. In order to permit all
potential bidders to complete due diligence and in order to bring the process to
a close, the Special Committee directed William Blair and Morrison & Hecker to
advise all interested bidders that further due diligence could be conducted
between September 13 and September 30 and that firm proposals had to be
submitted by October 1, 1999. Mr. O'Neil was contacted by phone later that day.
As a result of this call, the Buyout Group formally learned for the first time
that other parties were expressing interest in making a competing offer for the
Company.
On September 10, 1999, representatives of Morrison & Hecker called Mr.
O'Neil and a representative of Blackwell Sanders to inform them of the Special
Committee's determination to require definitive bids and to inquire about the
availability of management for due diligence visits by third parties. Later that
day, a representative of Blackwell Sanders called a representative of Morrison &
Hecker and requested that the Buyout Group be given the right to match any bid
received by the Special Committee from any third-party bidder that was higher
than the bid submitted by the Buyout Group. The representative of Morrison &
Hecker informed William Blair and the Chairman of the Special Committee of the
request by the Buyout Group. The request was rejected. It was believed that
granting such a matching right to one bidder would discourage other bidders from
participating in the bidding process established by the Special Committee.
On September 13 and 14, 1999, letters were sent to Crescendo, Shell Ridge,
Appalachian and the Buyout Group informing them that further due diligence could
be conducted between September 13 and September 30 and that a firm written
proposal to acquire the Company should be submitted to the Special Committee no
later than 5:00 p.m., Central time, on October 1, 1999.
From September 14 to September 22, 1999, representatives of Crescendo and
Appalachian reviewed additional due diligence information at the Company's
offices, and interviewed management.
On September 17, 1999, Shell Ridge advised that it would not be submitting
a bid to acquire the Company. Shell Ridge indicated that it was only interested
in the premium finance business and would consider combining a bid with any
party desiring to acquire the Company's trucking business, if such a bidder
appeared.
On October 1, 1999, the Special Committee received proposals from
Appalachian, Crescendo and the Buyout Group, as follows.
a. Appalachian submitted a bid "...to pay in cash $7.00 per share for
3,251,195 shares deemed to constitute all Company shares outstanding,
adjusted down for the net cost of options for stock exercised,
adjusted down for the net cost of employees who exercise their options
to quit upon change of control, adjusted down for losses incurred
after June 30, 1999 to date of closing, adjusted up for increases in
equity after June 30, 1999 to date of closing, and adjusted up or down
for balance sheet changes negotiated in the definitive agreement for
the purchase." The bid further required that the Company's income
statements and balance sheet be audited as of closing to determine the
adjustments to the
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purchase price. The bid did not include the financing commitment
requested by the Special Committee.
b. Crescendo stated that, based upon due diligence conducted over the
previous several weeks, it was not in a position to submit a proposal
consistent with the indication of interest previously submitted by it.
Crescendo submitted a bid for the premium finance receivables of UPAC
for a cash price equal to the face value thereof, net of loan reserves
and accounts payable to agents, plus a premium of $3 million.
Crescendo stated its belief that the bid would result in a purchase
price of approximately $18 million for such assets of UPAC. The bid
did not include the assumption of UPAC's liabilities and did not
address the potential costs of liquidating UPAC.
c. The Buyout Group bid $5.75 per share in cash for all of the
outstanding shares of stock of the Company not beneficially owned by
it. The bid stated that the Buyout Group would require a break-up fee
of $750,000 and expense reimbursement up to $250,000 in the definitive
agreement, to be paid in the event the Company engaged in a
transaction with another bidder after signing a definitive agreement.
The bid included a financing commitment as requested by the Company.
The bid also included a second proposed definitive merger agreement
which had been revised to reflect the new price and to include the
specific amounts for the break-up fee and expense reimbursement.
On October 4, 1999, the Special Committee met to consider the bids
submitted to the Special Committee. Representatives of Morrison & Hecker were
present at the meeting and representatives of William Blair participated by
telephone. The Special Committee made the following determinations with respect
to each bid.
a. The Special Committee analyzed the bid of Appalachian to acquire all
of the outstanding shares for cash of $7.00 per share, subject to a
number of adjustments. The Special Committee found that the request
for closing adjustments was problematic in connection with a tender
offer for shares of, or a merger with, a public company. The Company
noted that the adjustment for "the net cost of employees who exercise
their options to quit upon change of control" misread the Company's
change in control severance agreements, which permit severance only if
the Company takes certain actions upon a change in control. Because of
the uncertainty as to the actual amount of closing adjustments
requested, the Special Committee could not precisely determine the
amount offered and did not attempt to value Appalachian's bid. It
appeared from the adjustments requested that the actual offer was
likely substantially less than $7.00 per share. The Special Committee
further noted that the bid did not contain the financing commitment
requested. The Special Committee expressed its concern regarding the
ability of Appalachian to consummate the acquisition of a public
company.
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The Special Committee instructed William Blair to request
Appalachian to submit a fixed-price bid, with no closing
adjustments, on or before 5:00 p.m., on Wednesday, October 6, 1999
and to provide a financing commitment no later than noon on Friday,
October 8, 1999. The Special Committee instructed William Blair to
inform Appalachian of the losses incurred by the Company in the
aggregate amount of $618,000 in July and August, 1999, and to inform
Appalachian to assume that the Company would continue to suffer
losses in equivalent amounts until the end of the calendar year. The
Special Committee further instructed William Blair to inform
Appalachian that no severance payments were required to be paid
pursuant to change-in-control agreements with employees unless
Appalachian terminated or demoted such employees.
b. The Special Committee analyzed the bid presented by Crescendo to
purchase certain assets of UPAC for approximately $18 million. The
Special Committee noted that the bid was to purchase certain assets,
rather than the stock, of UPAC, and that analysis of the bid required
a determination of the liabilities of UPAC not assumed by Crescendo
and the costs of winding down UPAC. The Special Committee estimated
such liabilities and costs at $3 million for purposes of its initial
analysis, and asked counsel for the Special Committee to obtain an
itemization of such liabilities and costs from the Company. The
Special Committee analyzed the sale of the assets of UPAC, together
with each of the following alternatives: (1) liquidation of Crouse and
the remaining assets of the Company, (2) a dividend of the proceeds of
the sale to the shareholders and continuing to operate Crouse, (3)
sale of Crouse to a different buyer and (4) retaining the proceeds of
the sale of assets and continuing to operate Crouse. The Special
Committee did not take into account the industrial technology portion
of the Company's business in considering these alternatives, because
the Special Committee considered the value of this portion of the
Company to be insignificant.
With respect to the first alternative, the liquidation of Crouse,
the Special Committee considered the summary liquidation analysis of
Crouse prepared by William Blair. The liquidation analysis was not
based upon an appraisal of the assets of Crouse and included a number
of assumptions and other information provided by the Company. The
summary analysis included valuation estimates assuming the realization
of certain percentages of the book value of the assets of Crouse upon
liquidation. The liquidation value estimates included payment (net of
taxes) of multi-employer pension liabilities estimated to be in excess
of $5,000,000 and WARN Act payments (net of taxes) to employees
estimated to be in excess of $13,000,000 in connection with the
liquidation, but excluded the costs of liquidation and the repayment
of the Company's bank debt of approximately $15,000,000. The WARN Act
payments consist of compensation and benefits payments to employees of
Crouse for a period of sixty (60) days after cessation of operations
as required under the Worker Adjustment and Retraining Notification
Act, which mandates sixty (60) days notice of a plant closing or mass
layoff. The Special Committee concluded that upon a sale of certain
assets of
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UPAC to Crescendo for a net amount of approximately $15,000,000, the
liquidation of Crouse and repayment of the Company's bank debt of
$15,000,000, the net proceeds to the Company would likely be less than
from the sale of the stock of the Company. Based upon the low-end,
mid-range and high-end valuations provided in the liquidation analysis
of Crouse prepared by William Blair as described above, the Special
Committee estimated that the proceeds to the Company from the
liquidation of Crouse would be $(2,221,911), or $(0.67) per share, at
the low end, $885,560, or $0.27 per share at the mid-range, and
$3,993,032, or $1.21 per share, at the high end. These estimates do
not include the expenses associated with the liquidation of Crouse.
Based upon the high-end estimates, and assuming the receipt of
approximately $15,000,000 from the sale and liquidation of UPAC and
the repayment of $15,000,000 in bank debt, the Special Committee
estimated that the amount available for distribution to stockholders
after the sale of certain assets of UPAC and the liquidation of Crouse
would be less than $1.50 per share. The Special Committee also
considered that the liquidation of Crouse would take a significant
period of time and would involve many risks and uncertainties.
With respect to the second alternative, the dividend of the
proceeds of the sale of assets of UPAC, Morrison & Hecker advised the
Special Committee that such a dividend could cause the Company to
violate the Company's covenants under its loan agreements with Bankers
Trust and BancBoston. The Special Committee also considered that a
dividend of any or all of such proceeds, even if legally permissible,
would likely result in ordinary income to the shareholders, rather
than a capital gain or loss from the sale of the stock of the Company.
The Special Committee further noted that such a dividend would leave a
very small public company with a minimal market capitalization. In
such event, the Company would likely continue to have a limited
institutional following, no research attention from market analysts
and a limited trading market for its shares, and the costs incurred in
being a public company would be higher relative to the Company's
revenues. The Special Committee concluded that this alternative was
not in the best interests of the Company and its stockholders.
The Special Committee considered the third alternative, the sale
of the assets of UPAC and the sale of Crouse to a different buyer. The
Special Committee noted the unsuccessful efforts of Baum to sell
Crouse and considered the fact that Baum was asked not to solicit
certain competitors of Crouse. The Special Committee did not place
great significance on the fact that Baum did not solicit such
competitors, because the Special Committee believed that Crouse as a
regional, unionized less-than-truckload carrier would not be
attractive to most of them, particularly the non-union and national
carriers, and because the Company had publicly announced the bid of
the Buyout Group on June 21, 1999 and the retention of William Blair
on July 16, 1999 and had received only the indications of interest
described in this Proxy Statement prior to execution of the Merger
Agreement. The Special Committee noted that it had not received any
inquiries from third parties to purchase Crouse . The Special
Committee concluded that it
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would be extremely difficult to find a buyer for a regional,
unionized, less-than-truckload carrier such as Crouse. The Special
Committee did not offer to sell Crouse separately to Appalachian,
because Appalachian had already submitted a bid to acquire the entire
Company and had indicated a willingness to acquire the entire Company.
The Special Committee concluded that the transaction would be simpler,
stockholders would receive payment earlier and the Company would incur
lower expenses if the entire Company were sold in a single
transaction. The Special Committee concluded that the best course was
to inform Appalachian that certain assets of UPAC could be sold for
$18 million and to ask Appalachian to reconsider its bid in light of
this information.
The Special Committee considered the fourth alternative, selling
the assets of UPAC to Crescendo, retaining the proceeds and continuing
to operate Crouse and the remaining businesses of the Company. The
Special Committee concluded that it was unlikely that the conversion
of the operations of UPAC to cash would improve the results of
operations or prospects of the Company or cause the Company to be more
attractive to investors. The Special Committee noted that upon the
sale of UPAC, the Company would remain a very small public company ,
with no research attention from market analysts and a limited trading
market for its shares. The Special Committee also considered the
prospects of Crouse, including the competitive disadvantages suffered
by Crouse as a unionized, regional less-than-truckload motor carrier
in competing with national and regional union and non-union carriers.
The Special Committee determined this would not be the best
alternative for the Company and its stockholders.
The Special Committee instructed William Blair to ask the
representatives of Crescendo whether it would submit a bid for the
stock of UPAC. The Special Committee further instructed William Blair
to inform representatives of Appalachian that certain assets of UPAC
could be sold for approximately $18 million and to ask Appalachian to
reconsider its bid in light of this information.
c. With respect to the bid by the Buyout Group to acquire outstanding
shares for cash of $5.75 per share, the Special Committee determined
that the bid provided all of the information requested by the Special
Committee. In considering all of the bids, the Special Committee
considered whether to request that any transaction be conducted as a
tender offer followed by a merger, rather than as a merger. The
Special Committee considered the possible advantages of a tender offer
to be that: (1) stockholders wishing to tender their shares would be
paid for their shares sooner in a tender offer than if such
stockholders were required to wait for completion of a merger, (2) the
acquisition could be completed more quickly if 90% or more of the
outstanding shares of Common Stock were tendered in the tender offer,
because the bidder could immediately complete the acquisition by
approving a short-form merger without holding a stockholders' meeting
and (3) the transaction would be more likely to occur if a majority of
shares were tendered in the tender offer, because the bidder would own
sufficient shares to approve the merger at a stockholders' meeting and
there would be fewer
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conditions to the completion of the merger. The Special Committee
considered the possible disadvantages of the tender offer to be that a
bidder might submit a lower bid to cover the costs of the tender offer
and that there could be less time after announcement of a definitive
agreement for competing bidders to submit bids for the Company. The
Special Committee decided that it would request that bidders wishing
to acquire the entire Company conduct a tender offer as part of the
bidding process, but that it would not require that a tender offer be
conducted if an otherwise favorable transaction was negotiated. The
Special Committee requested that Morrison & Hecker review and prepare
required revisions to the proposed definitive merger agreement
presented by the Buyout Group, including changes which might be
required to provide for a tender offer.
After the Special Committee meeting, on October 4, 1999, William Blair
called a representative of Crescendo to request a bid for all of the stock of
UPAC, advised Appalachian of the request for a revised bid and a financing
commitment and provided the information described above to Appalachian.
On October 7, 1999, Appalachian provided a revised bid as follows: "[I]f
there is no material change in the audited final balance sheet from the June 30,
1999 balance sheet other than the impact of the exercise of options at about
$184,394, losses to date through August of $618,000 plus about $300,000 per
period between August and year end, and we can acquire the stock and take
control December 31, 1999, we would offer $20 million for all the stock of TFH,
including the in-the-money options stock." The bid further provided, "It would
be necessary to have the audited balance sheet and income statement for the
determination of material variances beyond those accepted herein, an acceptable
binding definitive agreement, and an acceptable lending source."
On October 7, 1999, Morrison & Hecker provided to Blackwell Sanders a
revised definitive merger agreement, which included revisions required if the
Buyout Group conducted a tender offer as part of a merger transaction. These
revisions were later abandoned.
On October 8, 1999, a representative of Appalachian informed William Blair
in a telephone conversation that Appalachian would require approximately a month
to obtain a financing commitment. William Blair was also told that Appalachian's
principal would not be available for several days to consider a change in its
offer. The representative of Appalachian requested that the Company rely upon
the letter from a bank previously provided to the effect that a sister
partnership of Appalachian had borrowing capacity in "the mid-eight (8)
figures."
On October 8, 1999, the Special Committee held a meeting to discuss the
revised proposal from Appalachian and other developments. Representatives of
Morrison & Hecker were present and representatives of William Blair participated
by telephone. The Special Committee, with the assistance of William Blair,
determined that the $20 million bid from Appalachian offered consideration of
approximately $6.02 per share if no other adjustments were required. The per
share purchase price was determined by dividing the $20,000,000 bid by the sum
of 3,252,155 outstanding shares of Common Stock and 66,000 shares of Common
Stock issuable upon exercise of outstanding in-the-money stock options. The
Special Committee noted
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that the bid did not satisfy its requirement of a fixed-price bid, because the
bid still required a closing adjustment with an audited income statement and
balance sheet. The Special Committee noted that such an adjustment requirement
in the context of a tender offer or merger involving a public company was
problematic. The Special Committee also concluded that even if a fixed-price bid
could be obtained from Appalachian, it appeared from the language of the bid
that further downward adjustments in the offer price could be required, for
transaction expenses, as an example, which the Special Committee estimated to be
approximately $1 million. The Special Committee's estimate of transaction
expenses included financial advisor fees of approximately $700,000, legal fees
of approximately $150,000, fees of the Special Committee of approximately
$50,000, printing and mailing expenses, SEC filing fees and other miscellaneous
expenses. The Special Committee further concluded that the bank letter provided
by Appalachian was not the equivalent of a financing commitment.
Morrison & Hecker then presented to the Special Committee an estimate from
the Company of the liabilities of UPAC that would not be assumed by Crescendo
and the costs of winding down UPAC. The total of such liabilities and costs were
estimated at $3.7 million. William Blair reported to the Special Committee that
Crescendo had not provided a formal bid for the stock of UPAC, but had orally
stated that, if it were to bid for the stock, its offer would be reduced, dollar
for dollar, for any assumed liabilities and liquidation costs. The Special
Committee confirmed its prior conclusion that the Crescendo offer was not the
best alternative for the Company and its Public Stockholders.
The Special Committee considered whether the Buyout Group would comply with
the funding requirement in its loan commitment, assuming a closing in February
2000, if the losses being suffered by the Company continued until that time. The
Special Committee noted that the Company had suffered aggregate losses of
$618,000 in July and August 1999.
The Special Committee concluded that the best course of action was to
direct William Blair to contact representatives of the Buyout Group, inform them
that the Company had received a competitive bid and that to compete further the
Buyout Group would need to submit a bid for in excess of $6.00 per share, with a
total break-up fee and expense reimbursement amount of not more than $500,000.
On October 11, 1999, William Blair spoke with Mr. O'Neil of the Buyout
Group and relayed the foregoing instructions.
On October 12, 1999, the Buyout Group submitted a revised written
proposal, providing for (a) a cash purchase price of $6.00 per share for the
outstanding shares of stock of the Company, and (b) a break-up fee of $500,000
and expense reimbursement of up to $200,000. Later that day, the Buyout Group,
after being reminded by William Blair that the Special Committee had instructed
that any bid be in excess of $6.00 per share, raised its bid to $6.03 per share,
with additional payments to holders of stock options.
Between October 13, 1999 and October 19, 1999, representatives of Morrison
& Hecker met with representatives of Blackwell Sanders and members of the Buyout
Group to discuss the draft of the merger agreement that was submitted with the
Buyout Group's October 1 bid. That
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draft was initially revised to reflect the increased price and reduced break-up
fee specified in the October 12 offer. Then, over the course of the one week
period, the negotiating parties agreed to make several changes to the agreement
requested by the Special Committee and Morrison & Hecker. It was agreed that
COLA Acquisitions would commit in the Merger Agreement to maintain directors and
officers insurance policies after the Merger. It was also agreed that the amount
to be paid to holders of options with exercise prices above $6.03 would be
specified in the agreement as $0.20 per option share. Representations and
warranties on the part of COLA Acquisitions were also added to the Merger
Agreement related to the Financing, the solvency of the Surviving Corporation,
COLA Acquisitions' belief in the accuracy of the Company's representations and
warranties and COLA Acquisitions' ownership of Company stock. In connection with
the last representation and warranty, Mr. Laborde agreed, at the request of the
Special Committee, to commit to contributing an additional 154,650 shares of
stock to COLA Acquisitions prior to November 30, 1999.
During the discussions between October 13 and October 19, it was also
agreed that certain changes in the termination and break-up fee provisions of
the agreement would be made. The circumstances under which the Special Committee
could terminate the agreement with COLA Acquisitons in order to pursue an
alternative transaction were expanded. Initially, COLA Acquisitions had
attempted to limit such termination to circumstances in which the Special
Committee received an alternative proposal that was " financially superior" to
the transaction with COLA Acquisitions. In the final Merger Agreement, it was
instead stated that the Special Committee could terminate the transaction if it
received an alternative proposal that was generally "more favorable" to Company
stockholders than the COLA Merger.
As a final change to the Merger Agreement made in the period between
October 13 and October 19, it was agreed, at the request of the Special
Committee, that the instances in which COLA Acquisitions could terminate the
agreement or collect the break-up fee would be limited. It was specified in the
final Merger Agreement that a breach of the agreement by the Company would not
give rise to a right of termination or lead to payment of the break-up fee
unless that breach resulted from the action or inaction of the Special Committee
rather than the conduct of management.
On October 18, 1999, the Special Committee met with representatives of
William Blair and Morrison & Hecker to consider the proposal of the Buyout
Group. William Blair summarized its financial analysis of the Company and
rendered its oral opinion, subsequently confirmed in writing, that, as of such
date, the Merger Consideration of $6.03 per share was fair from a financial
point of view to the stockholders of the Company (other than those stockholders
who are or will become affiliates or stockholders of COLA Acquisitions).
Morrison & Hecker then reviewed with the Special Committee the terms of the
proposed Merger Agreement with COLA Acquisitions and the changes to the Merger
Agreement that had been proposed since the last meeting of the Special
Committee. At the request of the Special Committee, Mr. O'Neil of the Buyout
Group made a presentation to the Special Committee concerning the ability of
COLA Acquisitions to satisfy the initial funding conditions of the Commitment
Letter. Mr. O Neil reported that, (i) LaSalle's field exam had been performed
and that no negative findings had been reported, (ii) the equipment appraisals
had been performed with satisfactory results, (iii) the accounting treatment of
the transaction had been approved by the lender, and (iv) although its
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review was not yet complete, LaSalle was comfortable with the value of UPAC.
After further discussion with its advisors, the Special Committee approved the
offer of the Buyout Group and the terms and conditions of the Merger Agreement,
subject to certain changes. The Special Committee also determined that the
Merger Agreement and the transactions contemplated thereby were fair to and in
the best interests of the Company and its Public Stockholders and determined to
recommend that the Board of Directors approve the proposed Merger Agreement and
the transactions contemplated thereby.
On October 19, 1999, the Board of Directors held a special meeting. All of
the directors were present in person at the meeting. Representatives of William
Blair, Morrison & Hecker and Blackwell Sanders also attended the meeting.
William Blair made a presentation to the Board of Directors reviewing the
analyses William Blair had performed in connection with the rendering of its
opinion, including the assumptions made, the facts upon which this opinion was
based, the methodologies utilized and the relative limits of its analysis. See
"SPECIAL FACTORS - Opinion of Financial Advisor to the Special Committee."
William Blair concluded its presentation by indicating that it had rendered, on
October 18, 1999, its opinion that, as of the date of such opinion, the Merger
Consideration of $6.03 per share was fair from a financial point of view to the
Company's stockholders (other than those stockholders who are or will become
affiliates or stockholders of COLA Acquisitions). Morrison & Hecker then
reviewed with the Board of Directors the terms of the proposed Merger Agreement
with the Buyout Group. Mr. Hill, as Chairman of the Special Committee, then
reported to the Board of Directors the principal grounds upon which the Special
Committee had decided to approve the Merger and recommend it to the Board of
Directors. The Board of Directors then unanimously determined that the Merger
Agreement and the transactions contemplated thereby were fair to and in the best
interests of the Company and its Public Stockholders, approved the Merger
Agreement and the transactions contemplated thereby and resolved to recommend
approval and adoption of the Merger Agreement and the Merger by the stockholders
of the Company.
On October 19, 1999, immediately after the meeting of the Board of
Directors, the Company and COLA Acquisitions executed the Merger Agreement. The
Company then issued a press release announcing that the Company had entered into
the Merger Agreement with COLA Acquisitions.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS; FAIRNESS OF THE
MERGER
The Special Committee, comprised solely of independent directors, has (a)
unanimously determined that the Merger Agreement and the transactions
contemplated thereby are fair to and in the best interests of the Company and
the Public Stockholders (who are all of the unaffiliated security holders in the
Merger), (b) unanimously approved, and recommended that the Board of Directors
should approve, the Merger Agreement and the transactions contemplated thereby,
and (c) subject to the terms of the Merger Agreement, unanimously determined
that the Board of Directors should recommend approval and adoption of the Merger
Agreement and the Merger by the stockholders.
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The Board of Directors, upon the recommendation of the Special Committee,
has (a) unanimously determined that the Merger Agreement and the transactions
contemplated thereby are fair to and in the best interests of the Company and
the Public Stockholders (who are all of the unaffiliated security holders in the
Merger), (b) unanimously approved the Merger Agreement and the transactions
contemplated thereby and (c) subject to the terms of the Merger Agreement,
unanimously resolved to recommend approval and adoption of the Merger Agreement
and the Merger by the stockholders.
Factors Considered by the Special Committee and the Board of Directors.
Special Committee. In reaching its decision to approve and recommend
adoption of the Merger Agreement, the Special Committee considered a number of
factors. The factors considered by the Special Committee which supported their
determination to approve and recommend the Merger Agreement include, among
others, the following:
(1) Highest and Best Proposal. The Special Committee considered that the
cash consideration of $6.03 per Share offered by the Buyout Group for all
of the outstanding shares of stock provided a higher amount of
consideration to stockholders than the offer by Appalachian, which the
Special Committee estimated at a maximum of $6.02 per share, and that
Appalachian's offer required closing adjustments based upon audited income
statements and an audited balance sheet, and was conditioned upon
Appalachian obtaining financing on acceptable terms. The Special Committee
concluded that the closing adjustments required by Appalachian were
problematic in connection with a transaction with a public company. The
Special Committee also considered that the offer by the Buyout Group also
provided higher consideration than the offer by Crescendo to purchase
certain assets of UPAC for approximately $18 million, for the reasons set
forth above under "Background of the Merger," and considered that the
Crescendo offer did not provide for the assumption of liabilities and the
costs of winding down UPAC, the disposition of the remaining assets or
assumption of the remaining liabilities of the Company, including the
Company's outstanding bank debt of approximately $15 million.
(2) Competitive Bidding Process. The Special Committee noted that the
final offer received from the Buyout Group resulted from the competitive
bidding process established by the Special Committee as described in
"Background of the Merger", above. The Special Committee considered the
process to be competitive because each bidder was given equal time to make
a bid. Further, the interest of Crescendo and Appalachian was communicated
to the Buyout Group, but the bid price of each bidder was not communicated
to the others. The Special Committee also considered that no offer
superior to the proposed transaction with the Buyout Group was presented
to the Special Committee since the public announcement of the Buyout
Group's initial proposal on June 21, 1999. Crescendo and Appalachian were
not contacted again by the Special Committee after receipt of the final
offer of $6.03 per share from the Buyout Group because Crescendo had
already indicated it was interested in purchasing only certain assets of
the premium finance unit, and Appalachian had stated that its principal
was not available for several days to consider a change in its offer, a
commitment for financing of
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<PAGE>
its offer would require approximately thirty (30) days, and consummation of
any transaction with Appalachian was thought to be problematic. The Special
Committee believed that the Buyout Group's bid was the only viable bid to
acquire the entire Company at that stage in the bidding process. The
Special Committee believed that the uncertainty of the acquisition process
was damaging the business and results of operations of the Company and that
there was no assurance that Appalachian would ever submit a competitive,
viable bid. The Special Committee decided that it was in the best interests
of the Company and its stockholders to bring the bidding process to a close
by obtaining an increase in the Buyout Group's final bid.
(3) Market Price and Premium. The Special Committee considered that the
$6.03 per share price offered by the Buyout Group represented a premium of
46% over the closing price of the shares on the American Stock Exchange on
June 18, 1999, the last full trading day before the offer of the Buyout
Group was announced.
(4) Fairness Opinion. The Special Committee also considered the financial
presentation of William Blair and William Blair's statement at the October
18, 1999 meeting of the Special Committee (which was confirmed in writing
on October 18, 1999) to the effect that, as of the date of its opinion and
based upon and subject to the matters stated in its opinion, the Merger
Consideration of $6.03 per share was fair to the stockholders of the
Company (other than those stockholders who are or will become affiliates or
stockholders of COLA Acquisitions) from a financial point of view. THE FULL
TEXT OF WILLIAM BLAIR'S WRITTEN OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY
WILLIAM BLAIR, IS ATTACHED HERETO AS ANNEX B AND INCORPORATED BY REFERENCE
HEREIN IN ITS ENTIRETY. STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE
OPINION OF WILLIAM BLAIR CAREFULLY.
(5) Transaction Structure. The Special Committee also evaluated the
benefits of the transaction being structured as a one-step merger,
providing considerable time for Appalachian, Crescendo or any other
interested third party to prepare and present an acquisition proposal for
the Company. In a merger transaction, potential competing bidders often
have approximately three months between the date of the announcement of the
merger agreement and the date of the stockholders' meeting to submit
competing bids. If a tender offer were conducted, competing bidders might
have only twenty business days after announcement of the definitive
agreement to submit competing bids.
(6) Role of the Special Committee and Negotiations. The Special Committee
considered that the Merger Agreement and the transactions contemplated
thereby were the product of negotiations between the Buyout Group and the
Special Committee, none of whose members were employed by or affiliated
with the Company (except as directors) or affiliated with the Buyout Group.
The Special Committee was advised during the negotiations by legal counsel
and financial advisors who negotiated on behalf of the Special Committee,
assisted the Special Committee in evaluating proposed transactions and
provided the Special Committee with legal and financial advice.
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(7) Stockholder Vote. The Special Committee also considered that approval
and adoption of the Merger Agreement would require the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock.
(8) Financial Performance and Prospects. The Special Committee considered
its familiarity with the Company's business, financial condition, results
of operations and the nature of the industries in which the Company
operates, including the prospects of the Company if it were to remain an
independent public company. In considering the value of the Company if it
were to remain independent and publicly owned, the Special Committee
considered its financial performance and prospects, the limited trading
of its stock, that it had no institutional following or research attention
from analysts, that it had higher than average public company costs (as a
percentage of revenue) than larger companies, and reports and valuation
ranges prepared by William Blair as to relative stock performance of small,
mid and large cap companies, and discounted cash flow and comparable
company analyses. The discounted cash flow value range was $4.24 per share
to $14.13 per share, and the comparable company value range was $2.10 per
share to $8.85 per share. See "SPECIAL FACTORS - Opinion of Financial
Advisor to the Special Committee." The Special Committee also considered
the financial projections as prepared by the Company's management in
November 1998, and the extent to which the Company had failed to meet the
projections through August 31, 1999. In considering the projections, the
Special Committee considered that the discounted cash flow analysis
performed by William Blair applied a range of financial performance
scenarios that reflected the Company's historical actual results relative
to its historical forecasts. See "SPECIAL FACTORS - Opinion of Financial
Advisor to the Special Committee." The Special Committee considered the
losses suffered by the Company in the aggregate amount of $618,000 for the
months of July and August 1999. The Special Committee's evaluation included
consideration of the competitive disadvantages suffered by Crouse as a
unionized, regional less-than-truckload motor carrier in competing with
national and regional union and non-union carriers.
(9) Liquidity of Common Stock. The Special Committee also took into account
the existence of a limited trading market for the shares, the lack of
liquidity of the shares and that a substantial number of shares were held
by a few stockholders. The Special Committee believes that the Company's
larger stockholders are able to sell their holdings in the market only at
prices significantly below the price per share offered by the Buyout Group.
The Special Committee considered that the Company has a small market
capitalization, approximately $13.4 million as of June 18, 1999, has a
limited institutional following and receives no research attention from
market analysts.
(10) Attempted Sale of Crouse. The Special Committee took into account the
inability of Baum to find a potential buyer for Crouse and also considered
that Baum did not market Crouse to certain of its competitors. The Special
Committee considered the failure of Baum to locate a buyer for Crouse as
further evidence that it would be difficult to find a buyer for Crouse. The
Special Committee did not place great significance on the fact that Baum
did not solicit certain competitors, because the Special Committee
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believed that Crouse as a regional, unionized less-than-truckload carrier
would not be attractive to those competitors, particularly the non-union
and national carriers, and because the Company had publicly announced the
bid of the Buyout Group on June 21, 1999 and the retention of William Blair
on July 16, 1999 and had received only the indications of interest
described in this Proxy Statement prior to execution of the Merger
Agreement.
(11) Third Party Proposals. The Special Committee also considered that the
terms of the Merger Agreement allow the Special Committee and the Board of
Directors, if required by their fiduciary duties, to withdraw their
recommendation of the Merger, and accept an acquisition proposal which is
more favorable to the stockholders, upon payment of a break-up fee of
$500,000 plus expenses to COLA Acquisitions.
(12) Availability of Dissenters' Rights. The Special Committee considered
that dissenters' rights of appraisal will be available to the holders of
shares under Delaware law.
(13) Public Company Costs. The Special Committee considered that costs
imposed upon the Company by its public ownership were disproportionate to
its size.
In addition to the foregoing positive factors which supported the
determination of the Special Committee to approve and recommend the Merger
Agreement, the Special Committee considered the following negative factors,
which the Special Committee viewed as insufficient to outweigh the positive
factors:
(1) No Continuing Interest in the Company. If the Merger is consummated,
the Public Stockholders would no longer have an equity interest in the
Company and would not participate in any potential earnings and growth of
the Company.
(2) Conflicts of Interest. Certain officers and directors of the Company
have potential and actual conflicts of interest in connection with the
proposed Merger. See "SPECIAL FACTORS - Interests of Certain Persons in the
Merger."
(3) Taxable Transaction. The Merger may be a taxable event for most of the
Public Stockholders. See "SPECIAL FACTORS - Material Federal Income Tax
Consequences of the Merger."
(4) Financing Condition. COLA Acquisitions' obligation to consummate the
Merger is subject to the condition that COLA Acquisitions obtains the
financing for the Merger described in the Commitment Letter or other
financing not more onerous to the Buyout Group. See "SPECIAL FACTORS -
Financing of the Merger."
In considering the offer of the Buyout Group, the Special Committee
considered continuing to operate the Company as a going concern. Based upon the
Special Committee's consideration of the financial performance and prospects of
the Company, the analyses of value prepared by William Blair, the limited
liquidity in the Company's stock and the other factors
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described above, the Special Committee concluded that the sale of the Company to
the Buyout Group rather than continuing as a going concern was in the best
interests of the Company and its stockholders.
The Special Committee did not consider selling Crouse separately and
continuing to operate the remaining businesses. The Special Committee did not
seek and never received a bid to acquire Crouse separately. The Special
Committee does not believe that it could sell Crouse separately upon reasonable
terms for the following reasons: (a) the Special Committee never received a
viable bid in a proper form from Appalachian for the Company or any portion of
the Company, (b) Baum was unsuccessful in locating a buyer for Crouse, (c) even
though Baum did not solicit certain competitors of Crouse, the Special Committee
believes that Crouse as a regional, unionized less-than-truckload motor carrier
would not be attractive to most if not all of its competitors, particularly the
non-union and national carriers, and (d) the Company publicly announced the bid
of the Buyout Group on June 21, 1999 and the retention of William Blair on July
16, 1999 and received only the indications of interest described in this Proxy
Statement prior to execution of the Merger Agreement. Even if the Special
Committee were able to locate a buyer for Crouse, the remaining company would be
a very small public company, with a limited institutional following, no research
attention from market analysts and a limited trading market for its shares, and
the costs incurred in being a public company would be higher relative to the
Company's revenues.
The Special Committee considered a liquidation analysis of Crouse prepared
by William Blair in evaluating the offer of Crescendo to acquire certain assets
of UPAC. As described above under "SPECIAL FACTORS - Background of the Merger,"
the Special Committee estimated that the amount available for distribution to
stockholders after the sale of certain assets of UPAC and the liquidation of
Crouse would be less than $1.50 per share.
The Special Committee did not give significant weight to the book value
per share of the Company (which was $14.44 per share at September 30, 1999),
because the Special Committee believed that liquidation value provided a better
measure of the realizable value of the assets of the Company upon any sale of
the assets and liquidation of the Company.
The Special Committee did not give significant weight to the historical
prices of the Company stock or to the prices at which the Company had
repurchased shares, including the repurchase of 2,115,422 shares for total
consideration of $9.25 per share from the Crouse family and TJS in September and
December 1998 and the repurchase of 683,241 shares of Common Stock in the open
market and in privately negotiated transactions from February - April 1999 at an
average purchase price of $3.81 per share. The Special Committee believed that
the results of the competitive bidding process, the analyses of value prepared
by William Blair and the other factors described above provided a better
indication of the current value of the Company than the prior repurchases of
stock by the Company.
The Special Committee did not assign relative weight to the above factors
or determine that any factor was of particular importance. Rather, the Special
Committee viewed this position and its recommendations as being based on the
totality of the information presented to it and
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<PAGE>
considered by it. In addition, it is possible that different members of the
Special Committee assigned different weights to the various factors described
above.
Board of Directors of the Company. In reaching its determination referred
to above, the Board of Directors considered and relied upon the conclusions and
recommendations of the Special Committee, the unanimous approval of the Merger
Agreement and the Merger by the Special Committee the considerations referred to
above as having been taken into account by the Special Committee and the opinion
of William Blair to the Board of Directors that, as of the date of such opinion,
based upon and subject to various considerations, assumptions and limitations
stated therein, the $6.03 per share in cash to be received in the Merger was
fair to stockholders of the Company (other than those stockholders who are or
will become affiliates or stockholders of COLA Acquisitions) from a financial
point of view.
The Board of Directors did not assign relative weight to the above factors
or determine that any factor was of particular importance. Rather, the Board of
Directors viewed this position and its recommendations as being based on the
totality of the information presented to it and considered by it. In addition,
it is possible that different members of the Board of Directors assigned
different weights to the various factors described above.
The Board of Directors believes that the Merger is procedurally fair
because, among other things: (i) the Special Committee consisted of independent
directors appointed by the Board of Directors to represent solely the interests
of the Company's stockholders other than the Buyout Group; (ii) the Special
Committee retained and was advised by legal counsel who (though counsel to the
Company) negotiated on behalf of the Special Committee; (iii) the Special
Committee retained and was advised by its own financial advisor to assist it in
evaluating the proposed transaction and received financial advice from its
financial advisor; and (iv) the $6.03 per share cash purchase price and the
other terms and conditions of the Merger Agreement resulted from active
bargaining between the Special Committee and the Buyout Group and their
respective advisors. The Board of Directors believes that sufficient procedural
safeguards to ensure fairness of the transaction and to permit the Special
Committee to effectively represent the interest of the Public Stockholders were
present, and therefore there was no need to retain any additional unaffiliated
representative to act on behalf of the holders of the Company's Common Stock in
view of (i) the unaffiliated status of the members of the Special Committee
whose sole purpose was to represent the interests of the Public Stockholders,
and retention by the Special Committee of legal counsel and financial advisors,
and (ii) the Special Committee, even though consisting of directors of the
Company and therefore not completely unaffiliated with the Company, is a
mechanism well recognized under Delaware law to ensure fairness in transactions
of this type. The Merger was not structured so that approval of a majority of
unaffiliated stockholders is required. The Special Committee did not require
such approval as a condition to entering into the Merger Agreement, because the
Buyout Group owns approximately 9.2% of the outstanding shares, and a
substantial percentage of the shares held by the Public Stockholders must be
voted in favor of the Merger in order for the Merger to be approved by the
stockholders.
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE MERGER IS FAIR TO
AND IN THE BEST INTERSTS OF THE COMPANY AND THE PUBLIC STOCKHOLDERS AND, UPON
THE UNANIMOUS RECOMMENDATION OF
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THE SPECIAL COMMITTEE, UNANIMOUSLY RECOMMENDS APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT, AND THE TRANSACTIONS CONTEMPLATED THEREBY TO THE COMPANY'S
STOCKHOLDERS.
THE BUYOUT GROUP'S PURPOSE AND REASON FOR THE MERGER
The Buyout Group's purpose for engaging in the transactions contemplated
by the Merger Agreement is to acquire 100% ownership of the Company in a
transaction in which the Public Stockholders would be entitled to have their
equity interest in the Company extinguished in exchange for cash in the amount
of $6.03 per share. Although Buyout Group members' initial evaluation of the
public company value as an ongoing enterprise was less than $5 per share, they
consider its value as a private company to be greater to the extent certain of
the costs associated with being public can be eliminated. Such cost reductions
are estimated to exceed $650,000 per year. Members of the Buyout Group believe
that such an acquisition is an attractive investment opportunity at this time
based upon, among other things, the ability of the Buyout Group to eliminate
certain costs associated with the public enterprise, the past performance of the
Company and its future business prospects. The reduction in the public company
costs will significantly offset the increase in debt service costs associated
with the acquisition. However, these incremental debt service costs create a
higher level of financial risk than has previously existed at the Company. The
Buyout Group also believes that this transaction eliminates the inability of
many stockholders to sell their stock. The determination to proceed with the
acquisition at this time would also, in the view of the Buyout Group, afford the
Company's stockholders an opportunity to dispose of their shares at a premium
over market prices existing prior to announcement of the buyout. In addition,
the Buyout Group noted that causing the Company to be closely held, and
therefore no longer required to file periodic reports with the SEC, would enable
management to focus to a greater degree on the creation of long term value by
reducing management's commitment of resources with respect to procedural and
compliance requirements of a public company, provide the Buyout Group with
flexibility in dealing with the assets of the Company, and reduce costs
associated with the Company's obligations and reporting requirements under the
securities laws (for example, as a privately held entity, the Company would no
longer be required to file quarterly and annual reports with the SEC or publish
and distribute to its stockholders annual reports and proxy statements), which
the members of the Buyout Group anticipate could result in savings of
approximately $650,000 per year. The transactions contemplated by the Merger
Agreement, however, will involve a substantial risk to the Buyout Group because
of the large amount of indebtedness to be incurred in connection with the
consummation of the Merger. See "SPECIAL FACTORS - Financing of the Merger."
Though other alternative methods for accomplishing the Buyout Group's
purpose, such as a tender offer, existed and were considered, the acquisition of
the entire equity interest in the Company was structured as a cash merger to
accomplish the acquisition in a single step, without the necessity of financing
separate purchases of shares in a tender offer or in open market purchases while
at the same time not materially disrupting the Company's operations. The Buyout
Group also preferred a cash merger because it allowed preservation of the tax
basis of the Company's assets and of net operating loss carryovers.
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The Buyout Group has concluded that the Merger, including the Merger
Consideration of $6.03 per share in cash and the terms and conditions of the
Merger Agreement, are fair to the Company and the Public Stockholders (who are
all of the unaffiliated security holders in the Merger) based upon the
considerations referred to above as having been taken into account by the
Special Committee and Board of Directors. See "SPECIAL FACTORS - Recommendation
of the Special Committee and Board of Directors; Fairness of the Merger" and
"SPECIAL FACTORS - Opinion of Financial Advisor to the Special Committee."
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
William Blair acted as exclusive financial advisor to the Special
Committee in connection with the Merger and has assisted the Special Committee
in its examination of the fairness, from a financial point of view, of the
consideration to be received by the Company's stockholders (other than those
stockholders who are or will become affiliates or stockholders of COLA
Acquisitions) in the Merger ("Merger Consideration"). William Blair has been
engaged in the investment banking business since 1935. It undertakes the
valuation of investment securities in connection with public offerings, private
placements, business combinations, estate and gift tax valuations and similar
transactions.
William Blair delivered its written opinion to the Special Committee and
Board of Directors that, as of October 18, 1999, the Merger Consideration was
fair, from a financial point of view, to the stockholders of the Company (other
than those stockholders who are or will become affiliates or stockholders of
COLA Acquisitions). The full text of the written opinion of William Blair
setting forth the assumptions made, procedures followed, matters considered, and
limitation on and scope of the review by William Blair in rendering its opinion
is attached as Annex B and is incorporated herein by reference. The stockholders
are urged to read this opinion in its entirety. The opinion is directed to the
Special Committee and the Board of Directors and relates solely to the Merger
Consideration and does not constitute a recommendation to any stockholder as to
how such stockholder should vote with respect to the Merger.
In connection with its opinion, William Blair reviewed a draft of the
financial terms and conditions of the Merger Agreement and certain financial and
other information that was publicly available or furnished to William Blair by
the Company, including certain internal financial analysis, financial forecasts,
reports and other information prepared by management of the Company. William
Blair held discussions with members of management of the Company concerning the
Company's historical and current operations, financial conditions and prospects.
In addition, William Blair (i) reviewed the historical market prices and trading
volume of the Common Stock; (ii) reviewed the financial terms, to the extent
publicly available, of selected actual business combinations believed to be
relevant; and (iii) performed such other analyses deemed to be appropriate. In
connection with its engagement, William Blair was requested to hold discussions
with third parties who submitted indications of interest in a possible
acquisition of the Company.
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In rendering its opinion, William Blair assumed the accuracy and
completeness of all such information and did not attempt to verify independently
any of such information, nor did it make or obtain an independent valuation or
appraisal of any of the assets or liabilities of the Company. With respect to
financial forecasts, at the Special Committee's direction, William Blair
reviewed financial forecasts through 2001 prepared by management in November
1998 and was advised that no financial forecasts as of a more recent date were
available. Because the Company's financial performance to the date of the
rendering of the opinion had been lower than the results projected in the
November 1998 financial forecasts, William Blair, with the Special Committee's
consent, assumed that the Company's financial performance would be lower than
anticipated in the financial forecasts. William Blair assumed no responsibility
for, and expressed no view as to, such forecasts or the assumptions on which
they were based. William Blair's opinion related to financial fairness only, and
William Blair expressed no opinion as to the appropriateness of the financial
structure or soundness of the financial condition of the Company subsequent to
the consummation of the Merger. William Blair's opinion is necessarily based
solely upon information available to it and business, market, economic and other
conditions as they existed on, and could be evaluated as of, the date of its
opinion.
William Blair believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all of the facts and analyses, could create a misleading
view of the process underlying its opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. In its analysis, William Blair made assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the Company's control. Any estimates
contained in William Blair's analyses are not necessarily indicative of future
results or actual values, which may be significantly more or less favorable than
such estimates. Estimates of values of companies or assets do not purport to be
appraisals or necessarily reflect the price at which companies or assets may
actually be sold.
In connection with rendering its written opinion and preparing its written
and oral reports to the Company's Special Committee and Board of Directors,
William Blair performed a variety of financial analyses and considered a variety
of factors, including those summarized below. The following is a summary of the
material analyses performed by William Blair.
SUMMARIES OF VALUATION ANALYSES. In connection with its opinion and the
presentation of its opinion to the Special Committee and Board of Directors,
William Blair performed certain valuation analyses, including: (1) a discounted
cash flow analysis; (2) a comparison with comparable publicly traded companies;
(3) an analysis of certain comparable acquisition transactions; and (4) an
acquisition premium analysis. Such analyses are discussed below and such
resulting values are laid out in the following table.
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Low value High value
Analysis per share per share
Discounted Cash Flow Analysis $4.24 $14.13
Comparable Company Analysis $2.10 $8.85
Comparable Acquisition Transaction Analysis $2.49 $8.76
Acquisition Premium Analysis $4.95 $5.36
DISCOUNTED CASH FLOW ANALYSIS. William Blair performed a discounted cash
flow analysis of both the transportation and commercial finance units. These
analyses were initially performed using the sets of financial forecasts prepared
by management in November 1998, using assumed costs of capital between 17.0% and
18.0%. William Blair determined the cost of capital for each unit using the
capital asset pricing model ("CAPM"), which assesses the unit's cost of capital
in relation to a risk-free borrowing rate, an equity-market premium reflective
of small-capitalization companies, and a measure of market risk ("Beta")
reflective of publicly-traded companies in the transportation and commercial
finance industries. William Blair indicated that it performed additional
separate scenarios by adjusting these initial financial forecasts (which were
collectively identified by William Blair as the "management case") for assumed
percentage reductions in revenues and operating margins that were reflective of
the Company's historical actual results relative to its historical forecasted
results. The range utilized for the scenarios and the Company's recent
historical performance versus its projections (identified as the range of its
budget to actual results for its last two fiscal years and the eight months
ended August 31, 1999) are identified below:
Change in
Transportation Unit: Change in Revenues Operating Margins
Scenario Range -4.0% to 0.0% -4.0% to 0.0%
Company Experience -7.67% to +1.18% -4.30% to -0.33%
Commercial Finance Unit:
Scenario Range -10.0% to 0.0% -10.0% to 0.0%
Company Experience -23.49% to +2.55% -11.30% to +1.15%
William Blair then indicated that it developed an estimated range of
discounted cash flow values for each unit that reflected the lowest of the
determined scenarios (the "lower case") and the management case. William Blair
then indicated that it summed the estimated ranges for both the transportation
and commercial finance units and reduced that subtotal by the estimated value of
the Company's non-core operations and consolidated income tax positions to
arrive at an estimated range for the Company on a consolidated basis. The
estimated value of the Company's non-core operations and consolidated income tax
positions represent an estimate, as provided by the Company, of the net asset
values of the Company's industrial technology unit and the holding company
(including $15 million of long-term debt), along with the net cash flow
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impact of the Company's net operating loss carryforwards and alternative minimum
tax credits. The range that William Blair calculated from the above discussed
analysis was $4.24 per share to $14.13 per share. William Blair indicated that
the price offered per share in the Merger was within this estimated range.
COMPARABLE COMPANY ANALYSIS. William Blair compared selected historical and
projected operating information, stock market data and financial ratios for the
Company to selected historical and projected operating information, stock market
data and financial ratios of certain other publicly traded transportation
companies and commercial finance companies. These companies are presented below:
TRANSPORTATION COMPANIES:
Arkansas Best Corporation
Arnold Industries Incorporated
Consolidated Freightways
Roadway Express Incorporated
Yellow Corporation
COMMERCIAL FINANCE COMPANIES:
Actrade International Ltd.
DVI Incorporated
Financial Federal Corporation
First Sierra Financial Corporation
KBK Capital Corporation
LINC Capital Incorporated
Medallion Financial Corporation
Microfinancial Incorporated
Unicapital Corporation
For companies used as comparables to the transportation unit: (i) an
analysis of total value (defined as market capitalization adjusted by adding
long-term debt and subtracting cash and short-term investments) ("Total Value")
to most recent twelve months sales yielded a range of 0.05 times to 0.76 times
sales; (ii) an analysis of Total Value to most recent twelve months earnings
before interest, taxes, depreciation and amortization ("EBITDA") yielded a range
of 1.3 times to 3.7 times EBITDA; (iii) an analysis of current stock prices to
projected calendar 1999 earnings per share yielded a range of 7.6 times to 9.0
times earnings; and (iv) an analysis of current stock prices to projected
calendar 2000 earnings per share yielded a range of 7.0 times to 8.5 times
earnings. For the companies used as comparables to the commercial finance unit:
(i) an analysis of current stock prices to most recent twelve months earnings
per share yielded a range of 3.6 times to 22.8 times earnings; (ii) an analysis
of current stock prices to current tangible book value per share yielded a range
of 0.7 times to 4.8 times tangible book value per share; (iii) an analysis of
current stock prices to projected calendar 1999 earnings per share (such
earnings estimates were obtained from First Call) yielded a range of 7.5 times
to 38.4 times earnings; and (iv) an analysis of current stock prices to
projected calendar 2000 earnings per share (such earnings estimates were
obtained from First Call) yielded a range of 3.7 times to 16.1
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times earnings. For each of the financial ratios discussed above, William Blair
indicated that it assessed an estimated range of values which it considered most
applicable to the Merger based upon the Company's historical and forecasted
operating results relative to the companies included in the analysis. William
Blair then indicated that it multiplied the Company's historical or projected
results, as appropriate, to the relevant estimated range of values and, when
appropriate, subtracted long-ter debt and added cash and short-term investments
to arrive at an indicative range of equity values per share for each financial
ratio for both the transportation and commercial finance units. William Blair
indicated that it considered both the "management case" and the "lower case"
projections in applying the Company's projected results to the relevant 1999 and
2000 earnings multiples. William Blair then indicated that, on a separate basis
for both the transportation and commercial finance units, it determined an
estimated range of equity values per share. William Blair indicated that each of
the determined estimated ranges were adjusted by an assumed merger premium of
25%, which is consistent with the determined relevant range of acquisition
premiums identified in the "Acquisition Premium Analysis" discussion that
follows. William Blair indicated that it summed the adjusted estimated ranges
for both the transportation and commercial finance units and reduced that
subtotal by the estimated value of the Company's non-core operations and
consolidated income tax positions discussed above to arrive at an estimated
range for the Company on a consolidated basis. The range that William Blair
calculated from the above discussed analysis was $2.10 per share to $8.85 per
share. William Blair indicated that the price offered per share in the Merger
was within this estimated range. No company utilized as a comparison in the
comparable companies analysis is identical to the Company.
COMPARABLE ACQUISITION TRANSACTION ANALYSIS. William Blair reviewed
numerous acquisition transactions involving transportation and commercial
finance companies during the period from January 1, 1995 to October 14, 1999.
These acquisition transactions are presented below:
TRANSPORTATION COMPANIES:
Target Acquiror
------ --------
Jevic Transportation Yellow Corporation
MPG Transco, Ltd. United Road Services
PST Vans, Inc. U.S. Xpress Enterprises Inc.
MTL Inc. Apollo Management, L.P.
North Star Transport, Inc. Transport Corp. of America
Bekins Distribution Services Hospitality Worldwide Services
Service Express, Inc. Transit Group Inc.
WorldWay Corporation Arkansas Best Corporation
A.G. Carriers, Inc. Aasche Transportation Services
Leaseway Transportation Penske Truck Leasing Co.
COMMERCIAL FINANCE COMPANIES:
Target Acquiror
------ --------
LDI Corp. Nationsbank Corporation
Fin. For Science Intl., Inc. Finova Group, Inc.
Winthrop Resources Corp. TCF Financial Corp.
Granite Financial, Inc. Fidelity National Financial
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Oxford Premium Finance TransFinancial Holdings
Capital Factors Holdings, Inc. Union Planters Corp.
Rockford Industries, Inc. American Express Co.
Sirrom Capital Corp. Finova Group, Inc.
Standard Funding Corp. Atlantic Bank of New York
Healthcare Financial Partners Heller Financial Inc.
Franchise Mortgage Acceptance Bay View Capital Corp.
Litchfield Financial Corp. Textron Financial Corp.
In examining these transactions, William Blair analyzed certain income
statement and balance sheet parameters of the acquired companies relative to the
consideration paid. Multiples analyzed included total transaction value (defined
as transaction equity value adjusted by adding long-term debt and subtracting
cash and short-term investments) ("Total Transaction Value") as a multiple of
last twelve months sales, last twelve months EBITDA, last twelve months
earnings, book value as of the most recent balance sheet date, and tangible book
value as of the most recent balance sheet date. William Blair indicated that,
using a technique similar to that employed in the "Comparable Company Analysis"
described above, it determined, on a separate basis for both the transportation
and commercial finance units, an estimated range of equity values per share
based upon its analysis of the selected transactions. William Blair then
indicated that it summed the estimated ranges for both the transportation and
commercial finance units and reduced that subtotal by the estimated value of the
Company's non-core operations and consolidated income tax positions discussed
above to arrive at an estimated range for the Company on a consolidated basis.
The range that William Blair calculated from the above discussed analysis was
$2.49 per share to $8.76 per share. William Blair indicated that the price
offered per share in the Merger was within this estimated range. No transaction
utilized as a comparison in the comparable transaction analysis is identical to
the Merger.
ACQUISITION PREMIUM ANALYSIS. William Blair indicated for the
publicly-traded acquisition targets involved in the transactions identified in
the "Comparable Acquisition Transaction Analysis" above that it reviewed, on a
separate basis for acquisition transactions involving transportation and
commercial finance companies, the percentage premium of offer prices to trading
prices one day and one week prior to the announcement date. These transactions
are listed below:
TRANSPORTATION COMPANIES:
Target Acquiror
------ --------
Jevic Transportation Yellow Corporation
PST Vans, Inc. U.S. Xpress Enterprises Inc.
MTL Inc. Apollo Management, L.P.
WorldWay Corporation Arkansas Best Corporation
Leaseway Transportation Penske Truck Leasing Co.
COMMERCIAL FINANCE COMPANIES:
Target Acquiror
------ --------
LDI Corp. Nationsbank Corporation
Fin. For Science Intl., Inc. Finova Group, Inc.
Winthrop Resources Corp. TCF Financial Corp.
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Granite Financial, Inc. Fidelity National Financial
Rockford Industries, Inc. American Express Co.
Sirrom Capital Corp. Finova Group, Inc.
Standard Funding Corp. Atlantic Bank of New York
Healthcare Financial Partners Heller Financial Inc.
Franchise Mortgage Acceptance Bay View Capital Corp.
Litchfield Financial Corp. Textron Financial Corp.
For the relevant transportation acquisition transactions, the one-day
acquisition premium was between 15.8% and 54.6%; likewise, the one-week
acquisition premium was between 17.3% and 55.3%. For the relevant commercial
finance acquisition transactions, the one-day acquisition premium was between
4.5% and 46.5%; likewise, the one-week acquisition premium was between 6.7% and
78.9%. William Blair indicated that based upon these results and an assessment
of the Company's situation relative to the selected acquisition transactions,
that it determined both a one-day and one-week estimated acquisition premium
range of between 20.0% and 30.0%. William Blair then indicated that it
multiplied these estimated acquisition premium ranges by the Company's closing
stock price one day and one week prior to the public announcement that the
Special Committee had been formed to analyze the initial offer of the Buyout
Group. William Blair indicated that the price offered per share in the Merger
exceeded this estimated range.
In connection with its engagement of William Blair, the Company has paid
William Blair as of the date of this Proxy Statement a retainer fee of $50,000
and a fee of $100,000 for the preparation and delivery of its opinion as to the
fairness of the Merger Consideration. If the Merger is consummated, the Company
will pay William Blair an additional fee of approximately $540,000. In addition,
the Company has agreed to reimburse William Blair for all reasonable
out-of-pocket expenses (including fees and expenses of its counsel and any other
independent experts retained by William Blair which were retained by William
Blair only after prior notice was given to the Company) and, to the full extent
lawful, to indemnify and hold harmless William Blair and certain related parties
against certain liabilities in connection with William Blair's engagement.
CERTAIN PROJECTIONS
In November 1998, the Company's management prepared projections relating
to the Company's operations for the three years in the period ending December
31, 2001 solely for internal budgeting and planning purposes (the
"Projections"). The Company does not as a matter of course make public forecasts
as to future operations and the Projections set forth below are included in this
Proxy Statement on advice of counsel because, among other things, such
information was provided to (i) LaSalle in connection with the issuance of the
Commitment Letter, (ii) William Blair in connection with its valuation analyses
and (iii) certain qualified parties that had expressed an interest in acquiring
the Company. It should be noted that, in the recent past, the Company has not
generally met management's projections. Further, the
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Company does not currently anticipate meeting them for 1999 and has not fully
assessed its ability to meet them in future years in light of the changed
circumstances discussed herein.
THE PROJECTED FINANCIAL INFORMATION SET FORTH BELOW NECESSARILY REFLECTS
NUMEROUS ASSUMPTIONS WITH RESPECT TO GENERAL BUSINESS AND ECONOMIC CONDITIONS
AND OTHER MATTERS, MANY OF WHICH ARE INHERENTLY UNCERTAIN OR BEYOND THE
COMPANY'S CONTROL, AND DOES NOT TAKE INTO ACCOUNT ANY CHANGES TO THE COMPANY'S
OPERATIONS OR CAPITAL STRUCTURE WHICH MAY RESULT FROM THE MERGER. IT IS NOT
POSSIBLE TO PREDICT WHETHER THE ASSUMPTIONS MADE IN PREPARING THE PROJECTED
FINANCIAL INFORMATION WILL BE VALID, AND ACTUAL RESULTS MAY PROVE TO BE
MATERIALLY HIGHER OR LOWER THAN THOSE CONTAINED IN THE PROJECTIONS. THE
INCLUSION OF THIS INFORMATION SHOULD NOT BE REGARDED AS AN INDICATION THAT THE
COMPANY, THE BUYOUT GROUP OR ANYONE ELSE WHO RECEIVED THIS INFORMATION
CONSIDERED IT A RELIABLE PREDICTOR OF FUTURE EVENTS. AS SUCH, STOCKHOLDERS
SHOULD AVOID PLACING UNDUE RELIANCE ON THIS INFORMATION. NONE OF THE COMPANY OR
THE BUYOUT GROUP OR ANY OF THEIR RESPECTIVE REPRESENTATIVES ASSUMES ANY
RESPONSIBILITY FOR THE VALIDITY, REASONABLENESS, ACCURACY OR COMPLETENESS OF THE
PROJECTED FINANCIAL INFORMATION, AND THE COMPANY HAS MADE NO REPRESENTATIONS
REGARDING SUCH INFORMATION. SIGNIFICANT ASSUMPTIONS USED IN DEVELOPING THE
PROJECTIONS ARE DISCUSSED FOLLOWING THE TABLES BELOW AND SHOULD BE CAREFULLY
REVIEWED.
THE PROSPECTIVE FINANCIAL INFORMATION INCLUDED IN THIS PROXY STATEMENT HAS
BEEN PREPARED BY, AND IS THE RESPONSIBILITY OF, THE COMPANY'S MANAGEMENT.
PRICEWATERHOUSECOOPERS HAS NEITHER EXAMINED NOR COMPILED THE ACCOMPANYING
PROSPECTIVE FINANCIAL INFORMATION AND, ACCORDINGLY, PRICEWATERHOUSECOOPERS DOES
NOT EXPRESS AN OPINION OR ANY OTHER FORM OF ASSURANCE WITH RESPECT THERETO. THE
PRICEWATERHOUSECOOPERS REPORT ENCLOSED WITH THIS PROXY STATEMENT RELATES TO THE
COMPANY'S HISTORICAL FINANCIAL INFORMATION. IT DOES NOT EXTEND TO THE
PROSPECTIVE FINANCIAL INFORMATION AND SHOULD NOT BE READ TO DO SO.
Set forth below is a summary of the Projections. The Projections do not
give effect to the Merger.
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December 31,
-------------------------------------------
1999 2000 2001
---- ---- ----
(In Thousands, Except Per Share Data)
Revenue(1) $ 173,462 $ 188,719 $ 199,811
Operating Income (2) $ 5,383 $ 8,269 $ 9,385
Net Income $ 2,511 $ 4,148 $ 4,864
Diluted Earnings Per Share $ .63 $ 1.04 $ 1.22
(1) The Projections assumed transportation operating revenue growth of 14%, 8%
and 6% per year, respectively, consistent with revenue growth in recent
years. The revenue growth in 2000 and 2001 assumed the maturation of the
Company's market penetration in its Eastern territory. The Projections also
assumed financial services revenue growth of approximately 25%, 20% and 8%
per year, respectively, assuming annualized revenue from the acquisition of
Oxford Premium Finance, Inc. in May 1998 and the anticipate hiring of
additional marketers in 2000.
(2) The Projections assumed transportation operating ratios of 97.1%, 96.5% and
96.2%, respectively, consistent with 1997 and preceding years. The
Projections also assumed substantial improvement in projected financial
services operating income consistent with October and November 1998
results.
As a result of numerous factors, including but not limited to, (i)
extraordinarily severe January weather within the northern regions of Crouse's
operating territory, (ii) prolonged union negotiations and, ultimately, a
one-day work stoppage at Crouse's Chicago facility, and (iii) the impact of the
announcement of this proposed transaction, the Company's actual results for
revenue and operating income have significantly and adversely deviated from
those projected above. The Company's operations continue to be adversely
affected by certain of these factors.
FORWARD-LOOKING INFORMATION
This Proxy Statement contains or incorporates by reference certain
forward-looking statements and information relating to the Company that are
based on the beliefs of management as well as assumptions made by and
information currently available to the Company. Examples of forward-looking
statements include, but are not limited to (i) projections of revenues, income
or loss, earnings or loss per share, capital expenditures, the payment or
non-payment of dividends, capital structure and other financial items, (ii)
statements of plans and objectives of the Company or its management or Board of
Directors, including plans or objectives relating to the products or services of
the Company, (iii) statements of future economic performance, and (iv)
statements of assumptions underlying the statements described in (i), (ii) and
(iii). Forward-looking statements include the information set forth above
concerning the Projections. When used in this document, the words "anticipate,"
"believe," "estimate, "expect," "plan" and
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"intend" and similar expressions, as they relate to the Company or its
management are intended to identify forward-looking statements. Such statements
reflect the current view of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected, planned or intended. The Company
does not intend, or assume any obligation, to update these forward-looking
statements.
The following discussion identifies certain important factors that could
affect the Company's actual results and actions and could cause such results or
actions to differ materially from any forward-looking statements made by or on
behalf of the Company that relate to such results or actions. Other factors,
which are not identified herein, could also have such an effect.
Transportation
Certain specific factors which may affect the Company's transportation
operation include: competition from other regional and national carriers for
freight in the Company's primary operating territory; price pressure; changes in
fuel prices; labor matters, including changes in labor costs; and environmental
matters.
Financial Services
Certain specific factors which may affect the Company's financial services
operation include: the performance of financial markets and interest rates; the
performance of the insurance industry; competition from other premium finance
companies and insurance carriers for finance business in the Company's key
operating states; adverse changes in permissible interest rates in states in
which the Company operates; greater than expected credit losses; the acquisition
and integration of additional premium finance operations or receivables
portfolios; and the inability to obtain continued financing at a competitive
cost of funds.
Industrial Technology
Presis is a start-up business formed to develop an industrial technology
for dry particle processing. This technology is subject to risks and
uncertainties in addition to those generally applicable to the Company's
operations described herein. These additional risks and uncertainties include
the efficacy and commercial viability of the technology, the ability of the
venture to market the technology, the acceptance of such technology in the
marketplace, the general tendency of large corporations to be slow to change
from known technology, the ability to protect its proprietary information in the
technology and potential future competition from third parties developing
equivalent or superior technology. As a result of these and other risks and
uncertainties, the future results of operations of the venture are difficult to
predict, and such results may be materially better or worse than expected or
projected.
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General Factors
The impact of the announcement of this proposed transaction could affect
the Company's actual results and cause such results to differ materially from
any forward-looking statements made by or on behalf of the Company that relate
to such results.
With respect to any statements which relate to the current intentions of
the Company and its subsidiaries or of management of the Company and its
subsidiaries, such statements are subject to change by management at any time
without notice.
Certain general factors that could impact any or all of the Company's
operations include: changes in general business and economic conditions; changes
in governmental regulation; and tax changes. Expansion of these businesses into
new states or markets is substantially dependent on obtaining sufficient
business volumes from existing and new customers in these new markets at
compensatory rates.
The cautionary statements set forth in this Proxy Statement are not
intended to cover all of the factors that may affect the Company's businesses in
the future. Forward-looking information disseminated publicly by the Company
following the date of this Proxy Statement may be subject to additional factors
hereafter published by the Company.
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, the Public Stockholders will no longer have
any interest in, and will not be stockholders of, the Company and, therefore,
will not benefit from any future earnings or growth of the Company or benefit
from any increases in the value of the Company and will no longer bear the risk
of any decreases in value of the Company. Instead, each Public Stockholder
(other than Dissenting Stockholders) will have the right to receive upon
consummation of the Merger $6.03 in cash for each share of Common Stock held.
The benefit to the holders of Common Stock of the transaction is the payment of
a premium of approximately 46% above the market value for such stock prior to
the announcement of the initial proposal and approximately 27% above the market
value prior to the announcement of the Merger Agreement. This cash payment
assures that all stockholders will receive the same amount for their shares,
rather than taking the risks associated with attempting to sell their shares in
the open market. The detriments to such holders are their inability to
participate as continuing stockholders in the possible future growth of the
Company and the possibility that the Merger will be a taxable transaction to
them. If the Merger is consummated, the Buyout Group and the IRAs will hold the
entire equity interest in the Company not already owned by them and they will
benefit from any future earnings or growth of the Company and any increases in
value of the Company; however, they will also bear the risk of any decreases in
value of the Company and will bear the risks associated with the significant
amount of debt to be incurred by the Company in connection with the Merger. In
addition, because the Company will be closely held and cease to be publicly
traded, the Buyout Group believes that it may be able to focus on the increase
in the long term value of the Company to a greater degree by reducing
management's commitment of resources with respect to procedural and compliance
requirements of a public company. The Buyout
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Group and the IRAs will bear the risks associated with the lack of liquidity in
its investment in the Company.
The Common Stock is currently registered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). As a result of the Merger, the Common
Stock will be delisted from the American Stock Exchange, the registration of the
Common Stock under the Exchange Act will be terminated, the Company will be
relieved of the obligation to comply with the proxy rules of Regulation 14A
under Section 14 of the Exchange Act, and its officers, directors and beneficial
owners of more than 10% of the Common Stock will be relieved of the reporting
requirements and "short-swing" trading provisions under Section 16 of the
Exchange Act. Further, the Company will no longer be subject to periodic
reporting requirements of the Exchange Act and will cease filing information
with the SEC. Accordingly, less information will be required to be made publicly
available than presently is the case.
The directors of COLA Acquisitions immediately prior to the closing of the
Merger will be the directors of the Surviving Corporation immediately after the
Merger. Messrs. O'Neil, Laborde and Cox are the current directors of COLA
Acquisitions and it is not expected that additional persons will be invited to
join the Board of Directors of the Surviving Corporation following the Merger.
The officers of the Company immediately prior to the closing of the Merger will
be the officers of the Surviving Corporation immediately after the Merger. The
certificate of incorporation of the Company will be amended in connection with
the closing of the Merger and will be the certificate of incorporation of the
Surviving Corporation until thereafter amended. The bylaws of COLA Acquisitions
immediately prior to the closing of the Merger will be the bylaws of the
Surviving Corporation until thereafter amended.
PLANS FOR THE COMPANY AFTER THE MERGER
The Buyout Group expects that the business and operations of the Surviving
Corporation will be continued substantially as they are currently being
conducted by the Company and its subsidiaries. The Buyout Group does not
currently intend to dispose of any assets of the Surviving Corporation, other
than in the ordinary course of business. The Buyout Group may, from time to
time, evaluate and review the Surviving Corporation's businesses, operations and
properties in light of any future developments and make such changes as are
deemed appropriate.
Except as described in this Proxy Statement, none of the Buyout Group,
COLA Acquisitions or the Company has any present plans or proposals involving
the Company or its subsidiaries which relate to or would result in an
extraordinary corporate transaction such as a merger, reorganization, or
liquidation, or a sale or transfer of a material amount of assets, or any
material change in the present dividend policy, indebtedness or capitalization,
or any other material change in the Company's corporate structure or business.
However, the Buyout Group and COLA Acquisitions will review proposals or may
propose the acquisition or disposition of assets or other changes in the
Surviving Corporation's business, corporate structure, capitalization,
management or dividend policy which they consider to be in the best interests of
the Surviving Corporation and its stockholders. Neither the Company, COLA
Acquisitions nor
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the Buyout Group have formulated any specific plans regarding repayment of the
indebtedness incurred in connection with the Merger; however, such persons
anticipate that such indebtedness will be repaid primarily with or by means of
cash from the operations of the business of the Surviving Corporation or such
other means as the Surviving Corporation and the Buyout Group may determine in
their sole discretion.
CONDUCT OF THE BUSINESS OF THE COMPANY IF THE MERGER IS NOT CONSUMMATED
Believing the Merger to be in the best interests of the Company's
stockholders, the Board of Directors has not yet considered any specific
alternative courses of conduct that it might take should the Merger not be
consummated. As such, the Board of Directors has not considered whether, in that
event, it would contact Appalachian, Crescendo, Shell Ridge or any other party
previously showing interest in acquiring some or all of the Company's stock or
assets.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Special Committee and the Board of
Directors with respect to the Merger, stockholders should be aware that certain
members of the Board of Directors and of the Company's management have interests
that may present them with actual, potential or the appearance of potential
conflicts of interest in connection with the Merger. The Special Committee and
the Board of Directors were aware of these potential or actual conflicts of
interest and considered them along with other matters described under "SPECIAL
FACTORS - Recommendation of the Special Committee and Board of Directors;
Fairness of the Merger."
COLA Acquisitions and the members of the Buyout Group currently own an
aggregate of 300,288 shares of Common Stock, representing approximately 9.2% of
the total outstanding shares of Common Stock, and the IRAs currently own
approximately 2.3% of the Company's Common Stock. Messrs. O'Neil, Laborde and
Cox currently hold exercisable options which, if exercised, would give them
ownership of an additional 1.7% of the Company's Common Stock. The members of
the Buyout Group currently contemplate that, prior to the Merger, each of them
will contribute to COLA Acquisitions all of the shares of Common Stock
beneficially owned by them, other than shares currently held by the IRAs for
their benefit, to the extent that they have not already done so. If such equity
contributions are made to COLA Acquisitions in the manner currently contemplated
by the Buyout Group and required by the Merger Agreement, upon consummation of
the Merger, the Buyout Group and the IRAs will own 100% of each of three classes
of stock of the Surviving Corporation. Messrs. O'Neil, Laborde and Cox will
collectively own 100% of the Surviving Corporation's Class C Stock, which will
possess sole voting rights. The IRAs and Messrs. O'Neil, Laborde and Cox will
collectively own 100% of the Surviving Corporation's Class A Stock, which will
be entitled to full equity participation in the Surviving Corporation. All
members of the Buyout Group and the IRAs will own shares of the Surviving
Corporation's Class B Stock, which together with the Class C Stock, will
participate in any dividends or distributions from the Surviving Corporation up
to a maximum of $15.00 per share. This ownership structure will result from the
conversion of all of the
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outstanding shares of common stock of COLA Acquisitions and the IRAs into shares
of stock of the Surviving Corporation. Such conversion shall occur by operation
of the Merger Agreement.
Pursuant to the Merger Agreement, COLA Acquisitions is required from and
after November 30, 1999 until the closing of the Merger or termination of the
Merger Agreement to have a minimum capitalization of at least 276,850 shares of
Common Stock. In the event that any shares of Common Stock beneficially owned by
members of the Buyout Group (other than Messrs. O'Neil, Laborde and Cox and the
IRAs) are not contributed to COLA Acquisitions prior to consummation of the
Merger and are not converted into shares of the Surviving Corporation by
operation of the Merger Agreement, such shares will be cashed out in the Merger
in accordance with the terms of the Merger Agreement.
Members of the Buyout Group currently hold options to purchase an
aggregate of 118,150 shares of Common Stock. These Options will be cancelled
upon consummation of the Merger and members of the Buyout Group holding Options,
like other Option holders, will be entitled to receive an amount in cash equal
to (i) $0.20 per Option share for any out-of-the-money Options and (ii) the
difference between the Merger Consideration and the applicable Option exercise
price for in-the-money Options multiplied by the number of shares subject to
such Options being cashed out in the Merger. See "THE MERGER AGREEMENT -
Treatment of Options" and "SECURITIES OWNERSHIP - Beneficial Ownership of Common
Stock by Certain Parties Related to the Buyout Group."
The Merger Agreement provides that the directors of COLA Acquisitions at
the Effective Time shall be the directors of the Surviving Corporation
immediately after the Merger. Messrs. O'Neil, Laborde and Cox are the current
directors of COLA Acquisitions and it is not expected that any additional
persons will be invited to join the Board of Directors of the Surviving
Corporation following the Merger. Under the terms of the Merger Agreement, the
current officers of the Company will be the officers of the Surviving
Corporation following consummation of the Merger. No changes are anticipated in
the employment agreements currently in effect with the officers of the Company,
other than the cancellation of Options. Officers will participate in the same
manner as all other Option holders for those Options currently outstanding. The
Surviving Corporation will pay officers holding options a total of approximately
$100,000 for such cancellation.
The Merger Agreement provides that the Surviving Corporation will, from
and after the Effective Time, indemnify, defend and hold harmless the present
and former officers and directors of the Company and its subsidiaries in
connection with any claims relating to such person serving as a director,
officer, employee, fiduciary or agent of the Company, or of any other entity at
the request of the Company, to the full extent permitted under Delaware law, the
Company's certificate of incorporation, bylaws or indemnification agreements in
effect on the date of the Merger Agreement. In addition, the Surviving
Corporation will, for a period of six years, maintain all rights to
indemnification and limitations on liability in favor of such officers and
directors to the same extent and upon the terms and conditions provided in the
Company's certificate of incorporation and bylaws as in effect on the date of
the Merger Agreement, and to the extent such rights are consistent with the
Delaware General Corporation Law (the "DGCL") against certain losses and
expenses in connection with claims based on the fact that such person
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was an officer or director of the Company. The Merger Agreement also provides
that the Surviving Corporation will provide officers' and directors' liability
insurance coverage for a period of six years after the Effective Time, subject
to certain limitations. See "THE MERGER AGREEMENT - Indemnification and
Insurance."
As Chief Executive Officer of the Company, Mr. O'Neil is party to an
employment agreement with the Company. Under terms of that agreement, Mr. O'Neil
has certain rights in the event of a "Change in Control" (as such term is
defined in the employment agreement). Pursuant to those rights, if Mr. O'Neil's
employment with the Company is terminated other than by reason of death,
retirement, disability or Good Cause (as defined in the employment agreement)
within a period of two years after the Change in Control, Mr. O'Neil will be
entitled to receive: (i) a lump-sum payment of 2.99 times his average annual
compensation from the Company for the three most recent years, (ii) immediate
vesting of all his incentive compensation and stock options, (iii) all
retirement benefits to which he is otherwise entitled, and (iv) three years
continued participation at the Company's expense in medical, insurance and other
Company benefit plans.
Each member of the Special Committee will be paid $200 per hour for time
expended, except in preparation for and attendance at meetings of the Special
Committee, for which each member will be paid $750 per meeting, except for the
Chairman who will be paid $1,000 per meeting. It is estimated that $44,000 in
the aggregate will be paid in Special Committee fees. In addition, each member
of the Special Committee will receive the consideration described herein upon
consummation of the Merger ==== for any Common Stock and Options owned by them
at the Effective Time, which would be approximately $51,000.
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, the Merger will be
accounted for in accordance with the "purchase method" of accounting.
FINANCING OF THE MERGER
The total amount of funds required by COLA Acquisitions to pay the
aggregate Merger Consideration due to stockholders and Option holders of the
Company at the closing of the Merger, assuming all Options are cashed out in the
Merger and there are no Dissenting Stockholders, is expected to be approximately
$17.6 million. In addition, COLA Acquisitions will require approximately
$350,000 to pay its expenses and costs in connection with the Merger and for
other general corporate purposes. In addition, the Company will require
approximately $950,000 to pay the Company's expenses and costs relating to the
Merger. The proceeds to pay the Merger Consideration and related costs and
expenses of the transaction will be obtained from new senior credit facilities
described below.
On October 1, 1999, COLA Acquisitions delivered the Commitment Letter to
the Special Committee. Pursuant to the Commitment Letter, but subject to the
conditions set forth therein,
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(i) LaSalle has agreed to act as administrative agent (in such capacity, the
"Agent") on its own behalf and on behalf of Bankers Trust (together with
LaSalle, the "Lenders") for the proposed senior secured loan facilities
aggregating up to $38 million (collectively, the "Facilities"). The Facilities
include a $12 million line of credit, a $20 million term loan and a $6 million
term loan. LaSalle will hold $28 million of the Facilities, and Bankers Trust
will hold $10 million of the Facilities. The proceeds of the Facilities will be
used (i) to pay the Merger Consideration and expenses of the Merger, (ii) to
refinance existing debt of the Company and (iii) for working capital and general
corporate purposes, including the repurchase of Options.
The Lenders obligations under the Commitment Letter are subject to, among
other things, (i) the negotiation and execution of a definitive loan agreement
in respect of the Facilities (the "Loan Agreement"), and (ii) satisfactory
completion of due diligence, including a field exam, review of a valuation of
UPAC, confirmation of the transaction accounting, and review of UPAC's financing
contracts.
The Commitment Letter contemplates that the definitive Loan Agreement will
contain terms and conditions which are customary in transactions of this type,
including, without limitation, the following:
Borrower. Upon completion of the Merger, the initial borrowers under the
Facilities will be the Surviving Corporation on the $6 million term loan, with
the Surviving Corporation guaranteeing the $20 million term loan and the line of
credit. Crouse will be the named borrower under the $20 million term loan and
the line of credit. The obligor or obligors under the Loan Agreement at any
particular time are collectively referred to as the "Borrower."
Interest Rate. Amounts outstanding under the Facilities will bear interest
at rates per annum that may vary from time to time depending on the ratio of
Total Liabilities to Tangible Net Worth of Crouse. In accordance with an agreed
schedule, the Borrower will have the option of paying interest at a rate based
on either the London interbank offered rate ("LIBOR") or LaSalle's prime rate.
The maximum rates of interest that can be charged pursuant to that schedule are
LIBOR plus 300 basis points and the prime rate plus 0.50%.
Term. The $20 million and $6 million term loans under the Facilities will
be amortized over five and three years, respectively, in accordance with an
agreed schedule. The line of credit is a revolver with interest only paid
monthly or at the end of the applicable LIBOR period.
Security. Upon completion of the Merger, the line of credit and the $20
million term loan will be secured by the assets of Crouse. The $6 million term
loan will be secured by the assets of the Company and its subsidiaries (other
than UPAC) and by a pledge of the stock of the Company and all Company
subsidiaries, including UPAC.
Conditions. The obligations of the Lenders under the Loan Agreement to
provide funds pursuant to the Facilities will be subject to usual and customary
conditions for credit facilities of that size, type and purpose, including,
without limitation, the following: (i) no material adverse change in the
Company; (ii) documentation acceptable to Lenders; (iii) payments of fees; (iv)
no
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event of default; (v) satisfactory completion of due diligence; and (vi)
accuracy of representations and warranties.
Covenants and Events of Default. The Loan Agreement will contain
affirmative and negative covenants and events of default, in each case which are
customary for credit facilities of that size, type and purpose. Such affirmative
and negative covenants will, among other matters, limit certain activities of
the Borrower and require it to satisfy certain ongoing requirements concerning
financial condition and periodic reporting. Such events of default will include,
among other matters, a cross-default to indebtedness of Crouse and an event of
default upon a change in control of the Company following the Merger.
Commitment Fees. The Loan Agreement will provide for the payment of an
unused commitment fee of 25 basis points, calculated quarterly, on the line of
credit and a commitment fee of $130,000 for the two term loans aggregating $26
million.
REGULATORY REQUIREMENTS; THIRD PARTY CONSENTS
The Company does not believe that any material federal or state regulatory
approvals, filings or notices are required by the Company in connection with the
Merger other than (i) such approvals, filings or notices required pursuant to
federal securities laws, (ii) the filing of a certificate of merger with the
Secretary of State of the State of Delaware and (iii) the filing of a
certificate of merger with the Secretary of State of the State of Kansas.
The parties are not required to file a Premerger Notification under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), because COLA Acquisitions does not satisfy the "size of person"
jurisdictional test of the HSR Act insofar as COLA Acquisitions is its own
"ultimate parent" and does not have assets or revenues of $10 million or more.
Certain of the Company's existing financing agreements would require
consents of the other parties thereto if they were to remain in place after the
Merger. The Buyout Group, however, will replace such financing at the Effective
Time of the Merger. Consequently, the Company does not believe any material
third party consents will be required by the Company in connection with the
Merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of material United States federal income tax
considerations relevant to stockholders whose shares of Common Stock are
converted to cash in the Merger. This summary is based upon laws, regulations,
rulings and decisions currently in effect, all of which are subject to change,
possibly with retroactive effect. The summary applies only to stockholders who
hold shares of Common Stock as capital assets within the meaning of Section
1221 of the Code, and may not apply to shares of Common Stock received pursuant
to the exercise of employee stock options or otherwise as compensation, or to
certain stockholders who
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may be subject to special rules not discussed below (including insurance
companies, tax-exempt organizations, individual retirement accounts and certain
employee benefit plans, financial institutions or broker dealers, or certain
types of stockholders of Common Stock where such stockholder is, for United
States federal income tax purposes, a non-resident alien individual, a foreign
corporation, a foreign partnership, or a foreign estate or trust), nor does it
consider the effect of any foreign, state or local tax laws.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF COMMON STOCK
SHOULD CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY
OF THE RULES DISCUSSED BELOW AND THE PARTICULAR TAX EFFECTS TO SUCH STOCKHOLDER
OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER
TAX LAWS.
The receipt of cash for shares of Common Stock pursuant to the Merger will
be a taxable transaction for U.S. federal income tax purposes. The federal
income tax consequences with respect to a particular stockholder will depend
upon, among other things, whether the conversion of Common Stock to cash
pursuant to the Merger will be characterized under Section 302 of the Code as a
sale or exchange of such Common Stock or, alternatively, as a dividend. To the
extent such conversion of Common Stock to cash is treated as a sale or exchange
of Common Stock, a stockholder will recognize capital gain or loss equal to the
difference between the amount of cash received for such stockholder's Common
Stock and the stockholder's adjusted tax basis in such Common Stock. A
stockholder's adjusted tax basis in shares of Common Stock generally will equal
the stockholder's purchase price for such shares of Common Stock. Gain or loss
must be determined separately for each block of Common Stock (i.e., shares of
Common Stock acquired at the same cost in a single transaction) converted to
cash in the Merger. To the extent a stockholder recognizes capital gain or loss,
such capital gain or loss will be long-term capital gain or loss if, at the time
of the Merger, the stockholder has held the Common Stock for more than one year.
The conversion of Common Stock to cash pursuant to the Merger will be
treated as a sale or exchange under Section 302 of the Code if, taking into
account certain constructive ownership rules under Section 318 of the Code, such
sale (a) is "substantially disproportionate" with respect to the stockholder,
(b) results in a "complete redemption" of the stockholder's interest in the
Company or (c) is "not essentially equivalent to a dividend" with respect to the
stockholder. Stockholders should consult with their own tax advisors as to the
application of these tests to their particular circumstances. A stockholder's
failure to satisfy any of these three tests will cause the stockholder to be
treated as having received a dividend to the extent of the Company's earnings
and profits (as determined for U.S. federal income tax purposes). The receipt of
cash for shares by a stockholder who is neither a member of the Buyout Group nor
related to a member of the Buyout Group through the application of Section 318
of the Code should qualify as a sale or exchange under Section 302 of the Code.
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FEES AND EXPENSES
Whether or not the Merger is consummated and except as otherwise provided
herein, all fees and expenses incurred in connection with the Merger will be
paid by the party incurring such fees and expenses, except that the Company will
pay for all costs and expenses relating to the printing and mailing of this
Proxy Statement. The Company will pay COLA Acquisitions a termination fee of
$500,000 plus costs and expenses incurred by COLA Acquisitions in connection
with the Merger up to a maximum of $200,000 if the Merger Agreement is
terminated (a) by COLA Acquisitions because the Special Committee either (i)
withdraws, modifies or changes its recommendation so that it is not in favor of
the Merger Agreement or the Merger or (ii) recommends an alternative Acquisition
Proposal to the Company's stockholders; (b) by the Company (acting through the
Special Committee), in order for the Special Committee to comply with its
fiduciary duties in connection with an alternative Acquisition Proposal; or (c)
by COLA Acquisitions if a material breach of the Merger Agreement is committed
and not cured by the Company and if such breach is attributable to the action or
inaction of the Special Committee.
Estimated fees and expenses (rounded to the nearest thousand) to be
incurred by the Company and COLA Acquisitions in connection with the Merger are
as follows:
Financing Fees(1) $200,000
Special Committee's Financial Advisor's Fees(2) $690,000
SEC Filing Fees $ 4,000
Legal Fees and Expenses $275,000
Accounting Fees $ 25,000
Printing and Mailing Expenses $ 32,000
Exchange Agent Fees $ 13,000
Special Committee Fees $ 44,000
Miscellaneous $ 17,000
--------
Total $ 1,300,000
===========
(1) See "SPECIAL FACTORS - Financing of the Merger." Financing fees include
fees payable to legal counsel to the Lenders.
(2) Determined pursuant to an engagement letter with William Blair dated July
15, 1999.
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is attached as Annex A to this Proxy Statement. Such
summary is qualified in its entirety by reference to the full text of the Merger
Agreement.
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THE MERGER; MERGER CONSIDERATION
The Merger Agreement provides that the Merger will become effective at such time
as a certificate of merger is duly filed with the Secretary of State of the
State of Delaware (the "Effective Time"). If the Merger is approved at the
Special Meeting by the holders of a majority of all outstanding shares of Common
Stock and the other conditions to the Merger are satisfied or waived, it is
currently anticipated that the Merger will become effective as soon as
practicable after the Special Meeting. However, there can be no assurance as to
the timing of the consummation of the Merger or that the Merger will be
consummated.
At the Effective Time, COLA Acquisitions will be merged with and into the
Company, the separate corporate existence of COLA Acquisitions will cease, and
the Company will continue as the Surviving Corporation. In the Merger, each
share of Common Stock owned by Public Stockholders (other than Dissenting
Stockholders) will, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into the right to receive the Merger
Consideration. Each certificate representing such shares of Common Stock will,
after the Effective Time, evidence only the right to receive, upon the surrender
of such certificate, an amount of cash per share equal to the Merger
Consideration.
Each share of Common Stock (i) held in the treasury of the Company or (ii)
owned by COLA Acquisitions will automatically be cancelled, retired and cease to
exist and no payment will be made with respect thereto.
The Restated Certificate of Incorporation of the Company will be amended
at the Effective Time to conform the Company's capital structure to that of COLA
Acquisitions by providing for three classes of stock. Class A Stock will have no
voting rights but will possess rights to full equity participation in the
Surviving Corporation. Class B Stock will have no voting rights but will possess
rights to participate in dividends and distributions up to a maximum of $15.00
per share. Class C Stock will have voting rights and will similarly possess
rights to participate in dividends and distributions up to a maximum of $15.00
per share. Upon consummation of the Merger, each share of each class of stock of
COLA Acquisitions issued and outstanding immediately prior to the Effective Time
will be converted into and become one share of the same class of stock of the
Surviving Corporation with the rights existing under the Company's Certificate
of Incorporation as amended.
Certain shares of Common Stock held by the IRAs will be converted upon
consummation of the Merger into shares of stock of the Surviving Corporation.
The manner of this conversion, including the classes and amounts of stock of the
Surviving Corporation that will result from such conversion, has been set forth
in an agreed schedule included as Exhibit B to the Merger Agreement
Dissenting Stockholders who do not vote to approve and adopt the Merger
Agreement and who otherwise strictly comply with the provisions of the DGCL
regarding statutory appraisal rights have the right to seek a determination of
the fair value of their shares of Common Stock and payment in cash therefor in
lieu of the Merger Consideration. See "DISSENTERS' RIGHTS OF APPRAISAL."
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THE EXCHANGE FUND; PAYMENT FOR SHARES OF COMMON STOCK
On or before the closing date of the Merger, COLA Acquisitions will enter into
an agreement with a bank or trust company selected by COLA Acquisitions and
reasonably acceptable to the Company (the "Exchange Agent"). Immediately prior
to the Effective Time, COLA Acquisitions will deposit or cause to be deposited
with or for the account of the Exchange Agent, in trust for the benefit of the
Company's Public Stockholders (other than Dissenting Stockholders) an amount in
cash equal to the aggregate Merger Consideration (such amount being hereinafter
referred to as the "Exchange Fund").
As soon as reasonably practicable after the Effective Time, but no later
than five business days thereafter, the Exchange Agent will mail to each record
holder of shares of Common Stock immediately prior to the Effective Time a
letter of transmittal containing instructions for use in surrendering
certificates formerly representing shares of Common Stock (the "Certificates")
in exchange for the Merger Consideration. No stockholder should surrender any
Certificates until the stockholder receives the letter of transmittal and other
materials for such surrender. Upon surrender of a Certificate for cancellation
to the Exchange Agent, together with a letter of transmittal, duly executed, and
such other customary documents as may be required pursuant to the instructions,
the holder of such Certificate will be entitled to receive in exchange therefor
the Merger Consideration for each share of Common Stock formerly represented by
such Certificate, without any interest thereon, less any required withholding of
taxes, and the Certificate so surrendered will be cancelled. The Merger
Consideration will be delivered by the Exchange Agent as promptly as practicable
following surrender of a Certificate and delivery of the Letter of Transmittal
and any other related transmittal documents. Cash payments may be made by check
unless otherwise required by a depositary institution in connection with the
book-entry delivery of securities.
If payment of the Merger Consideration is to be made to a person other
than the person in whose name the Certificate surrendered is registered, it will
be a condition of payment that the Certificate so surrendered will be properly
endorsed (together with signature guarantees on such Certificate and any related
stock power) or otherwise be in proper form for transfer and that the Exchange
Agent receives evidence that any applicable transfer or other taxes have been
paid or are not applicable.
STOCKHOLDERS SHOULD NOT SEND THEIR CERTIFICATES NOW AND SHOULD SEND THEM
ONLY PURSUANT TO INSTRUCTIONS SET FORTH IN LETTERS OF TRANSMITTAL TO BE MAILED
TO STOCKHOLDERS AS SOON AS PRACTICABLE AFTER THE EFFECTIVE TIME. IN ALL CASES,
THE MERGER CONSIDERATION WILL BE PROVIDED ONLY IN ACCORDANCE WITH THE PROCEDURES
SET FORTH IN THIS PROXY STATEMENT AND SUCH LETTERS OF TRANSMITTAL.
One year following the Effective Time, the Exchange Agent will return to
the Surviving Corporation any portion of the Exchange Fund which remains
undistributed to the holders of the
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Common Stock (including the proceeds of any investments thereof), and any
holders of Common Stock who have not theretofore complied with the
above-described procedures to receive payment of the Merger Consideration may
look only to the Surviving Corporation for payment.
TRANSFERS OF COMMON STOCK
At the Effective Time, the stock transfer books of the Company will be
closed, and there will be no further registration of transfers of shares of
Common Stock thereafter on the records of the Company. If, after the Effective
Time, Certificates are presented to the Exchange Agent or the Surviving
Corporation, they will be cancelled and exchanged for the Merger Consideration
as provided above and pursuant to the terms of the Merger Agreement (subject to
applicable law in the case of Dissenting Stockholders).
TREATMENT OF OPTIONS
Prior to the Effective Time, the Company will use its reasonable efforts
to effect the cancellation of each outstanding Option on the terms specified in
the Merger Agreement. In consideration of such cancellation, and in accordance
with the Merger Agreement, the Surviving Corporation will pay to the holder of
each such cancelled Option, within thirty days of the Effective Time, an amount
determined as follows: (a) for each Option with an exercise price below $6.03
per share, the holder will receive an amount equal to the excess of the Merger
Consideration over the applicable exercise price per share multiplied by the
number of shares issuable upon exercise of such Option, and (b) for each Option
with an exercise price at or above $6.03, the holder will receive twenty cents
($0.20) multiplied by the number of shares issuable upon exercise of such Option
(collectively, the "Option Consideration"). At the Effective Time, all Options,
other than those with respect to which the holder has agreed with the Company as
to an alternative arrangement, will be converted into, and will thereafter only
represent the right to receive, the Option Consideration. The Company may enter
into mutually acceptable arrangements with any holder of Options providing that
such holder's Options will be treated in a different manner. The Options to
acquire shares of Common Stock of the Company held by members of the Buyout
Group will be cancelled on the same terms and conditions as Options held by
others pursuant to the Merger Agreement.
Prior to the Effective Time, the Company will use its reasonable efforts
to (i) obtain any consents from the holders of the Options and (ii) make any
amendments to the terms of the Company Option Plans and any options granted
thereunder that are necessary or appropriate to consummate the transactions
contemplated by the Merger Agreement. Pursuant to the Merger Agreement, all
Company Option Plans will be terminated at the Effective Time.
CONDITIONS
The respective obligations of COLA Acquisitions and the Company to
consummate the Merger are subject to the following conditions, among others: (i)
the approval and adoption of
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the Merger Agreement by the affirmative vote of the holders of a majority of all
outstanding shares of Common Stock; (ii) the approval and adoption of the Merger
Agreement by the stockholders of COLA Acquisitions; and (iii) the absence of any
action or order which materially restricts, prevents or prohibits consummation
of the Merger.
The obligations of COLA Acquisitions to effect the Merger are subject to
the following additional conditions: (i) the representations and warranties of
the Company being true and correct in all material respects as of the Effective
Time as though made on and as of the Effective Time; (ii) the Company having
performed or complied in all material respects with agreements and covenants
required by the Merger Agreement to be performed or complied with prior to the
Effective Time; (iii) the Company having issued all shares of Common Stock
earned by employees pursuant to the Company's 1998 Long-Term Incentive Plan;
(iv) COLA Acquisitions having obtained the financing described in the Commitment
Letter; and (v) Dissenting Stockholders not holding more than 5% of the
outstanding shares of Common Stock.
The obligations of the Company to effect the Merger are also subject to
the additional condition that (i) all the covenants in the Merger Agreement to
be complied with or performed by COLA Acquisitions will have been complied with
and performed in all material respects prior to the Effective Time and (ii) the
representations and warranties of COLA Acquisitions will be true and correct in
all material respects as of the Effective Time as if made on and as of the
Effective Time.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains limited representations and warranties of
COLA Acquisitions and the Company. The representations of COLA Acquisitions
relate to, among other things, the organization and qualification to do business
of COLA Acquisitions, authority to enter into the Merger Agreement, no conflict,
required filings and consents, financing, solvency, capitalization of COLA
Acquisitions and absence of brokers. The representations of the Company relate
to, among other things, corporate organization and qualification,
capitalization, authority to enter into the Merger Agreement, no conflict,
required filings and consents, opinion of William Blair, Board of Directors
approval and the absence of brokers. COLA Acquisitions additionally represents
and warrants that it had no actual knowledge of any inaccuracies in the
Company's representations and warranties prior to the execution of the Merger
Agreement.
COVENANTS
The Company has agreed to conduct its business in the ordinary and usual
course prior to the Effective Time. In this regard, the Company has agreed that
it will not, without the prior consent of COLA Acquisitions, engage in certain
types of transactions. Specifically, the Company has agreed that prior to the
Effective Time it will not (i) amend its certificate of incorporation or bylaws;
declare or pay any dividends or other distributions, (ii) authorize for issuance
or issue, grant or sell any of its securities other than upon exercise of
options and other
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rights to purchase securities that were outstanding as of the date of the Merger
Agreement, (iii) take any action with respect to accounting policies or
procedures, or (iv) take any action that would or could reasonably be expected
to result in any of the Company's representations and warranties set forth in
the Merger Agreement being untrue or in any of the conditions to the Merger not
being satisfied. In addition, COLA Acquisitions and the Company have made
further agreements regarding the access to the Company's records; preparation
and filing of this Proxy Statement and the Schedule 13E-3 with the SEC;
reasonable efforts to fulfill the conditions to the other party's obligation to
consummate the Merger; public announcements; conveyance taxes; reasonable
efforts by COLA Acquisitions to secure financing; and retention of Common Stock
by COLA Acquisitions until consummation of the Merger or Termination of the
Merger Agreement.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that from and after the Effective Time, the
Surviving Corporation will indemnify, defend and hold harmless the present and
former officers and directors of the Company, to the full extent permitted under
the DGCL or the Company's certificate of incorporation, by-laws or
indemnification agreements in effect upon execution of the Merger Agreement
(including provisions relating to advancement of expenses incurred in defense of
any action or suit), against all losses, claims, damages, liabilities, costs and
expenses (including, attorneys' fees and expenses) and amounts paid in
settlement with the written approval of the Surviving Corporation (which
approval will not unreasonably be withheld) in connection with any action, suit,
claim, proceeding or investigation (each a "Claim") to the extent that any such
Claim is based on, or arises out of, (i) the fact that such person is or was a
director, officer, employee, fiduciary or agent of the Company or any of its
subsidiaries or is or was serving at the request of the Company or any of its
subsidiaries as a director, officer, employee, fiduciary or agent of another
corporation, partnership, joint venture, trust or other enterprise, or (ii) the
Merger Agreement, or any of the transactions contemplated thereby, in each case
to the extent that any such Claim pertains to any matter or fact arising,
existing, or occurring prior to or at the Effective Time, regardless of whether
such Claim is asserted or claimed prior to, at or after the Effective Time.
The Merger Agreement provides that the Surviving Corporation shall provide
directors' and officers' liability coverage for a period of six years after the
Effective Time, subject to certain limitations.
In addition, the Merger Agreement provides that, subject to certain
conditions, (i) all rights to indemnification and all limitations on liability
existing in favor of present or former directors or officers of the Company, as
provided in the Company's certificate of incorporation and by-laws as currently
in effect, will survive the Merger and will continue in effect for a period of
six years from the Effective Time of the Merger and (ii) successors and assigns
of the Surviving Corporation are required to assume the Surviving Corporation's
obligations under the Merger Agreement regarding such indemnification and
insurance.
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ACQUISITION PROPOSALS; FIDUCIARY OBLIGATIONS OF DIRECTORS
The Merger Agreement provides that the Company shall not, and shall not
authorize or permit any of its officers, directors, employees or agents to,
directly or indirectly solicit, knowingly encourage, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (collectively, a
"Person") concerning any merger, consolidation, tender offer, exchange offer,
sale of all or substantially all of the Company's assets, sale of shares of
capital stock or similar business combination transaction involving over twenty
percent of the Company's stock or assets (an "Acquisition Proposal"). If,
however, the Company or the Special Committee receives an unsolicited, written
indication of a willingness to make an Acquisition Proposal which the Special
Committee reasonably concludes is more favorable to Company stockholders, then
the Company or the Special Committee may, directly or indirectly, provide access
to or furnish or cause to be furnished information concerning the Company's
business, properties or assets to any such Person pursuant to an appropriate
confidentiality agreement, and the Company or the Special Committee may engage
in discussions related thereto. If after the Company has received a written
Acquisition Proposal (without breaching the foregoing obligations of the
Company) but prior to obtaining the required stockholder approval of the Merger,
the Special Committee determines, in good faith and upon advice of its financial
advisor and legal counsel, that it is necessary to do so in order to comply with
its fiduciary duties to the Company's stockholders under applicable law, the
Special Committee may do any or all of the following: (x) withdraw or modify the
Board of Directors' approval or recommendation of the Merger or the Merger
Agreement, (y) approve or recommend an Acquisition Proposal and (z) terminate
the Merger Agreement. Furthermore, notwithstanding the foregoing, the Company or
its Board of Directors may, upon the recommendation of the Special Committee,
take and disclose to the Company's stockholders a position with respect to a
tender or exchange offer by a third party or make such disclosure to the
Company's stockholders or otherwise which, in the judgment of the Special
Committee upon advice of legal counsel, is necessary under applicable law.
Pursuant to the Merger Agreement, the Company is required to promptly
advise COLA Acquisitions in writing within three business days of any
Acquisition Proposal or any inquiry regarding the making of an Acquisition
Proposal including any request for information, the material terms and
conditions of such request, Acquisition Proposal or inquiry and the identity of
the Person making such request, Acquisition Proposal or inquiry.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after the adoption of the Merger Agreement by the
stockholders of the Company, by the mutual written consent of the Company
(acting through the Special Committee) and COLA Acquisitions, or by either the
Company or COLA Acquisitions if any permanent injunction, order, decree, ruling
or other action of any governmental entity or court preventing the consummation
of the Merger has become final and nonappealable.
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The Company may terminate the Merger Agreement at any time prior to the
Effective Time (i) upon a material breach of any provision of the Merger
Agreement by COLA Acquisitions (including any breach of a representation or
warranty) which is not cured within five business days, provided that the
Company is not in breach of the Merger Agreement; or (ii) subject to certain
other conditions provided in the Merger Agreement, if the Special Committee
determines, in good faith and upon advice of its financial advisor and legal
counsel, that it is necessary to terminate the Merger Agreement in order to
comply with its fiduciary duties to the Company's stockholders under applicable
law, see "THE MERGER AGREEMENT--Acquisition Proposals; Fiduciary Obligations of
Directors."
COLA Acquisitions may terminate the Merger Agreement at any time prior to
the Effective Time, either before or after its adoption by the stockholders, (i)
if the Board of Directors (acting through the Special Committee) either (x)
withdraws, modifies or changes its recommendation so that it is not in favor of
the Merger Agreement or the Merger or (y) recommends or resolves to recommend to
stockholders an Acquisition Proposal; or (ii) upon a material breach of any
provision of the Merger Agreement by the Company (except any breach of a
representation or warranty or a breach not caused by the action or inaction of
the Special Committee) which is not cured within five business days, provided
that COLA Acquisitions is not in breach of the Merger Agreement.
FEES AND EXPENSES
Whether or not the Merger is consummated and except as otherwise provided
in the Merger Agreement, all fees and expenses incurred in connection with the
Merger will be paid by the party incurring such fees and expenses, except that
the Company will pay for all costs and expenses relating to the printing and
mailing of this Proxy Statement. The Company will pay COLA Acquisitions a
termination fee of $500,000 plus costs and expenses incurred by COLA
Acquisitions in connection with the Merger up to a maximum of $200,000 if the
Merger Agreement is terminated (a) by COLA Acquisitions because the Board of
Directors (acting through the Special Committee) either (i) withdraws, modifies
or changes its recommendation so that it is not in favor of the Merger Agreement
or the Merger or (ii) recommends an alternative Acquisition Proposal to the
Company's stockholders; (b) by the Company (acting through the Special
Committee), in order for the Special Committee to comply with its fiduciary
duties to the Company' stockholders in connection with an alternative
acquisition proposal, see "SPECIAL FACTORS - Fees and Expenses;" or (c) by COLA
Acquisitions if a material breach of the Merger Agreement is committed and not
cured by the Company and if such breach is attributable to the action or
inaction of the Special Committee.
DIRECTORS AND OFFICERS OF THE COMPANY FOLLOWING THE MERGER; CERTIFICATE OF
INCORPORATION; BYLAWS
The Merger Agreement provides that the directors of COLA Acquisitions at
the Effective Time will be the directors of the Surviving Corporation. The
Merger Agreement also provides that the officers of the Company at such time
will be the officers of the Surviving Corporation.
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The certificate of incorporation of the Company immediately prior to the
Effective Time will be the certificate of incorporation of the Surviving
Corporation, until thereafter amended, and the bylaws of COLA Acquisitions
immediately prior to the Effective Time will be the bylaws of the Surviving
Corporation until thereafter amended.
AMENDMENT/WAIVER
Before or after adoption of the Merger Agreement by the stockholders, the
Merger Agreement may be amended by the written agreement of the parties thereto
at any time prior to the Effective Time if such amendment is approved on behalf
of the Company by the Special Committee.
DIRECTORS AND EXECUTIVE OFFICERS OF COLA ACQUISITIONS
Messrs. O'Neil, Laborde and Cox are the initial directors of COLA
Acquisitions, and COLA Acquisitions currently has no intention of inviting
additional persons to join the Board of Directors of the Surviving Corporation
following the Merger. Mr. O'Neil is the initial President, Treasurer and
Secretary of COLA Acquisitions. Information regarding Messrs. O'Neil, Laborde
and Cox is set forth under "MANAGEMENT--Directors and Executive Officers of the
Company."
DISSENTERS' RIGHTS OF APPRAISAL
Pursuant to Section 262 of the DGCL, any holder of Common Stock who does
not wish to accept the Merger Consideration may dissent from the Merger and
elect to have the fair value of such stockholder's shares of Common Stock
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger) judicially determined and paid to such stockholder in
cash, together with a fair rate of interest, if any, provided that such
stockholder complies with the provisions of Section 262.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the DGCL, and is qualified in its entirety by the full
text of Section 262, which is provided in its entirety as Annex C to this Proxy
Statement.
ANY STOCKHOLDER WHO DESIRES TO EXERCISE STOCKHOLDER'S APPRAISAL RIGHTS
SHOULD REVIEW CAREFULLY SECTION 262 AND SHOULD CONSULT A LEGAL ADVISOR BEFORE
EXERCISING SUCH RIGHTS.
All references in Section 262 and in this summary to a "stockholder" are
to the record holder of the shares of Common Stock as to which appraisal rights
are asserted. A person having a beneficial interest in shares of Common Stock
held of record in the name of another person,
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such as a broker or nominee, must act promptly to cause the record holder to
follow properly the steps summarized below and in timely manner to perfect
appraisal rights.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, as in the case of the Special Meeting, the
corporation, not less than 20 days prior to the meeting, must notify each of its
stockholders entitled to appraisal rights that such appraisal rights are
available and include in such notice a copy of Section 262. This Proxy Statement
shall constitute such notice to the holders of Common Stock and the applicable
statutory provisions of the DGCL are attached to this Proxy Statement as Annex
C. Any stockholder who wishes to exercise such appraisal rights or who wishes to
preserve the right to do so should review carefully the following discussion and
Annex C to this Proxy Statement because failure to comply with the procedures
specified in Section 262 timely and properly will result in the loss of
appraisal rights. Moreover, because of the complexity of the procedures for
exercising the right to seek appraisal of the Common Stock, the Company believes
that stockholders who consider exercising such rights should seek the advice of
counsel.
Any holder of Common Stock wishing to exercise the right to dissent from
the Merger and demand appraisal under Section 262 of the DGCL must satisfy each
of the following conditions:
(A) Such stockholder must deliver to the Company a written demand for
appraisal of such stockholder's shares before the vote on the Merger
Agreement at the Special Meeting, which demand will be sufficient if
it reasonably informs the Company of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of
such holder's shares;
(B) Such stockholder must not vote its shares of Common Stock in favor of
the Merger Agreement. Because a proxy which does not contain voting
instructions will, unless revoked, be voted in favor of the Merger
Agreement, a stockholder who votes by proxy and who wishes to exercise
appraisal rights must vote against the Merger Agreement or abstain
from voting on the Merger Agreement; and
(C) Such stockholder must continuously hold such shares from the date of
making the demand through the Effective Time. Accordingly, a
stockholder who is the record holder of shares of Common Stock on the
date the written demand for appraisal is made but who thereafter
transfers such shares prior to the Effective Time will lose any right
to appraisal in respect of such shares.
Neither voting (in person or by proxy) against, abstaining from voting on
or failing to vote on the proposal to approve and adopt the Merger Agreement
will constitute a written demand for appraisal within the meaning of Section
262. The written demand for appraisal must be in addition to and separate from
any such proxy or vote.
Only a holder of record of shares of Common Stock issued and outstanding
immediately prior to the Effective Time is entitled to assert appraisal rights
for the shares of Common Stock
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registered in that holder's name. A demand for appraisal should be executed by
or on behalf of the stockholder of record, fully and correctly, as such
stockholder's name appears on such stock certificates, should specify the
stockholder's name and mailing address, the number of shares of Common Stock
owned and that such stockholder intends thereby to demand appraisal of such
stockholder's Common Stock. If the shares are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity, and if the shares are owned of record by more
than one person as in a joint tenancy or tenancy in common, the demand should be
executed by or on behalf of all owners. An authorized agent, including one or
more joint owners, may execute a demand for appraisal on behalf of a
stockholder; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the agent is acting
as agent for such owner or owners. A record holder such as a broker who holds
shares as nominee for several beneficial owners may exercise appraisal rights
with respect to the shares held for one or more beneficial owners while not
exercising such rights with respect to the shares held for one or more
beneficial owners; in such case, the written demand should set forth the number
of shares as to which appraisal is sought, and where no number of shares is
expressly mentioned the demand will be presumed to cover all shares held in the
name of the record owner. Stockholders who hold their shares in brokerage
accounts or other nominee forms and who wish to exercise appraisal rights are
urged to consult with their brokers to determine and appropriate procedures for
the making of a demand for appraisal by such nominee.
A stockholder who elects to exercise appraisal rights pursuant to Section
262 should mail or deliver a written demand to: TransFinancial Holdings, Inc.,
8245 Nieman Road, Suite 100, Lenexa, Kansas 66214, Attention: Mark A. Foltz,
Corporate Secretary.
Within ten days after the Effective Time, the Surviving Corporation must
send a notice as to the effectiveness of the Merger to each former stockholder
of the Company who has made a written demand for appraisal in accordance with
Section 262 and who has not voted in favor of the Merger Agreement. Within 120
days after the Effective Time, but not thereafter, either the Surviving
Corporation or any Dissenting Stockholder who has complied with the requirements
of Section 262 may file a Petition in the Delaware Chancery Court demanding a
determination of the value of the shares of Common Stock held by all Dissenting
Stockholders. The Company is under no obligation to and has no present intent to
file a petition for appraisal, and stockholders seeking to exercise appraisal
rights should not assume that the Surviving Corporation will file such a
petition or that the Surviving Corporation will initiate any negotiations with
respect to the fair value of such shares. Accordingly, stockholders 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. Inasmuch as the Company has no obligation to file
such a petition, the failure of a stockholder to do so within the period
specified could nullify such stockholder's previous written demand for
appraisal. In any event, at any time within 60 days after the Effective Time (or
at any time thereafter with the written consent of the Company), any stockholder
who has demanded appraisal has the right to withdraw the demand and to accept
payment of the Merger Consideration.
Pursuant to the Merger Agreement, the Company has agreed to give COLA
Acquisitions prompt notice of any demands for appraisal received by it,
withdrawals of such demands, and
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any other instruments served pursuant to the DGCL and received by the Company
and relating thereto. COLA Acquisitions shall direct all negotiations and
proceedings with respect to demands for appraisal under the DGCL. The Company
shall not, except with the prior written consent of COLA Acquisitions, make any
payment with respect to any demands for appraisal, or offer to settle, or
settle, any such demands.
Within 120 days after the Effective Time, any stockholder who has complied
with the provisions of Section 262 to that point in time will be entitled to
receive from the Surviving
Corporation, upon written request, a statement setting forth the aggregate
number of shares not voted in favor of the Merger Agreement and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. The Surviving Corporation must mail such statement to
the stockholder within 10 days of receipt of such request or within 10 days
after expiration of the period for delivery of demands for appraisals under
Section 262, whichever is later.
A stockholder timely filing a petition for appraisal with the Court of
Chancery must deliver a copy to the Surviving Corporation, which will then be
obligated within 20 days to provide the Delaware Court of Chancery with a duly
verified list containing the names and addresses of all stockholders who have
demanded appraisal of their shares. After notice to such stockholders, the
Delaware Court of Chancery is empowered to conduct a hearing on the petition to
determine which stockholders are entitled to appraisal rights. The Delaware
Court of Chancery may require stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to submit their
certificates to the Register in Chancery for notation thereon of the pendency of
the appraisal proceedings, and if any stockholder fails to comply with the
requirement, the Delaware Court of Chancery may dismiss the proceedings as to
that stockholder.
After determining the stockholders entitled to an appraisal, the Delaware
Court of Chancery will appraise the "fair value" of their 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. The costs of the action may be
determined by the Delaware Chancery Court and taxed upon the parties as the
Delaware Chancery Court deems equitable. Upon application of a Dissenting
Stockholder, the Delaware Chancery Court may also order that all or a portion of
the expenses incurred by any 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 of
the shares entitled to appraisal.
STOCKHOLDERS CONSIDERING SEEKING APPRAISAL SHOULD BE AWARE THAT THE FAIR
VALUE OF THEIR SHARES AS DETERMINED UNDER SECTION 262 COULD BE MORE THAN, THE
SAME AS OR LESS THAN THE MERGER CONSIDERATION THEY WOULD RECEIVE PURSUANT TO THE
MERGER AGREEMENT IF THEY DID NOT SEEK APPRAISAL OF THEIR SHARES. STOCKHOLDERS
SHOULD ALSO BE AWARE THAT INVESTMENT BANKING OPINIONS ARE NOT OPINIONS AS TO
FAIR VALUE UNDER SECTION 262.
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In determining fair value and, if applicable, a fair rate of interest, the
Delaware Chancery Court is 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 that are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered, and that "fair price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court 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 that could be
ascertained as of the date of the merger that throw any light on future
prospects of the merged corporation. In Weinberger, the Delaware Supreme Court
stated that "elements of future value, including the nature of the enterprise,
that are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." Section 262 provides that fair value
is to be "exclusive of any element of value arising from the accomplishment or
expectation of the merger."
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the shares
subject to such demand for any purpose or be entitled to the payment of
dividends or other distributions on those shares (except dividends or other
distributions payable to holders of record of shares as of a record date prior
to the Effective Time).
Any stockholder may withdraw its demand for appraisal and accept the
Merger Consideration by delivering to the Surviving Corporation a written
withdrawal of such stockholder's demands for appraisal, except that (i) any such
attempt to withdraw made more than 60 days after the Effective Time will require
written approval of the Surviving Corporation and (ii) no appraisal proceeding
in the Delaware Chancery Court shall be dismissed as to any stockholder without
the approval of the Delaware Chancery Court, and such approval may be
conditioned upon such terms as the Delaware Chancery Court deems just. If the
Surviving Corporation does not approve a stockholder's request to withdraw a
demand for appraisal when such approval is required or if the Delaware Chancery
Court does not approve the dismissal of an appraisal proceeding, the stockholder
would be entitled to receive only the appraised value determined in any such
appraisal proceeding, which value could be lower than the value of the Merger
Consideration.
FAILURE TO COMPLY STRICTLY WITH ALL OF THE PROCEDURES SET FORTH IN SECTION
262 OF THE DGCL WILL RESULT IN THE LOSS OF A STOCKHOLDER'S STATUTORY APPRAISAL
RIGHTS. CONSEQUENTLY, ANY STOCKHOLDER WISHING TO EXERCISE APPRAISAL RIGHTS IS
URGED TO CONSULT LEGAL COUNSEL BEFORE ATTEMPTING TO EXERCISE SUCH RIGHTS.
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MARKET FOR THE COMMON STOCK
COMMON STOCK MARKET PRICE INFORMATION; DIVIDEND INFORMATION
The Company's Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol "TFH." The following table shows, for the quarters
indicated, the per share high and low sales prices of the Common Stock on AMEX
based on published financial sources.
High Low
---- ---
1999
- ----
First Quarter ................................ $ 4 7/8 $ 2 3/4
Second Quarter ............................... 5 1/8 3 1/4
Third Quarter ................................ 6 1/2 3 3/4
Fourth Quarter (through December __, 1999)
1998
- ----
First Quarter ................................. $ 10 1/2 $ 8 7/8
Second Quarter ................................ 9 5/8 8 7/8
Third Quarter ................................. 9 1/2 5 13/16
Fourth Quarter ................................ 6 1/2 4 1/8
1997
- ----
First Quarter ................................. $ 8 1/8 $ 7 3/8
Second Quarter ................................ 9 1/8 7 1/2
Third Quarter ................................. 10 1/8 8 7/8
Fourth Quarter ................................ 10 1/4 8 5/8
On June 18, 1999, the last full trading day prior to the day on which the
Buyout Group's initial proposal to purchase all shares was publicly announced,
the closing, high and low sales prices for the Common Stock on AMEX were $4 1/8.
On October 19, 1999, the last full trading day prior to the public
announcement of the execution of the Merger Agreement, the closing price for the
Common Stock on the AMEX was $4 3/4 and the high and low sales prices were $4
3/4 and $4 5/8, respectively.
On December ___, 1999, the last trading day prior to the date of this
Proxy Statement, the closing price for the Common Stock on AMEX was $________,
and the high and low sales prices were $______ and $______, respectively.
The market price for Common Stock is subject to fluctuation and
stockholders are urged to obtain current market quotations.
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As of September 30, 1999, the Company has not paid any cash dividends on
the Common Stock during the first nine months of 1999 and did not pay any cash
dividends on the Common Stock during calendar years 1998 or 1997. The Company
currently intends to retain earnings to finance expansion and does not
anticipate paying cash dividends on its Common Stock prior to the Effective
Time. The Company's future policy with respect to the payment of cash dividends
will depend on several factors including, among others, the Company's credit
agreements and its acquisitions, earnings, capital requirements, financial
condition and operating results. See Note 4 of Notes to Consolidated Financial
Statements for a discussion of restrictions on the ability of the Company's
subsidiaries to pay dividends to the Company and the ability of the Company to
pay cash dividends.
COMMON STOCK PURCHASE INFORMATION
HOLDERS OF COMMON STOCK.
As of December __, 1999 the number of stockholders of record of Common
Stock was approximately 1,200. Since June 18, 1999, none of the members of the
Buyout Group have engaged in any transaction with respect to the Common Stock,
other than an IRA for the benefit of Timothy P. O'Neil which purchased 200
additional shares of Common Stock on October 22, 1999 at a price of $5.375 per
share. During the same time period, the Company has not engaged in any
transaction with respect to the Common Stock. See the Summary of Company Stock
Repurchases at "--Stock Repurchases--The Company" set forth below.
STOCK REPURCHASES
The Company. The following table summarizes the stock repurchases by the
Company since January 1, 1997.
<TABLE>
<CAPTION>
Shares High Low Average
------ ---- --- -------
<S> <C> <C> <C> <C>
January 1 - March 31, 1997 25,000 $8.0500 $ 7.8625 $ 7.9713
April 1 - June 30, 1997 105,051 9.0500 7.9125 8.7140
July 1 - September 30, 1997 (1) 200,696 9.2250 8.8875 9.0106
October 31 - December 31, 1997 33,200 9.3750 8.8000 9.1488
January 1 - March 31, 1998 -- -- -- --
April 1 - June 30, 1998 -- -- -- --
July 1 - September 30, 1998 2,115,422 9.1250 9.1250 9.1250
October 1 - December 31, 1998 -- -- -- --
January 1 - March 31, 1999 630,741 3.8100 3.7500 3.7848
April 1 - June 30, 1999 52,500 4.3000 4.0500 4.1192
July 1 - September 30, 1999 -- -- -- --
September 30, 1999 - present -- -- -- --
--------- ------- ------- -------
3,162,610 $9.3750 $3.7500 $7.9471
<FN>
(1) Includes 106,848 shares cancelled in the reverse split effective July 29,
1997 at a price of $8.8875. The low price excluding these shares was $9.05.
The average price excluding these shares was $9.1508.
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Stock Purchases by Certain Stockholders of COLA Acquisitions. The
following table summarizes the stock purchases by the current stockholders of
COLA Acquisitions since January 1, 1997.
</FN>
</TABLE>
WILLIAM D. COX
Shares Total
Purchase Date Purchased Price Shares Owned
------------- --------- ----- ------------
1/1/97 -- -- 39,500
9/11/97 2,000 $ 9.0625 41,500
8/27/98 1,200 7.4700 42,700
8/28/98 1,100 7.5100 43,800
8/31/98 2,700 7.5200 46,500
9/3/98 3,000 7.0000 49,500
9/9/98 2,000 5.9800 51,500
11/30/98 500 4.6250 52,000
12/4/98 2,000 5.0000 54,000
12/7/98 2,500 5.0000 56,500
12/9/98 1,000 5.0000 57,500
12/10/98 3,500 5.0000 61,000
ROY R. LABORDE
Shares Total
Purchase Date Purchased Price Shares Owned
------------- --------- ----- ------------
1/1/97 -- -- 157,315
4/22/99 1,900 $ 4.2500 159,215
TIMOTHY P. O'NEIL
Shares Total
Purchase Date Purchased Price Shares Owned
------------- --------- ----- ------------
1/1/97 -- -- 108,800
SECURITIES OWNERSHIP
This section provides certain information with respect to the beneficial
ownership of the Company's Common Stock by the persons or entities identified
below. Under SEC rules generally, a person is deemed to be a "beneficial owner"
of a security if such person has or shares the power to vote or direct the
voting of such security, or the power to dispose or to direct the disposition of
such security. Thus, more than one person may be deemed a beneficial owner of
the same security. Except as otherwise indicated, each person listed below has
informed the Company that such person has (i) sole voting and investment power
with respect to such person's shares of stock, except to the extent that
authority is shared by spouses under applicable law, and (ii) record and
beneficial ownership with respect to such person's shares of stock.
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Shares issuable upon exercise of Options that are exercisable currently or
within the next 60 days are deemed to be outstanding for the purpose of
computing the percentage ownership and overall voting power of persons
beneficially owning such Options, but have not been deemed to be outstanding for
the purpose of computing the percentage ownership or overall voting power of any
other person.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of September 30, 1999,
unless otherwise indicated, with respect to the beneficial ownership of the
Company's Common Stock by (a) persons known to the Company to be beneficial
owners of 5% or more of the outstanding Common Stock, (b) certain individual
directors and executive of the Company and (c) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Amount and
Name of Beneficial Owners (and address of Nature of
Beneficial owners other than executive officers, Beneficial Percent of
directors and nominees) Ownership(1) Class
- ------------------------------------------------- ------------ ----------
<S> <C> <C>
Franklin Advisory Services
Charles B. Johnson
Rupert H. Johnson, Jr.
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94404 ............................... 311,900 (2) 9.59%
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401 ............................ 293,500 (3) 9.02%
William D. Cox .................................... 74,000 (4) 2.27%
J. Richard Devlin ................................. 4,000 (5) .12%
Harold C. Hill, Jr. ............................... 9,500 (6) .29%
Roy R. Laborde .................................... 170,365 (7) 5.22%
Timothy P. O'Neil ................................. 141,620 (8) 4.31%
Clark D. Stewart .................................. 2,000 (9) .06%
David D. Taggart .................................. 13,000 (10) .40%
Kurt W. Huffman ................................... 12,000 (11) .37%
Directors and executive officers as a group
(9 persons, including the above ).................. 434,085 (12) 12.99%
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<PAGE>
<FN>
(1) Unless otherwise indicated, each person has sole voting and investment
power with respect to the shares listed.
</FN>
</TABLE>
(2) The shares shown in the table are beneficially owned as of March 31, 1999
by one or more open or closed-end investment companies or other managed
accounts which are advised by Franklin Advisory Services, Inc.
("Franklin"), a subsidiary of Franklin Resources, Inc. ("FRI"). Franklin
has all investment and/or voting power over the shares owned by such
advisory clients and may be deemed the beneficial owner of the shares shown
in the table. Charles B. Johnson and Rupert H. Johnson, Jr. (the "Principal
Shareholders") each own in excess of 10% of the outstanding common stock of
FRI and are the principal shareholders of FRI. FRI, the Principal
Shareholders and Franklin disclaim any economic interest or beneficial
ownership in any of the shares. The information contained in this footnote
was obtained from the Amendment No. 2 to Schedule 13G filed by these
persons on April 7, 1999.
(3) Dimensional Fund Advisors, Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 293,500 shares, all of
which shares are held in portfolios of four registered open-end investment
companies, or in series of investment vehicles, all of which Dimensional
serves as investment manager. Dimensional disclaims beneficial ownership of
all such shares. The information as to the beneficial ownership of
Dimensional was obtained from the Schedule 13G filed by that company on
February 11, 1999.
(4) Includes 13,000 shares subject to exercisable outstanding stock options.
Since September 30, 1999, Mr. Cox effected the transfer of 49,500 shares to
COLA Acquisitions pursuant to the Merger Agreement.
(5) Includes 3,000 shares subject to exercisable outstanding stock options.
(6) Includes 4,500 shares in the Francile Hill Revocable Trust. Both Mr. Hill
and Francile Hill are trustees and each has shared voting and investment
power. Also includes 5,000 shares subject to exercisable outstanding stock
options.
(7) Includes 11,150 shares subject to exercisable outstanding stock options and
1,415 shares owned by and registered in the name of his wife, over which
they share voting power but Mrs. Laborde retains sole investment power.
Prior to November 30, 1999, Mr. Laborde has agreed to transfer 154,650
shares to COLA Acquisitions pursuant to the Merger Agreement.
(8) Includes 32,820 shares subject to exercisable outstanding stock options and
32,800 shares owned by his wife, over which they hold shared voting and
investment power. Does not include 9,000 shares held in various irrevocable
trusts for the benefit of Mr. O'Neil's children and over which he has no
voting or investment power. Also does not include 23,860 shares to be
issued pursuant to deferred compensation arrangements over three years
following the termination of his employment. Since September 30, 1999, Mr.
O'Neil effected the transfer of 72,700 shares to COLA Acquisitions pursuant
to the Merger Agreement.
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<PAGE>
(9) Includes 1,000 shares subject to exercisable outstanding stock options.
(10) Represents 13,000 shares subject to exercisable outstanding stock options.
(11) Includes 6,000 shares subject to exercisable outstanding stock options.
(12) Includes a total of 89,070 shares subject to exercisable outstanding stock
options.
BENEFICIAL OWNERSHIP OF COMMON STOCK BY CERTAIN PARTIES RELATED TO THE BUYOUT
GROUP
COLA Acquisitions. COLA Acquisitions currently is the beneficial owner of
276,850 shares of Common Stock. For information concerning additional shares of
Common Stock to be contributed to COLA Acquisitions by members of the Buyout
Group immediately prior to the Merger, see "SPECIAL FACTORS - Interests of
Certain Persons in the Merger."
The Buyout Group. Information concerning shares of Common Stock owned by
Messrs. O'Neil, Laborde and Cox is contained above in "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." The following table sets forth
information regarding the shares of Common Stock owned, as of September 30,
1999, by other members of the Buyout Group:
Shares Percent
Name of Owners Owned of Class
-------------- ----- --------
Brockton Hannem ..................................... 100 *
David Cox ........................................... 2,000 *
Clarissa Cox ........................................ 1,000 *
G. Peter Bunn, III, Trustee for the
Timothy P. O'Neil Irrevocable Trust.................. 6,200 *
Loy Lynn Stange, Trustee for the John P. VanErem
Irrevocable Education Trust.......................... 1,400 *
Loy Lynn Stange, Trustee for the Dustin J. VanErem
Irrevocable Education Trust.......................... 1,400 *
Cathy Dam ........................................... 13,238 *
* Less than 1% of Common Stock outstanding.
78
<PAGE>
MANAGEMENT
Set forth below are the name and business address of each director and
executive officer of the Company, and the present principal occupation or
employment of each such person. Also set forth below are the material
occupations, positions, offices and employment of each such person and the name,
principal business and address of any corporation or other organization in which
any material occupation, position, office or employment of each such person was
held during the last five years.
Each person listed below is a citizen of the United States. The business
address of each director and executive officer is 8245 Nieman Road, Suite 100,
Lenexa, Kansas 66214.
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
NAME Age Position
- ---- --- --------
Timothy P. O'Neil ..... 42 President, Chief Executive Officer, and Director
David D. Taggart ...... 55 Executive Vice President and Director
Kurt W. Huffman ....... 41 Executive Vice President
Mark A. Foltz ......... 41 Vice President, Finance and Corporate Secretary
William D. Cox ........ 56 Director; Chairman of the Board of Directors
J. Richard Devlin ..... 49 Director
Harold C. Hill, Jr .... 64 Director
Roy R. Laborde ........ 60 Director; Vice Chairman of the Board of Directors
Clark D. Stewart ...... 60 Director
Timothy P. O'Neil, a member of the Board of Directors since August 1995,
has been President and Chief Executive Officer since May 1995. From October 1989
through May 1995, Mr. O'Neil served in various positions with the Company,
including, Senior Vice President, Vice President, Treasurer and Director of
Finance. From March 1997 through October 1998, he also served as President and
Chief Executive Officer of UPAC.
David D. Taggart, a member of the Board of Directors since July 1998, has
been Executive Vice President of the Company since April 1998. From August 1997
to April 1998 he served as Vice President of the Company. He has also served as
Chairman and Chief Executive Officer of Crouse since January 1997. Mr. Taggart
joined Crouse in October 1995 as Executive Vice President. Prior to his service
at Crouse, he served as President and Chief Executive Officer of G.I. Trucking,
a regional LTL carrier based in LaMirada, California, from 1991 to 1995.
Kurt W. Huffman has been Executive Vice President of the Company since
August 1998, President and Chief Executive Officer of Presis since March 1998
and President and Chief Executive Officer of UPAC since October 1998. From
August 1997 to March 1998 he served as
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<PAGE>
Executive Vice President of Presis. Prior to joining the Company in a management
capacity in June 1997, Mr. Huffman served as Chief Information Officer of
Laidlaw Transit Services, Overland Park, Kansas, a publicly traded provider of
school and municipal bus services, from May 1993 to February 1998. Prior to his
service with Laidlaw, he was a senior manager with the international accounting
firm of Arthur Andersen LLP.
Mark A. Foltz has been Vice President, Finance since June 1997 and
Treasurer and Corporate Secretary of the Company since May 1996. He was employed
with the Company as Director of Finance in July 1995 and also served as
Assistant Treasurer and Assistant Secretary from August 1995 to May 1996. Mr.
Foltz served in various financial positions, most recently as Assistant Vice
President - Finance, with Mark VII, Inc., a publicly traded transportation
company, headquartered in Memphis, Tennessee, from October 1987 to June 1995.
William D. Cox has served as Chairman of the Board of Directors since June
1997 and has served as a Director since 1991. Mr. Cox has served as President of
various family-owned, commercial and residential construction and land
development companies in Wichita, Kansas, currently Applewood Homes, Inc., from
1967 to the present.
J. Richard Devlin has served as a Director since 1997. Mr. Devlin has been
the Executive Vice President, General Counsel and External Affairs of Sprint
Corporation ("Sprint"), a publicly traded telecommunications company,
headquartered in Westwood, Kansas, since 1989. Mr. Devlin also serves as a
member of Sprint's Executive Management Committee. Mr. Devlin served as Vice
President and General Counsel for telephone operations for Sprint from 1987 to
1989. From 1972 to 1986, Mr. Devlin served as an attorney and in various line
and staff operations management positions with AT&T.
Harold C. Hill, Jr. has served as a Director since 1995. He retired as a
partner of Arthur Andersen LLP in 1993. Mr. Hill's 35 years of service with that
firm included responsibility as partner in charge of the transportation,
financial services and government practices in Kansas City, and the National
Technical Coordinator of that firm's trucking industry practice group.
Roy R. Laborde has served as a Director since 1991 and Vice Chairman of
the Board of Directors since June 1997. Mr. Laborde was Chairman of the Board of
Directors from May 1992 to June 1997. He has served as President of Amboy Grain,
Inc., Amboy, Minnesota, since 1985. Mr. Laborde was the President and Chief
Operating Officer for Rapidan Grain & Feed, Rapidan, Minnesota, from 1968
through 1988 and has continued to merchandise grain for that company.
Clark D. Stewart has served as a Director since 1997. Since September
1989, he has served as the President and Chief Executive Officer of Butler
National Corporation, a publicly-traded company, headquartered in Olathe,
Kansas, with operations primarily in the manufacture and modification of
aerospace switching equipment and management services for Indian gaming
enterprises.
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INDEPENDENT ACCOUNTANTS
The firm of PricewaterhouseCoopers LLP and its predecessors have served as
the Company's independent accountants since 1995. The consolidated financial
statements of the Company as of December 31, 1998 and 1997 and for each of the
years in the three year period ended December 31, 1998, included as part of
Annex D hereto, have been audited by PricewaterhouseCoopers LLP, independent
accountants, as stated in their report appearing therein. It is expected that
representatives of PricewaterhouseCoopers LLP will be present at the Special
Meeting, both to respond to appropriate questions of stockholders of the Company
and to make a statement if they so desire.
STOCKHOLDER PROPOSALS
If the Merger is consummated, there will be no public stockholders of the
Company and no public participation in any future meetings of stockholders of
the Company. However, if the Merger is not consummated, the Company's public
stockholders will continue to be entitled to attend and participate in Company
stockholders' meetings.
In the event that the Merger is not consummated, any proposal that a
Shareholder desires to have included in the Company's proxy materials for the
2000 Annual Meeting of Shareholders of the Company will need to be submitted in
accordance with both the rules of the Securities and Exchange Commission and the
Company's By-laws. Under applicable rules of the Securities and Exchange
Commission, such a proposal had to have been received by the Corporate Secretary
of the Company at the Company's principal executive offices no later than
November 19, 1999, in order to be considered for possible inclusion in the proxy
materials.
In addition to the requirements established by the Securities and Exchange
Commission, the Company's By-laws contain advance notice provisions governing
certain matters, including shareholder proposals and shareholder nominations of
candidates for election to the Board of Directors of the Company. Under the
Company's By-laws, notice of any such proposal or nomination must be in writing
and must be delivered to the Corporate Secretary at the Company principal
executive offices by the later of: (a) sixty (60) days prior to the scheduled
date of the shareholders' meeting, or (b) ten (10) days following the day on
which the Company mails notice or makes a public announcement of the scheduled
date of the meeting. Any such shareholder proposal or nomination for election
to the Board of Directors must also comply with the other applicable provisions
of the advance notice provisions in the Company's By-laws.
The Company currently anticipates that, in the event that the Merger is
not consummated, the 2000 Annual Meeting of Shareholders will be held on April
27, 2000. Assuming that the date of the meeting is not changed, notice of any
shareholder proposal or nomination to be considered at the 2000 Annual Meeting
of Shareholders must be received by the Corporate Secretary no later than
February 26, 2000 in order to be timely under the advance notice provisions of
the Company's By-laws.
No shareholder proposal or nomination will be considered at the 2000
Annual Meeting of Shareholders unless it is presented in accordance with the
foregoing requirements. A copy of the
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Company's By-laws containing the advance notice provisions can be obtained by
any Shareholder by written request to the Corporate Secretary of the Company at
the Company's principal executive offices.
WHERE YOU CAN FIND MORE INFORMATION
The SEC allows the Company to "incorporate by reference" information into
its Proxy Statement, which means that the Company can disclose important
information by referring you to another document filed separately with the SEC.
The following documents are incorporated by reference in this Proxy Statement
and are deemed to be a part hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;
(2) The Company's Quarterly Reports on Form 10-Q, as amended, for the
quarters ended March 31, 1999, June 30, 1999 and September 30, 1999;
(3) The Company's Proxy Statement dated March 12, 1999 for the Company's
1999 Annual Meeting of Stockholders; and
(4) The Company's Current Reports on Form 8-K filed on March 5, 1999 and
March 17, 1999.
The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 and the Company's Quarterly Report on Form 10-Q, as amended,
for the quarter ended September 30, 1999 are attached hereto as Annexes D and E,
respectively.
Any statement contained in a document incorporated by reference shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained in this Proxy Statement modifies or replaces such statement.
The Company also incorporates by reference the information contained in
all other documents the Company files with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy Statement
and before the Special Meeting. The information contained in any such document
will be considered part of this Proxy Statement from the date the document is
filed and will supplement or amend the information contained in this Proxy
Statement.
The Company undertakes to provide by first class mail, without charge and
within one business day of receipt of any request, to any person to whom a copy
of this Proxy Statement has been delivered, a copy of any or all of the
documents referred to above which have been incorporated by reference in this
Proxy Statement, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference therein). The Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 is accompanied by a list
briefly describing all the exhibits not contained therein. The Company will
furnish any exhibit upon the payment of a specified reasonable fee, which fee
will be limited to the Company's
82
<PAGE>
reasonable expenses in furnishing such exhibit. Requests for such copies should
be directed to Corporate Secretary, TransFinancial Holdings, Inc., 8245 Nieman
Road, Suite 100, Lenexa, Kansas 66214, telephone number (913) 859-0055.
OTHER BUSINESS
The Board of Directors does not know of any other matters to be presented
for action at the Special Meeting other than as set forth in this Proxy
Statement. If any other business should properly come before the Special
Meeting, the persons named in the enclosed proxy card intend to vote thereon in
accordance with their best judgment on the matter.
AVAILABLE INFORMATION
Because the Merger is a "going private" transaction, COLA Acquisitions,
certain members of the Buyout Group and the Company have filed a Rule 13e-3
Transaction Statement on Schedule 13E-3 under the Exchange Act with respect to
the Merger. The Schedule 13E-3 contains additional information about the
Company. Copies of the Schedule 13E-3 are available for inspection and copying
at the principal executive offices of the Company during regular business hours
by any interested stockholder of the Company, or a representative who has been
so designated in writing, and may be inspected and copied, or obtained by mail,
by written request directed to Corporate Secretary, TransFinancial Holdings,
Inc., 8245 Nieman Road, Suite 100, Lenexa, KS 66214.
The Company is currently subject to the information requirements of the
Exchange Act and in accordance therewith files periodic reports, proxy
statements and other information with the SEC relating to its business,
financial and other matters. Copies of such reports, proxy statements and other
information, as well as the Schedule 13E-3, may be copied (at prescribed rates)
at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the following
Regional Offices of the SEC: 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Seven World Trade Center, Suite 1300, New York, New York
10048. For further information concerning the SEC's public reference rooms, you
may call the SEC at 1-800-SEC-0330. Some of this information may also be
accessed on the World Wide Web through the SEC's Internet address at
"http://www.sec.gov." The Company's Common Stock is listed on the American Stock
Exchange, and materials may also be inspected at its offices, 86 Trinity Place,
New York, New York 10006.
By Order of the Board of Directors
Mark A. Foltz
Corporate Secretary
Lenexa, Kansas
December ___,1999
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ANNEX A
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of this
19th day of October, 1999 by and between TransFinancial Holdings, Inc., a
Delaware corporation (the "Company"), and COLA Acquisitions, Inc., a Kansas
corporation ("COLA").
RECITALS
WHEREAS, the Board of Directors of the Company (the "Board of Directors")
formed a special committee comprised exclusively of independent directors of the
Company (the "Special Committee") to consider and act upon a proposal received
from three members of the Board of Directors, who include the Chairman of the
Board, Vice Chairman of the Board and Chief Executive Officer of the Company, to
acquire all of the issued and outstanding shares of the Company not currently
owned by them;
WHEREAS, having received the advice of its financial and legal advisors,
and following detailed negotiation of the terms of a transaction with COLA, the
entity formed by the three members of the Board of Directors to conduct the
acquisition, and following consideration and negotiation of proposals received
from third parties to acquire some or all of the assets or outstanding shares of
stock of the Company, the Special Committee has unanimously determined that the
terms of the proposed acquisition of the Company by COLA, upon the terms and
subject to the conditions hereinafter provided, are fair to and in the best
interests of the Company and its stockholders (other than COLA and certain
related parties);
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with the General Corporation Law of the State of Delaware (the
"DGCL") and the Kansas General Corporation Code (the"KGCC"), COLA will merge
with and into the Company (the "Merger") pursuant to which certain outstanding
shares of common stock of the Company, par value $0.01 per share (the "Common
Stock"), shall be converted into the right to receive $6.03 in cash per share of
Common Stock, as more fully set forth herein;
WHEREAS, the Board of Directors, based on the unanimous recommendation of
the Special Committee, has determined that the Merger is fair to and in the best
interests of the Company and its stockholders (other than COLA and certain
related parties) and has approved this Agreement, the Merger and the other
transactions contemplated hereby and has recommended approval and adoption of
this Agreement by the stockholders of the Company.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
A-1
<PAGE>
ARTICLE I
THE MERGER
1.1. The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the DGCL and the KGCC, at the Effective
Time (as defined in Article 1.2), COLA shall be merged with and into the
Company. Following the Merger, the separate existence of COLA shall cease and
the Company shall continue as the surviving corporation of the Merger (the
"Surviving Corporation").
1.2. Effective Time. As soon as practicable after the satisfaction or, if
permissible, the waiver of the conditions set forth in Article VII, the parties
hereto shall cause the Merger to be consummated by filing a certificate of
merger (the "Certificate of Merger") with the Secretary of State of the State of
Delaware and by making any related filings required under the DGCL and the KGCC
in connection with the Merger. The Merger shall become effective at such time as
the Certificate of Merger is duly filed with the Secretary of State of the State
of Delaware or at such later time as is agreed to by the parties hereto and as
is specified in the Certificate of Merger (the "Effective Time" or the
"Closing").
1.3. Effects of the Merger. From and after the Effective Time, the Merger
shall have the effects set forth in the DGCL (including, without limitation,
Sections 259, 260 and 261 thereof) and the KGCC. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers and franchises of the Company and COLA
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of the Company and COLA shall become the debts, liabilities and duties of the
Surviving Corporation.
1.4. Certificate of Incorporation and By-laws. Unless otherwise agreed by
the Company and COLA prior to Closing, (a) the certificate of incorporation of
the Company, as in effect immediately prior to the Effective Time, shall be
amended and restated by the Certificate of Merger in the manner set forth on
Exhibit A and such amended and restated certificate of incorporation shall be
the certificate of incorporation of the Surviving Corporation (the "Surviving
Certificate") until thereafter amended in accordance with the DGCL, and (b) the
bylaws of COLA immediately prior to the Effective Time shall be the bylaws of
the Surviving Corporation until thereafter amended in accordance with the
Surviving Certificate and the DGCL.
1.5. Directors and Officers. From and after the Effective Time, until
their respective successors are duly elected or appointed and qualified in
accordance with applicable law, (a) the directors of COLA at the Effective Time
shall be the directors of the Surviving Corporation and (b) the officers of the
Company at the Effective Time shall be the officers of the Surviving
Corporation.
A-2
<PAGE>
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
2.1. Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of COLA, the Company or the holders of
any of the Company's securities, the Company's securities shall be converted in
accordance with the following provisions.
2.1.1. Public Shares. Each share of the Common Stock, other than any
shares of Common Stock to be converted or canceled pursuant to Article 2.1.2 or
2.1.3 and other than any Dissenting Shares (as defined in Article 2.5), issued
and outstanding immediately prior to the Effective Time (the "Public Shares")
shall be converted into the right to receive $6.03 in cash, without interest
(the "Merger Consideration"). At the Effective Time, each Public Share shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each certificate evidencing any Public Share shall
thereafter represent only the right to receive, upon the surrender of such
certificate in accordance with the provisions of Article 2.2, an amount in cash
per share equal to the Merger Consideration. The holders of certificates
previously evidencing the Public Shares shall cease to have any rights with
respect to such shares of Common Stock except as otherwise provided herein or by
law.
2.1.2. Treasury Shares; COLA Shares. Each share of capital stock of
the Company (a) held in the treasury of the Company or by any wholly owned
subsidiary of the Company or (b) owned by COLA shall automatically be canceled,
retired and cease to exist without any conversion thereof and no payment shall
be made with respect thereto.
2.1.3. Conversion of Excluded Shares. The shares of Common Stock
listed on Exhibit B hereto shall be converted into and become shares of stock of
the Surviving Corporation in the manner described in Exhibit B and the converted
shares shall have the rights set forth in the Surviving Certificate.
Notwithstanding anything to the contrary in this Agreement, COLA shall have the
right, in its sole discretion, to alter and amend Exhibit B at any time prior to
the filing of a preliminary proxy statement with the Securities and Exchange
Commission by giving written notice of such amendment to the Company but shall
not increase the number of shares listed on Exhibit B by more than 1,000 shares.
2.1.4. Conversion of Shares of COLA. Each share of Class A, Class B
and Class C Stock of COLA outstanding immediately prior to the Effective Time
shall be converted into and become one share of the same class of stock of the
Surviving Corporation with the rights set forth in the Surviving Certificate.
2.1.5 Capital Stock of Surviving Corporation. The shares of stock
resulting from conversion under Articles 2.1.3 and 2.1.4 shall constitute the
only outstanding shares of capital stock of the Surviving Corporation.
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2.2. Exchange of Certificates and Cash.
2.2.1. Exchange Agent. On or before the Effective Time, COLA shall
enter into an agreement providing for the matters set forth in this Article 2.2
(the "Exchange Agent Agreement") with a bank or trust company selected by COLA
and reasonably acceptable to the Company (the "Exchange Agent"), authorizing
such Exchange Agent to act as Exchange Agent in connection with the Merger.
Immediately prior to the Effective Time, COLA shall deposit or shall cause to be
deposited with or for the account of the Exchange Agent, for the benefit of the
holders of Public Shares, an amount in cash equal to the Merger Consideration
payable pursuant to Article 2.1.1 (such cash funds are hereafter referred to as
the "Exchange Fund"). The Exchange Agent shall invest the Exchange Fund as COLA
directs, provided that investments shall be made only in obligations of or
guaranteed by the United States of America or in certificates of deposit or
banker's acceptances of commercial banks with capital in excess of $100 million.
2.2.2. Exchange Procedures. As soon as reasonably practicable after
the Effective Time, but in any event within five (5) Business Days thereafter,
COLA will instruct the Exchange Agent to mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
evidenced outstanding Public Shares (the "Certificates"), (a) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as COLA may reasonably specify) and (b) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by COLA, together
with a letter of transmittal, duly executed, and such other customary documents
as may be required pursuant to such instructions (collectively, the "Transmittal
Documents"), the holder of such Certificate shall be entitled to receive in
exchange therefor the Merger Consideration for each share of Common Stock
formerly represented by such Certificate, without any interest thereon, less any
required withholding of taxes, and the Certificate so surrendered shall
thereupon be canceled. In the event of a transfer of ownership of Public Shares
which is not registered in the transfer records of the Company, the Merger
Consideration may be issued and paid in accordance with this Article II to the
transferee of such shares if the Certificate evidencing such shares of Common
Stock is presented to the Exchange Agent and is properly endorsed or otherwise
in proper form for transfer. The signature on the Certificate or any related
stock power must be properly guaranteed and the person requesting payment of the
Merger Consideration must either pay any transfer or other taxes required by
reason of the payment to a person other than the registered holder of the
Certificate so surrendered or establish to the Surviving Corporation's
satisfaction that such tax has been paid or is not applicable. The Merger
Consideration will be delivered by the Exchange Agent as promptly as practicable
following surrender of a Certificate and the related Transmittal Documents. Cash
payments may be made by check unless otherwise required by a depositary
institution in connection with the book-entry delivery of securities. No
interest will be payable on such Merger Consideration. Until surrendered in
accordance with this Article 2.2.2, each Certificate shall be deemed at any time
after the Effective Time to evidence only the right to receive, upon such
surrender, the Merger
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Consideration for each Public Share formerly represented by such Certificate.
The Exchange Fund shall not be used for any purpose other than as set forth in
this Article II. Any interest, dividends or other income earned on the
investment of cash held in the Exchange Fund shall be for the account of the
Surviving Corporation.
2.2.3. Termination of Exchange Fund. Any portion of the Exchange
Fund (including the proceeds of any investments thereof) which remains
undistributed to the holders of Common Stock for one year following the
Effective Time shall be delivered to the Surviving Corporation upon demand. Any
holders of Public Shares who have not theretofore complied with this Article II
shall thereafter look only to the Surviving Corporation for payment of the
Merger Consideration.
2.2.4. No Liability. None of COLA, the Surviving Corporation or the
Company shall be liable to any holder of Public Shares for any cash delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
2.2.5. Withholding Rights. COLA, the Surviving Corporation and the
Exchange Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of Public Shares such
amounts as the Surviving Corporation or the Exchange Agent is required to deduct
and withhold with respect to the making of such payment under the United States
Internal Revenue Code of 1986, as amended, or any provision of state, local or
foreign tax law; provided, however, that COLA or the Surviving Corporation, as
the case may be, shall promptly pay any amounts deducted or withheld hereunder
to the applicable governmental authority, shall promptly file all tax returns
and reports required to be filed in respect of such deductions and withholding,
and shall provide to any holder of Public Shares affected by such withholding
promptly upon written request proof of such payment and a copy of all tax
returns and reports relevant thereto. To the extent that amounts are so withheld
by the Surviving Corporation or the Exchange Agent, such withheld amounts shall
be treated for all purposes of this Agreement as having been paid to the holder
of the shares of Common Stock in respect of which such deduction and withholding
was made by the Surviving Corporation or the Exchange Agent.
2.2.6. Lost, Stolen or Destroyed Certificates. In the event any
Certificates evidencing Public Shares shall have been lost, stolen or destroyed,
the holder of such lost, stolen or destroyed Certificate(s) shall execute an
affidavit of that fact upon request. The holder of any such lost, stolen or
destroyed Certificate(s) shall also deliver a reasonable indemnity against any
claim that may be made against COLA or the Exchange Agent with respect to the
Certificate(s) alleged to have been lost, stolen or destroyed. The affidavit and
any indemnity which may be required hereunder shall be delivered to the Exchange
Agent, who shall be responsible for making payment for such lost, stolen or
destroyed Certificates(s) pursuant to the terms hereof.
2.3. Stock Transfer Books. At the Effective Time, the stock transfer books
of the Company shall be closed, and there shall be no further registration of
transfers of shares of Common Stock thereafter on the records of the Company.
Any Certificates evidencing the Public Shares presented to the Exchange Agent or
the Surviving Corporation for any reason at or
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after the Effective Time shall be exchanged for the Merger Consideration
pursuant to the terms hereof.
2.4. Stock Options.
2.4.1. Cancellation. Subject to Articles 2.4.3, 2.4.4 and 2.4.5 and
the terms of such Option, each Option (as defined in Article 3.3) which is
outstanding immediately prior to the Effective Time, whether or not then
exercisable, shall be canceled as of the Effective Time. Each holder of such
canceled Options shall be paid by the Surviving Corporation as soon as
practicable, but in any event within thirty days after the Effective Time, for
each such Option, an amount determined as follows: (a) for each Option with an
exercise price below $6.03 per share, an amount equal to (i) the excess, if any,
of the Merger Consideration over the applicable exercise price per share of such
Option multiplied by (ii) the number of shares issuable upon exercise of such
Option, and (b) for each Option with an exercise price at or above $6.03, twenty
cents ($0.20) multiplied by the number of shares issuable upon exercise of such
Option, in each case subject to any required withholding of taxes.
2.4.2 Termination. All Company Option Plans (as defined in Article
3.3) shall terminate as of the Effective Time and the Company shall use its
commercially reasonable efforts to ensure that following the Effective Time no
holder of an Option or any participant in a Company Option Plan shall have any
right thereunder to acquire any capital stock of the Company or the Surviving
Corporation.
2.4.3. Consents. Prior to the Effective Time, the Company shall use
its commercially reasonable efforts to (a) obtain all consents from holders of
Options and (b) make any amendments to the terms of the Company Option Plans and
any Options granted thereunder that are necessary or appropriate to give effect
to the transactions contemplated by this Article 2.4.
2.4.4. Other Arrangements. In lieu of the cancellation of Options
referred to in this Article 2.4, prior to the Effective Time, the Company may
enter into mutually acceptable arrangements with any holder of Options providing
that such holder's Options will be treated in a manner other than as provided in
Article 2.4.1.
2.4.5 Payments. All payments to holders of Options made pursuant to
this Article 2.4 shall be contingent upon consummation of the Merger and will be
subject to the withholding of such amounts as the Surviving Corporation is
required to deduct and withhold with respect to the making of such payment under
the United States Internal Revenue Code of 1986, as amended, or any provision of
state, local or foreign tax law.
2.5. Dissenting Shares.
2.5.1. Generally. Notwithstanding any other provision of this
Agreement to the contrary, Shares that are outstanding immediately prior to the
Effective Time and which are held by stockholders (a) who shall not have voted
in favor of adoption of this Agreement and (b) who shall be entitled to and
shall have properly demanded in writing an appraisal of such shares in
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accordance with Section 262 of the DGCL ("Dissenting Shares"), shall not be
converted into or represent the right to receive the Merger Consideration unless
such stockholders fail to perfect, withdraw or otherwise lose their right to
appraisal. Such stockholders shall be entitled to receive payment of the
appraised value of such Dissenting Shares in accordance with the provisions of
the DGCL. If, after the Effective Time, any such stockholder fails to perfect,
withdraws or loses its right to appraisal, such Shares shall be treated as if
they had been converted as of the Effective Time into a right to receive the
Merger Consideration, without interest thereon, upon surrender of the
Certificate or Certificates that formerly evidenced such Shares in the manner
set forth in Article 2.2.
2.5.2. Notice of Demands. The Company shall give COLA prompt notice
of any demands for appraisal received by it, withdrawals of such demands, and
any other instruments served pursuant to the DGCL and received by the Company.
COLA shall direct all negotiations and proceedings with respect to demands for
appraisal under the DGCL. The Company shall not, except with the prior written
consent of COLA, which shall not be unreasonably withheld, make any payment with
respect to any demands for appraisal, or offer to settle, or settle, any such
demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to COLA as follows:
3.1. Organization and Qualifications. The Company and each subsidiary of
the Company (a "Company Subsidiary") is a corporation, partnership or other
legal entity duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has the requisite power and authority and all necessary governmental
approvals, to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so organized,
existing and in good standing would not have a Company Material Adverse Effect
(as defined below). The Company and each Company Subsidiary is duly qualified or
licensed and in good standing to do business in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that would not,
individually or in the aggregate, have a material adverse effect on the
business, assets, results of operations or financial condition of the Company
and the Company Subsidiaries, taken as a whole (a "Company Material Adverse
Effect").
3.2. Certificate of Incorporation and Bylaws. COLA has been given access by
the Company to a complete and correct copy of the certificate of incorporation
and the bylaws or equivalent organizational documents, each as amended to the
date hereof, of the Company and each Company Subsidiary. Such certificates of
incorporation, bylaws and equivalent organizational documents are in full force
and effect. Neither the Company nor any Company Subsidiary is in violation of
any provision of its certificate of incorporation, bylaws or equivalent
organizational documents.
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3.3. Capitalization. The authorized capital stock of the Company consists
of 13,000,000 shares of Common Stock and 1,000,000 shares of preferred stock,
par value $0.01 per share (the "Preferred Stock"). As of September 30, 1999: (a)
3,252,115 shares of Common Stock were outstanding, all of which were validly
issued, fully paid and nonassessable; (b) no shares of Preferred Stock were
issued and outstanding; (c) 421,450 shares of Common Stock were reserved for
issuance upon the exercise of outstanding stock options (the "Options") granted
pursuant to the Company's 1992 Incentive Stock Plan and 1998 Long-Term Incentive
Plan (collectively, the "Company Option Plans"); (d) 4,345,561 shares of Common
Stock and no shares of Preferred Stock were held in the treasury of the Company;
(e) 23,860 shares of Common Stock are subject to issuance as deferred
compensation to Timothy P. O'Neil (f) no Company Subsidiary owns any shares of
the Company's capital stock; and (g) there are no securities of any Company
Subsidiary outstanding which are convertible into or exercisable or exchangeable
for capital stock of the Company. Except as set forth above, and except pursuant
to the First Amended and Restated Rights Agreement dated March 4, 1999 by and
between the Company and U.M.B. Bank n.a., no shares of capital stock or other
securities of the Company have been issued, are reserved for issuance or are
outstanding. All shares of Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, will be duly authorized, validly issued, fully paid and
nonassessable.
3.4. Subsidiaries. The Company owns, directly or indirectly, all of the
outstanding shares of capital stock of, or other equity interest in, each
Company Subsidiary. Except as set forth in Exhibit C, all outstanding shares of
capital stock of each Company Subsidiary are duly authorized, validly issued,
fully paid and nonassessable, and are owned, directly or indirectly, by the
Company free and clear of all liens, pledges, security interests, claims or
other encumbrances ("Encumbrances"). Exhibit C sets forth for each Company
Subsidiary: (a) its authorized capital stock or share capital, (b) the number of
issued and outstanding shares of stock or share capital, and (c) the holder or
holders of such shares. Except for the Company's interest in each Company
Subsidiary or as set forth in Exhibit C, neither the Company nor any Company
Subsidiary owns directly or indirectly any interest or investment (whether
equity or debt) in any corporation, partnership, joint venture, business, trust
or entity.
3.5. Authority Relative to This Agreement. The Company has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action. No other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby, other than,
with respect to the Merger, the adoption of this Agreement by the holders of a
majority of the aggregate voting power of the issued and outstanding shares of
Common Stock (the "Company Stockholder Approval"), and the filing and
recordation of appropriate merger documents as required by, and in accordance
with, the KGCC and the DGCL. This Agreement has been duly and validly executed
and delivered by the Company and, assuming the due authorization, execution and
delivery by COLA, constitutes the legal, valid and binding obligation of the
Company,
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enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the rights of
creditors generally and by general principles of equity.
3.6. No Conflict; Required Filings and Consents.
3.6.1. Conflicts. Except as set forth in Exhibit D, the execution
and delivery of this Agreement by the Company do not, and the performance of
this Agreement and the consummation of the transactions contemplated hereby will
not, (a) conflict with or violate the Company's Restated Certificate of
Incorporation, or its By-laws, or the certificate of incorporation, by-laws or
other equivalent organizational documents of any Company Subsidiary, (b)
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to the Company or any Company Subsidiary or by which any property or
asset of the Company or any Company Subsidiary is bound or affected, or (c)
result in any breach of or constitute a default (or an event which, with notice,
lapse of time or both, would become a default) under, result in the loss of a
material benefit under or give to others any right of termination, amendment,
acceleration, increased payments or cancellation of, or result in the creation
of a lien or other encumbrance on any properties or assets of the Company
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or any other instrument or obligation to which
Company is a party or by which Company or any of its properties or assets is
bound or affected, except, in the case of clauses (b) and (c), for any such
conflicts, violations, breaches, defaults or other occurrences which (x) would
not prevent or delay consummation of the Merger in any material respect or
otherwise prevent the Company from performing its obligations under this
Agreement in any material respect, and (y) would not, individually or in the
aggregate, have a Company Material Adverse Effect.
3.6.2. Required Filings, Consents, etc. The execution and delivery
of this Agreement by the Company do not, and the performance of this Agreement
and the consummation of the Merger and the other transactions contemplated
hereby by the Company will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, domestic or foreign (each a "Governmental Entity"), except (a) for
(i) any applicable requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or the Securities Act of 1933, as amended (the
"Securities Act"), (ii) the filing and recordation of appropriate merger and
similar documents as required by the DGCL and the KGCC, and (iii) filings under
the rules and regulations of the American Stock Exchange, Inc., and (b) where
the failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, (i) would not prevent or delay consummation
of the Merger in any material respect or otherwise prevent the Company from
performing its obligations under this Agreement in any material respect, and
(ii) would not, individually or in the aggregate, have a Company Material
Adverse Effect.
3.7. Opinion of Financial Advisor. The Company represents that William
Blair & Company, L.L.C. (the "Financial Advisor") has delivered to the Special
Committee and to the Board of Directors its written opinion, as of the date
hereof, subject to the qualifications and limitations stated therein, to the
effect that the consideration to be received by the holders of the Shares (other
than Shares held by COLA and the Excluded Shares) pursuant to the Merger is fair
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to such holders of Shares from a financial point of view. The Company has been
authorized by the Financial Advisor to permit, subject to prior review and
consent by the Financial Advisor, the inclusion of the fairness opinion (or a
reference thereto) in the Proxy Statement (as defined in Article 6.2.1) and the
Schedule 13E-3 (as defined in Article 6.2.3) on the terms of the engagement
letter between the Company and the Financial Advisor dated July 15, 1999.
3.8. Board Approval. The Board of Directors of the Company, based on the
unanimous recommendation of the Special Committee, at a meeting duly called and
held and at which a quorum was present and voting, unanimously (a) determined
that this Agreement and the Merger are fair to and in the best interests of the
Company's stockholders (other than COLA and the holders of the Excluded Shares),
(b) approved this Agreement, the Merger and the other transactions contemplated
hereby, and (c) resolved to recommend approval and adoption of this Agreement by
the Company's stockholders.
3.9. Brokers. No broker, finder or investment banker (other than the
Financial Advisor) is entitled to any brokerage, finder's or other fee or
commission in connection with this Agreement, the Merger and the other
transactions contemplated hereby based upon arrangements made by or on behalf of
the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COLA
COLA hereby represents and warrants to the Company as follows:
4.1. Organization and Qualification. COLA is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Kansas and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted. COLA is duly qualified or licensed
and in good standing to do business in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not, individually or in
the aggregate, have a material adverse effect on the business, results of
operations or financial condition of COLA and its subsidiaries, taken as a whole
("COLA Material Adverse Effect") and would not prevent COLA from consummating
the transactions contemplated hereby.
4.2. Authority Relative to This Agreement. COLA has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by COLA and the
consummation by it of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of COLA and no other corporate
proceedings on the part of COLA are necessary to authorize this Agreement or to
consummate such transactions (other than the filing and recordation of
appropriate merger documents as required by the KGCC and the DGCL). This
Agreement has been duly and validly executed and delivered by COLA and, assuming
the due authorization, execution and delivery by the
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Company, constitutes the legal, valid and binding obligation of COLA,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the rights of
creditors generally and by general principles of equity.
4.3. No Conflict; Required Filings and Consents.
4.3.1. Conflicts. The execution and delivery of this Agreement by
COLA do not, and the consummation of the transactions contemplated hereby will
not, (a) conflict with or violate the certificate of incorporation or by-laws of
COLA, or (b) conflict with or violate any law, rule, regulation, order, judgment
or decree applicable to COLA or by which any of its properties or assets are
bound or affected, except in the case of clauses (b), for any such conflicts,
violations, breaches, defaults or other occurrences which (x) would not prevent
or delay consummation of the Merger in any material respect or otherwise prevent
COLA from performing its obligations under this Agreement in any material
respect, or (y) would not, individually or in the aggregate, have a COLA
Material Adverse Effect.
4.3.2. Required Filings, Consents, etc. The execution and delivery
of this Agreement by COLA do not, and the performance of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby by
COLA will not, require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Entity, except (a) for (i) any
applicable requirements, if any, of the Exchange Act, the Securities Act, and
(ii) filing and recordation of appropriate merger and similar documents as
required by the KGCC and the DGCL and (b) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not (x) prevent or delay consummation of the Merger in any
material respect or otherwise prevent COLA from performing its obligations under
this Agreement in any material respect, or (y) would not, individually or in the
aggregate, have a COLA Material Adverse Effect.
4.4. Financing. COLA has received and accepted a written commitment from
LaSalle Bank, n.a. (the "Bank") for the provision of a senior credit facility or
facilities for the transactions contemplated hereby in an amount of up to $38
million (with $10 million of such commitment to be provided by Bankers Trust).
The aggregate amount of the financing (the "Financing") contemplated by the
commitment (the "Commitment") will be sufficient to consummate the Merger. COLA
has provided true and correct copies of the Commitment to the Company prior to
the date hereof, and will provide copies of any material amendments or
modifications thereto. To the knowledge of COLA, there exists no condition with
respect to COLA or the Company as of the date of this Agreement that would
materially adversely affect the ability of COLA to satisfy in all respects the
conditions set forth in the Commitment.
4.5. Solvency. COLA has no reason to believe that the Financing to be
provided to COLA to effect the Merger will cause (a) the fair salable value of
the Surviving Corporation's assets to be less than the total amount of its
existing liabilities and identified contingent liabilities, (b) the fair salable
value of the Surviving Corporation's assets to be less than the amount that will
be required to pay its probable liabilities and its existing debts as they
mature, (c) the Surviving Corporation not to be able to pay its existing debts
as they mature or (d) the
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Surviving Corporation to have an unreasonably small amount of capital with which
to engage in its business.
4.6. No Knowledge of Breach. As of the date hereof, COLA is not aware of
any fact that causes any representation or warranty of the Company made in this
Agreement to be false or misleading.
4.7. Hart-Scott-Rodino. Capitalized terms used in this Article 4.7 but not
otherwise defined herein are used as defined in the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act"). Financial information described in this Article 4.7
is to be determined in accordance with the HSR Act. As of the date hereof and
the date of Closing, (a) the annual net sales of the Person within which COLA is
included under the HSR Act, determined in accordance with the HSR Act, for the
most recent fiscal year were less than $10,000,000 and (b) the total assets of
such Person were less than $10,000,000.
4.8. Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with this
Agreement, the Merger and the other transactions contemplated hereby based upon
arrangements made by or on behalf of COLA.
4.9. Ownership of Company Stock. As of the date of this Agreement, 122,200
Shares have been contributed as capital to COLA. Prior to the date of this
Agreement, COLA has provided the Company with true and accurate copies of
documents showing the contribution of such shares to COLA. Prior to the
execution of this Agreement, COLA has provided the Company with a true and
accurate copy of the letter agreement among Timothy P. O'Neil, Roy R. Laborde,
William D. Cox, and COLA, a copy of which is attached as Exhibit E, in which (a)
Mr. Laborde has agreed to contribute 154,650 Shares to COLA at such time as
those shares are no longer pledged as collateral for personal indebtedness,
which will be no later than November 30, 1999, and (b) COLA and Messrs. O'Neil,
Laborde and Cox have agreed to vote all Shares held by them (other than Excluded
Shares) in favor of the Merger.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
5.1. Conduct of Business by the Company Pending the Merger. The Company
covenants and agrees that, between the date of this Agreement and the Effective
Time, unless COLA shall have consented (such consent to be given or withheld
within its sole discretion), neither the Company nor any Company Subsidiary
shall:
(a) conduct its business in any manner other than in the ordinary course
of business consistent with past practice;
(b) amend or propose to amend its certificate of incorporation or by-laws;
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(c) authorize for issuance, issue, grant, sell, pledge, redeem or acquire
for value any of its or their securities, including options, warrants,
commitments, stock appreciation rights, subscriptions, or other rights to
purchase securities; provided, however, that shares of Common Stock earned as
Performance Shares by employees of the Company and Company Subsidiaries pursuant
to the Company's 1998 Long-Term Incentive Plan may be issued upon such
employees' satisfaction of performance criteria that (i) have been adopted by
the Board of Directors prior to the date of this Agreement or (ii) are
subsequently approved by COLA; and provided, further, that the Company may issue
securities pursuant to the exercise of options, warrants, commitments,
subscriptions, or other rights to purchase securities outstanding on the date
hereof;
(d) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property, or otherwise, with respect to any of its
capital stock or other equity interests, or subdivide, reclassify, recapitalize,
split, combine or exchange any of its shares of capital stock;
(e) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect to
accounting policies or procedures (including tax accounting policies and
procedures);
(f) take any action that would, or could reasonably be expected to result
in, any of its representations and warranties set forth in this Agreement being
untrue or in any of the conditions to the Merger set forth in Article VII not
being satisfied, except as provided in Articles 6.4 and 8.1 hereof; or
(g) authorize any of, or commit or agree to take any of, the foregoing
actions.
ARTICLE VI
ADDITIONAL COVENANTS
6.1. Access to Information; Confidentiality. From the date hereof to the
Effective Time, the Company shall (and shall cause the Company Subsidiaries and
the officers, directors, employees, auditors and agents of the Company and each
of the Company Subsidiaries to) afford the officers, employees and agents of
COLA (the "COLA Representatives") reasonable access at all reasonable times to
its officers, employees, agents, properties, offices, plants and other
facilities, books and records, and shall furnish such COLA Representatives with
all financial, operating and other data and information as may from time to time
be reasonably requested.
6.2. Proxy Statement; Schedule 13E-3.
6.2.1. Proxy Statement. As soon as practicable after the date of
this Agreement, the Company shall prepare and file with the SEC a proxy
statement, in form and substance approved by COLA (such approval not to be
unreasonably withheld), relating to the meeting of the Company's stockholders to
be held in connection with the Merger (together with any amendments thereof or
supplements thereto, the "Proxy Statement"). COLA shall furnish to the Company
such information concerning itself as the Company may reasonably request in
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connection with the preparation of the Proxy Statement. The Proxy Statement will
comply in all material respects with applicable federal securities laws, except
that no representation is made by the Company with respect to information
supplied by COLA for inclusion in the Proxy Statement. The Proxy Statement shall
include the opinion of the Financial Advisor referred to in Article 3.7 hereof.
The Company will use its commercially reasonable best efforts to respond to the
comments of the SEC concerning the Proxy Statement and to cause the Proxy
Statement to be mailed to the Company's stockholders, in each case as soon as
reasonably practicable. Each party to this Agreement will notify the other
parties promptly of the receipt of the comments of the SEC, if any, and of any
request by the SEC for amendments or supplements to the Proxy Statement or for
additional information, and will supply the other parties with copies of all
correspondence between such party or its representatives, on the one hand, and
the SEC or members of its staff, on the other hand, with respect to the Proxy
Statement or the Merger.
6.2.2. Information. The information provided by each of the Company
and COLA for use in the Proxy Statement shall not, at (a) the time the Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
the stockholders of the Company or (b) the time of the Company stockholders'
meeting contemplated by such Proxy Statement, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. If at any
time prior to the Effective Time any event or circumstance relating to any party
hereto, or their respective officers or directors, should be discovered by such
party which should be set forth in an amendment or a supplement to the Proxy
Statement, such party shall promptly inform the Company and COLA thereof and
take appropriate action in respect thereof.
6.2.3. Schedule 13E-3. As soon as practicable after the date of this
Agreement, COLA and the Company shall file with the SEC a Rule 13E-3 Transaction
Statement on Schedule 13E-3 (the "Schedule 13E-3"), with respect to the Merger.
Each of the parties hereto agrees to use its reasonable best efforts to
cooperate and to provide each other with such information as any of such parties
may reasonably request in connection with the preparation of the Schedule 13E-3.
The information provided by each of the Company and COLA for use in the Schedule
13E-3 shall not, at the time the Schedule 13E-3 is filed with the SEC, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading. Each party hereto agrees promptly to supplement, update
and correct any information provided by it for use in the Schedule 13E-3 if and
to the extent that it is or shall have become incomplete, false or misleading.
Each party agrees to provide the other party and the other party's counsel with
any comments such party or its counsel may receive from the SEC or its staff
with respect to the Schedule 13E-3 promptly after the receipt of such comments
and of any request by the SEC for amendments or supplements to the Schedule
13E-3 or for additional information, and will supply the other parties with
copies of all correspondence between such party or its representatives, on the
one hand, and the SEC or members of its staff, on the other hand, with respect
to the Schedule 13E-3.
6.3. Action by Stockholders. The Company, acting through its Board of
Directors, shall, in accordance with applicable law, the Company Charter and the
Company's bylaws, duly call, give notice of, convene and hold a special meeting
of stockholders (the "Company
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Stockholders' Meeting") as soon as practicable after the date of this Agreement
for the purpose of adopting this Agreement. The Company will, through the Board
of Directors based on the recommendation of the Special Committee, (a) recommend
to its stockholders the adoption of this Agreement, and (b) use its best efforts
to obtain the Company Stockholder Approval. COLA shall vote all shares of Common
Stock owned by it in favor of the adoption of this Agreement.
6.4. Acquisition Proposals. From and after the date hereof, the Company
will not, and will not authorize or permit any of its officers, directors,
employees or agents (its "Representatives"), directly or indirectly, to solicit,
initiate or knowingly encourage (including by way of furnishing information) or
take any other action to facilitate knowingly any inquiries or the making of any
proposal which constitutes or may reasonably be expected to lead to an
Acquisition Proposal (as defined below) from any person, or engage in any
discussion or negotiations relating thereto or accept any Acquisition Proposal;
provided, however that notwithstanding any other provision hereof: (a) the
Special Committee may at any time prior to the receipt of Company Stockholder
Approval, engage in discussions or negotiations with a third party who (without
any solicitation, initiation, encouragement, discussion or negotiation, directly
or indirectly, by or with the Company or its Representatives after the date
hereof) seeks to initiate such discussions or negotiations and may furnish such
third party information concerning the Company and its business, properties and
assets if, and only to the extent that, (i) (A) the third party has first made
an Acquisition Proposal that is more favorable to the Company and its
stockholders (other than COLA and holders of the Excluded Shares) than the
transactions contemplated by this Agreement and has demonstrated that financing
for the Acquisition Proposal is reasonably likely to be obtained (as determined
in good faith in each case by the Special Committee after consultation with its
financial advisors) and (B) the Special Committee shall conclude in good faith,
after considering applicable provisions of state law, on the basis of oral or
written advice of outside counsel (who may be the Company's regularly engaged
independent counsel) that such action is necessary for the Special Committee to
act in a manner consistent with its fiduciary duties under applicable law and
(ii) prior to furnishing such information to or entering into discussions or
negotiations with such person or entity, the Company (A) provides three Business
Days' prior written notice to COLA to the effect that it is furnishing
information to or entering into discussions or negotiations with such person or
entity and (B) receives from such person or entity an executed confidentiality
agreement in reasonably customary form; (b) the Special Committee may withdraw
or modify its recommendation referred to in Article 6.3 following receipt of a
bona fide unsolicited Acquisition Proposal from a third party if (i) the Special
Committee, after consultation with and receipt of advice from the Financial
Advisor or another nationally recognized investment banking firm, determines in
good faith in the exercise of its fiduciary obligations under applicable law
that the Acquisition Proposal is more favorable to the Company and its
stockholders (other than COLA and holders of the Excluded Shares) than the
transactions contemplated by this Agreement and (ii) the Special Committee,
after consultation with independent legal counsel (who may be the Company's
regularly engaged independent counsel), determines in good faith that such
action is necessary for the Special Committee to comply with its fiduciary
obligations under applicable law and/or (c) the Board of Directors, upon the
recommendation of the Special Committee, may comply with Rule 14e-2 promulgated
under the Exchange Act with regard to a tender or exchange offer or take any
other required action (including, without limitation, the making of such public
disclosures as may be necessary or advisable under applicable securities laws)
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and provided further, that, in the event of an exercise of the Company's or its
Board of Director's or the Special Committee's rights under clause (a), (b) or
(c) above, notwithstanding anything contained in this Agreement to the contrary,
such action shall not constitute a breach of this Agreement by the Company but
shall only give rise to the rights specified in Article 8.3 to the extent
provided therein. As of the date of this Agreement, the Company shall
immediately cease and terminate any existing solicitation, initiation,
encouragement, activity, discussion or negotiation with any parties conducted
heretofore by the Company with respect to the foregoing. The Company shall
notify COLA orally and in writing of any such inquiries, offers or proposals
(including, without limitation, the terms and conditions of any such proposal
and the identify of the person making it), within 24 hours of the receipt
thereof, shall keep COLA informed of the status and details of any such inquiry,
offer or proposal, and shall give COLA three Business Days' advance notice of
any agreement to be entered into with or any information to be supplied to any
person making such inquiry, offer or proposal. As used herein, "Acquisition
Proposal" means any proposal or offer to acquire, directly or indirectly, in one
transaction or a series of related transactions, twenty percent (20%) or more of
the outstanding shares of the Company's Common Stock (whether by purchase,
merger, consolidation, share exchange, business combination or other similar
transaction) or twenty percent (20%) or more of the dollar value of the assets
of the Company.
6.5. Directors' and Officers' Insurance and Indemnification.
6.5.1. Generally. It is understood and agreed that the Company
shall, to the fullest extent permitted under Delaware law and regardless of
whether the Merger becomes effective, and the Surviving Corporation shall, from
and after the Effective Time, to the fullest extent permitted under Delaware
law, indemnify, defend and hold harmless any person who is now, or has been at
any time prior to the date hereof, or who becomes prior to the Effective Time,
an officer or director (the "Indemnifie Party") of the Company or any of its
subsidiaries against all losses, claims, damages, liabilities, costs and
expenses (including attorneys' fees and expenses), judgments, fines, losses, and
amounts paid in settlement, with the written approval of the Surviving
Corporation (which approval shall not be unreasonably withheld), in connection
with any threatened, pending or completed action, suit, claim, proceeding or
investigation (each a "Claim") to the extent that any such Claim is based on, or
arises out of, (a) the fact that such person is or was a director, officer,
employee, fiduciary or agent of the Company or any subsidiaries or is or was
serving at the request of the Company or any of its subsidiaries as a director,
officer, employee, fiduciary or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (b) this Agreement, or any of the
transactions contemplated hereby, in each case to the extent that any such Claim
pertains to any matter or fact arising, existing, or occurring prior to or at
the Effective Time, regardless of whether such Claim is asserted or claimed
prior to, at or after the Effective Time, and in the event any Indemnified Party
becomes involved in any capacity in any Claim, the Company or the Surviving
Corporation, as applicable, shall advance expenses to such Indemnified Party in
advance of the final disposition thereof upon receipt of the undertaking
specified in Section 145 of the DGCL, including payment of the reasonable fees
and expenses of counsel selected by the Indemnified Party, promptly as
statements therefor are received. Any determination required to be made with
respect to whether an Indemnified Party's conduct complies with the standards
set forth under Delaware law, the Certificate of Incorporation, the By-laws,
this Agreement or any indemnification agreement,
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as the case may be, shall be made by independent counsel mutually acceptable to
the Surviving Corporation and the Indemnified Party.
6.5.2. Continuation of Rights. The Certificate of Incorporation and
By-laws of the Company or the Surviving Corporation, as the case may be, shall
not be amended, repealed or otherwise modified for a period from the date hereof
until six years after the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who as of the date hereof are or
were directors, officers, employees, fiduciaries or agents of the Company and
its Subsidiaries or otherwise entitled to indemnification, advancement of
expenses or exculpation from liability under the Company's Restated Certificate
of Incorporation, By-laws or indemnification agreements; provided that in the
event any Claim is asserted or made within such six year period, such provisions
shall not be so amended, repealed or otherwise modified until the later of the
end of such six-year period or the disposition of the Claim.
6.5.3. Insurance. At or prior to the Effective Time, COLA, the
Company or the Surviving Corporation shall obtain a fully-paid officers' and
directors' liability insurance policy covering the Indemnified Parties who are
currently covered by the Company's officers' and directors' liability insurance
policy for a term of six years after the Effective Time in the amount of $10
million and on such other terms as are not materially less favorable to the
officers and directors than those in effect on the date hereof.
6.5.4. Agreement Binding. This Article 6.5 is intended to be for the
benefit of, and shall be enforceable by, the Indemnified Parties, their heirs
and personal representatives, and shall be binding on the Surviving Corporation
and its respective successors and assigns. If the Surviving Corporation or any
of its successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation assume the obligations set forth in this Article 6.5.
6.6. Best Efforts; Further Action.
6.6.1. Best Efforts. Upon the terms and subject to the conditions
hereof, including without limitation Article 6.4, each of the parties hereto
shall use its reasonable best efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations or otherwise to consummate
and make effective the Merger and the other transactions contemplated hereby,
including, without limitation, using its reasonable best efforts to obtain all
licenses, permits, waivers, orders, consents, approvals, authorizations,
qualifications and orders of Governmental Entities and parties to contracts with
the Company and the Company Subsidiaries as are necessary for the consummation
of the Merger and the other transactions contemplated hereby.
6.6.2. Further Action. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall use their reasonable best efforts to take all such action.
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6.7. Public Announcements. COLA and the Company shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement or the transactions contemplated hereby and shall
not issue any such press release or make any such public statement without the
prior consent of the other party, which consent shall not be unreasonably
withheld; provided, however, that a party may, without the prior consent of the
other party, issue such press release or make such public statement as may be
required by law, regulation or any listing agreement or arrangement to which the
Company or COLA is a party with a national securities exchange if it has used
all reasonable efforts to consult with the other party and to obtain such
party's consent but has been unable to do so in a timely manner.
6.8. Conveyance Taxes. COLA and the Company shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications,
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time.
6.9 Financing. COLA shall use reasonable efforts to accept and close the
Financing on terms consistent with the Commitment or such other terms as shall
be satisfactory to COLA or as are not more onerous to COLA than as set forth in
the Commitment, and to execute and deliver definitive agreements with respect to
the Financing (the "Definitive Financing Agreements"). COLA shall use reasonable
efforts to satisfy all requirements of the Definitive Financing Agreements which
are conditions to closing the transactions constituting the Financing. The
obligations contained herein are not intended, nor shall they be construed, to
benefit or confer any rights upon any person, firm or entity other than the
Company.
6.10. Special Committee. Until the earlier of the Effective Time or the
termination of this Agreement, (a) any amendment of this Agreement, any
termination of this Agreement by the Company, any extension by the Company of
the time for the performance of any of the obligations or other acts of COLA,
any consent or approval of the Company contemplated hereby, any extension of the
Effective Time as contemplated by the last sentence of Article 2.2, any waiver
of any of the Company's rights hereunder, any amendment to the Company's
Restated Certificate of Incorporation or By-laws or any action taken by the
Company that adversely affects the interest of the stockholders of the Company
(other than the COLA Stockholders) with respect to the transactions contemplated
hereby, will require the concurrence of the Special Committee, and (b) the
Special Committee shall be authorized to take all actions on behalf of the
Company hereunder, except to the extent prohibited by the DGCL. COLA agrees on
behalf of itself and its Affiliates and Associates that, until the earlier of
the Effective Time or the termination of this Agreement, it will not take any
action to change the composition or authority of the Special Committee without
the prior approval of a majority of the persons then serving as members of the
Special Committee.
6.11 Action by COLA. Prior to the earlier of the Effective Time or the
termination of this Agreement, COLA shall retain ownership of all Shares of
Common Stock owned by it as of the date of this Agreement and all Shares
contributed to it in accordance with the letter
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agreement attached as Exhibit E hereto and shall not distribute, sell, pledge or
otherwise transfer such Shares to any person.
ARTICLE VII
CLOSING CONDITIONS
7.1. Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger and the other
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions, any or all of which may
be waived, in whole or in part, to the extent permitted by applicable law:
7.1.1. Company Stockholder Approval. The Company Stockholder
Approval shall have been obtained.
7.1.2. COLA Stockholder Approval. Approval of this Agreement by the
stockholders of COLA shall have been obtained.
7.1.3. No Order. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in effect and
which materially restricts, prevents or prohibits consummation of the Merger or
the other transactions contemplated by this Agreement; provided, however, that
the parties shall use their reasonable best efforts to cause any such decree,
judgment, injunction or other order to be vacated or lifted.
7.2. Additional Conditions to Obligations of COLA. The obligation of COLA
to effect the Merger is also subject to satisfaction or waiver of the following
conditions:
7.2.1. Representations and Warranties. Each of the representations
and warranties of the Company contained in this Agreement that are qualified by
materiality shall be true and correct and each of the representations and
warranties of the Company contained in this Agreement that are not qualified by
materiality shall be true and correct in all material respects, in each case as
of the Effective Time as though made on and as of the Effective Time, except (a)
for changes specifically permitted by this Agreement and (b) that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date.
7.2.2. Agreement and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the
Effective Time.
7.2.3. Performance Shares. The Company shall have issued all shares
of Common Stock earned by employees of the Company and Company Subsidiaries
pursuant to the terms of the Company's 1998 Long-Term Incentive Plan.
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7.2.4. Financing. COLA shall have obtained the Financing, and the
proceeds of such Financing shall have been received by or made immediately
available to COLA at or immediately prior to the Closing.
7.2.5. Dissenting Shares. As of the Effective Time, Dissenting
Shares shall aggregate no more than five percent (5 %) of the then outstanding
Shares.
7.2.6. Officer's Certificate. COLA shall have received a certificate
of an appropriate officer of the Company to the effect that the conditions set
forth in this Article 7.2 have been satisfied at the Effective Time.
7.3. Additional Conditions to Obligations of the Company. The obligation of
the Company to effect the Merger is also subject to the satisfaction or waiver
of the following conditions:
7.3.1. Representations and Warranties. Each of the representations
and warranties of COLA contained in this Agreement that are qualified by
materiality shall be true and correct and each of the representations and
warranties of COLA contained in this Agreement that are not qualified by
materiality shall be true and correct in all material respects, in each case as
of the Effective Time as though made on and as of the Effective Time, except (a)
for changes specifically permitted by this Agreement and (b) that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date.
7.3.2. Agreement and Covenants. COLA shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the
Effective Time.
7.3.3. Officer's Certificate. The Company shall have received a
certificate of an appropriate officer of COLA to the effect that the conditions
set forth in this Article 7.3 have been satisfied at the Effective Time.
7.4 Frustration of Conditions. No party hereto may rely on the failure of
any condition set forth in this Article to be satisfied if such failure was
caused by such party's failure to use reasonable efforts to consummate the
transactions contemplated by this Agreement.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1. Termination. This Agreement, notwithstanding approval thereof by the
stockholders of the Company, may be terminated as follows (each a
"Termination"):
(a) by mutual written consent of the Company and COLA;
(b) by COLA or the Company at any time prior to the Effective Time:
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(i) if there shall be any statute, law, rule or regulation that makes
consummation of the Merger illegal or prohibited, or if any court of
competent jurisdiction in the United States or other Governmental Entity
shall have issued an order, judgment, decree or ruling, or taken any other
action restraining, enjoining or otherwise prohibiting the Merger and such
order, judgment, decree, ruling or other action shall have become final and
non-appealable (provided, that the party seeking to terminate this
Agreement pursuant to this clause (i) shall have used all reasonable best
efforts to remove such judgment, injunction, order, decree or ruling); or
(ii) upon a vote at a duly held meeting, or upon any adjournment
thereof, the stockholders of the Company shall have failed to give any
approval required by applicable law.
(c) by the Company at any time prior to the receipt of Company Stockholder
Approval, if the Company shall have received after the date of this Agreement
but prior to the date of Company Stockholder Approval an Acquisition Proposal
from a third party that was not initiated, solicited or knowingly encouraged by
the Company or any Company Subsidiary in violation of this Agreement if:
(i) the Special Committee, after consultation with and receipt of
written advice from the Financial Advisor or another nationally recognized
investment banking firm, determines in good faith in the exercise of its
fiduciary obligations under applicable law that the Acquisition Proposal is
more favorable to the Company and its stockholders (other than COLA and
holders of the Excluded Shares) than the transactions contemplated by this
Agreement (including any adjustment to the terms and conditions of this
Agreement proposed in writing by COLA in response to such Acquisition
Proposal); provided, that in making such determination, the Special
Committee shall consider, among other factors and without limitation,
whether or not the Acquisition Proposal is subject to any material
contingency to which the other party thereto has not reasonably
demonstrated in its written offer its ability to overcome or address,
including the receipt of government consents or approvals, and whether the
Acquisition Proposal is reasonably likely to be consummated and is in the
best interests of the stockholders of the Company; and
(ii) the Special Committee, after consultation with independent legal
counsel (who may be the Company's regularly engaged independent counsel),
determines in good faith that such action is necessary for the Special
Committee to comply with its fiduciary obligations under applicable law.
(d) by COLA at any time prior to the Effective Time if the Board of
Directors, based upon the recommendation of the Special Committee, (i) withdraws
or modifies in a manner adverse to COLA the Board of Director's favorable
recommendation of the transactions contemplated hereby or (ii) shall have
recommended any Acquisition Proposal;
(e) by COLA at any time prior to the Effective Time, if the Company shall
be in material breach of its obligations hereunder (except for a breach of its
representations or warranties or a
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breach that was not the result of the action or inaction of the Special
Committee) and such breach is not cured within five Business Days after notice
thereof is received by the Company; provided that COLA is not in material breach
of any of its representations, warranties, covenants or agreements contained in
this Agreement; or
(f) by the Company at any time prior to the Effective Time, if COLA shall
be in material breach of its obligations hereunder (including a material breach
of its representations or warranties) and such breach is not cured within five
Business Days after notice thereof is received by COLA; provided that the
Company is not in material breach of any of its representations, warranties,
covenants or agreements contained in this Agreement.
8.2. Effect of Termination and Abandonment. Except as provided in Article
8.3, in the event of the termination of this Agreement pursuant to Article 8.1,
this Agreement shall forthwith become void, there shall be no liability on the
part of any party hereto, or any of their respective officers or directors, to
the other and all rights and obligations of any party hereto shall cease;
provided, however, that nothing herein shall relieve any party from liability
for the willful breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
8.3. Fees and Expenses. In the event that this Agreement shall have been
terminated by the Company pursuant to Article 8.1(c) or by COLA pursuant to
Article 8.1(d) or 8.1(e) the Company shall pay COLA's Transaction Expenses (as
defined below) plus a termination fee of $500,000 within sixty days after
termination of this Agreement; provided, however, that no fees or expenses shall
be paid to COLA upon any termination pursuant to Article 8.1(e) if the breach
giving rise to the right of termination was not the result of the action or
inaction of the Special Committee. "Transaction Expenses" shall mean an amount,
not to exceed $200,000, equal to COLA's actual out-of-pocket expenses directly
attributable to the proposed acquisition of the Company (including negotiation
and execution of this Agreement and reasonable attorneys' fees and expenses) and
the attempted financing and completion of the Merger.
8.4. Amendment. Before or after adoption of this Agreement by the
stockholders of the Company, this Agreement may be amended by the parties hereto
at any time prior to the Effective Time; provided, however, that (a) any such
amendment shall, on behalf of the Company, have been approved by the Special
Committee and (b) after adoption of this Agreement by the stockholders of the
Company, no amendment which under applicable law may not be made without the
approval of the stockholders of the Company may be made without such approval.
Any amendment pursuant to this Article shall be made by an instrument in writing
signed by the parties hereto.
8.5. Extension; Waiver. Subject to Article 6.10 hereof, at any time prior
to the Effective Time, any party hereto may, to the extent legally allowed, (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing
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signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
ARTICLE IX
GENERAL PROVISIONS
9.1. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement shall survive the Closing. This
Article 9.1 shall not limit any covenant or agreement of the parties which by
its terms contemplated performance after such time and date, including without
limitation Article 6.5.
9.2. Definitions. For purposes of this Agreement:
(a) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act; and
(b) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
9.3. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon (a) transmitter's confirmation of receipt
of a facsimile transmission, (b) confirmed delivery by a standard overnight
carrier or when delivered by hand or (c) the expiration of five business days
after the day when mailed in the United States by certified or registered mail,
postage prepaid, addressed at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to the Company:
TransFinancial Holdings, Inc.
8245 Nieman Road, Suite 100
Lenexa, KS 66214
Attn: Mr. Harold Hill
Fax: (913) 859-0011
With copies to:
Mr. Harold Hill
Route 3, Box 268
Gravois Mills, MO 65037
Fax: (573) 372-5071
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Mr. Kent E. Whittaker, Esq.
Morrison & Hecker L.L.P.
2600 Grand Avenue
Kansas City, MO 64108
Fax: (816) 474-4208
If to COLA:
COLA Acquisitions, Inc.
8245 Nieman Road, Suite 100
Lenexa, KS 66214
Attn: Mr. Timothy P. O'Neil
Fax: (913) 859-0011
With a copy to:
Mr. Jeffrey T. Haughey, Esq.
Blackwell Sanders Peper Martin LLP
2300 Main Street, Suite 1000
Kansas City, MO 64108
Fax: (816) 983-9146
9.4. Assignment; Binding Effect. This Agreement shall not be assigned, by
operation of law or otherwise, and any purported assignment shall be null and
void. This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Articles 6.5, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
9.5. Entire Agreement. This Agreement and any other documents delivered by
the parties in connection herewith constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto.
9.6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to the conflict
of laws rules thereof.
9.7. Fee and Expenses. Except as provided in Article 8.3, whether or not
the Merger is consummated, all costs and
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expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including without limitation, fees and disbursements of
counsel, financial advisors and accountants) shall be paid by the party
incurring such costs and expenses. The expenses of filing, printing and mailing
the Proxy Statement shall be borne by the Company. The expenses of filing the
Schedule 13E-3 shall be borne by COLA.
9.8. Headings. Headings of the Articles and Articles of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
9.9. Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.10. Specific Performance. The parties hereto each acknowledge that, in
view of the uniqueness of the subject matter hereof, the parties hereto would
not have an adequate remedy at law for money damages in the event that this
Agreement were not performed in accordance with its terms, and therefore agree
that the parties hereto shall be entitled to specific enforcement of the terms
hereof in addition to any other remedy to which the parties hereto may be
entitled at law or in equity.
9.11. Interpretation. Words of the masculine gender shall be deemed to
include the feminine and neuter genders, and vice versa, where applicable. Words
of the singular number shall be deemed to include the plural number, and vice
versa, where applicable.
9.12. Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which, when so executed and delivered, shall be
an original. All such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY:
TRANSFINANCIAL HOLDINGS, INC.
By: /s/ Harold C. Hill, Jr.
Name: Harold C. Hill, Jr.
Title:Chairman - Special Committee of
Independent Directors
COLA:
COLA ACQUISITIONS, INC.
By: /s/ Timothy P. O'Neil
Name: Timothy P. O'Neil
Title:President
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<PAGE>
ANNEX B
October 18, 1999
Special Committee of the Board of Directors and
Board of Directors
TransFinancial Holdings, Inc.
8245 Nieman Road
Lenexa, Kansas 66214
Dear Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders (other than those stockholders who are or will become
affiliates or stockholders of COLA Acquisitions, Inc.) (the "Stockholders") of
TransFinancial Holdings, Inc. (the "Company") of the consideration to be
received pursuant to the terms of the Agreement and Plan of Merger dated as of
October 19, 1999 in draft form (the "Merger Agreement") by and among the Company
and COLA Acquisitions, Inc. ("Purchaser")
Pursuant to the terms of, and subject to the conditions of, the Merger
Agreement, Purchaser will be merged (the "Merger") with and into the Company in
a merger pursuant to which certain outstanding shares of common stock of the
Company, par value $0.01 per share (the "Common Stock"), shall be converted into
the right to receive $6.03 per share in cash (the "Transaction").
We have acted as financial advisor to the Special Committee of the Board of
Directors of the Company (the "Special Committee") in connection with the
Transaction. In connection with our review of the Transaction and the
preparation of our opinion herein, we have: (a) reviewed the financial terms and
conditions of the Merger Agreement; (b) analyzed the historical revenue,
operating earnings, net income, dividend capacity and capitalization of both the
Company and certain other publicly held companies in businesses we believe to be
comparable to the Company; (c) analyzed certain financial and other information
relating to the prospects of the Company provided to us by the Company's
management, including financial forecasts; (d) discussed the past and current
operations and financial condition and prospects of the Company with senior
executives of the Company; (e) reviewed the historical market prices and trading
volume of the Common Stock of the Company; (f) reviewed the financial terms, to
the extent publicly available, of selected actual business combinations we
believe to be relevant; and (g) performed such other analyses as we have deemed
appropriate. In connection with our engagement, we were requested to hold
discussions with third parties who submitted indications of interest in a
possible acquisition of the Company.
We have assumed the accuracy and completeness of all such information and have
not attempted to verify independently any of such information, nor have we made
or obtained an independent valuation or appraisal of any of the assets or
liabilities of the Company. With respect to financial forecasts, at the Special
Committee's direction, we have reviewed financial forecasts prepared by
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management in November 1998 and have been advised that no financial forecasts as
of a more recent date are available. Because the Company's financial performance
to date has been lower than the results projected in the November 1998 financial
forecasts, we have, with the Special Committee's consent, assumed that the
Company's financial performance will be lower than anticipated in the November
1998 financial forecasts. We assume no responsibility for, and express no view
as to, such forecasts or the assumptions on which they are based. Our opinion
relates to financial fairness only, and we express no opinion as to the
appropriateness of the financial structure or the soundness of the financial
condition of the Company subsequent to the consummation of the Merger. Our
opinion is necessarily based solely upon information available to us and
business, market, economic and other conditions as they exist on, and can be
evaluated as of, the date hereof. It should be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion.
In rendering our opinion, we have assumed that the Transaction will be
consummated on the terms described in the Merger Agreement, without any waiver
of any material terms or conditions by the Company and that obtaining the
necessary regulatory approvals for the Transaction will not have an adverse
effect on the Company.
William Blair & Company has been engaged in the investment banking business
since 1935. We undertake the valuation of investment securities in connection
with public offerings, private placements, business combinations, estate and
gift tax valuations and similar transactions. For our services, including the
rendering of this opinion, the Company will pay us a fee, a significant portion
of which is contingent upon consummation of the Merger, and indemnify us against
certain liabilities.
Our engagement and the opinion expressed herein are for the benefit of the Board
of Directors and are not on behalf of, and are not intended to confer rights or
remedies upon the Company, Stockholders of the Company or any other person.
Based upon and subject to the foregoing, it is our opinion as investment bankers
that, as of October 18, 1999, the consideration to be received by the
Stockholders of the Company in the Merger pursuant to the Merger Agreement is
fair, from a financial point of view, to such Stockholders.
Very truly yours,
/s/ William Blair & Company, L.L.C.
WILLIAM BLAIR & COMPANY, L.L.C.
B-2
<PAGE>
ANNEX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
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 Section 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 Section 251 (other than a merger effected pursuant to Section 251(g)
of this title), Section 252, Section 254, Section 257, Section 258, Section 263
or Section 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 holders;
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 Section 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 Sections 251, 252,
254, 257, 258, 263 and 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;
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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 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 Section 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
subsection (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
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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 Section 228 or
Section 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten 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 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 such 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
such holder's 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 be not 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
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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, 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.
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(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. T he 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 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.
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ANNEX D
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Year Ended December 31, 1998
Commission File Number - 0-12321
TRANSFINANCIAL HOLDINGS, INC.
State of Incorporation - Delaware
IRS Employer Identification No. - 46-0278762
8245 Nieman Road, Suite 100, Lenexa, Kansas 66214
Telephone Number - (913) 859-0055
Securities Registered Pursuant to Section 12(b) of the Act
Name of Each Exchange
Title of Each Class on Which Registered
TransFinancial Holdings, Inc. Common Stock, American Stock Exchange
par value $0.01 per share,
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of
TransFinancial Holdings, Inc. as of March 12, 1999, was $13,862,000 based on the
last sale price on the American Stock Exchange on that date.
The number of outstanding shares of the registrant's common stock as of March
12, 1999 was 3,932,372 shares.
DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III,
Items 10, 11, 12 and 13 of this Report are incorporated by reference from the
registrant's definitive proxy statement for the 1999 annual meeting of
shareholders.
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FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K which are
not statements of historical fact constitute forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934. These
statements can often be identified by the use in such statements of forward-
looking terminology, such as "believes," "expects," "may," "will," "should,"
"could," "intends," "plans," "estimates," or "anticipates," or the negative
thereof, or comparable terminology. Certain of the forward-looking statements
contained herein are marked by an asterisk ("*") or otherwise specifically
identified herein. These statements involve risks and uncertainties that may
cause actual results to differ materially from those in such statements. See
Item 7 "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Forward Looking Statements" for additional information and
factors to be considered concerning forward-looking statements.
PART I
ITEM 1. BUSINESS.
TransFinancial Holdings, Inc. ("TransFinancial" or the "Company"), is
headquartered in Lenexa, Kansas, and is a Delaware holding company formed in
April, 1976. TransFinancial operates in three industry segments;
transportation, through, its subsidiary Crouse Cartage Company ("Crouse");
financial services, primarily through its insurance premium finance subsidiary,
Universal Premium Acceptance Corporation ("UPAC"); and industrial technology,
through its subsidiary, Presis, L.L.C. ("Presis"). TransFinancial acquired
Crouse on September 1, 1991. UPAC was acquired on March 29, 1996 and merged
operations with Agency Premium Resource, Inc. ("APR") which was acquired May 31,
1995. TransFinancial acquired its interest in Presis effective July 31, 1997.
Financial information about the Company's operating industry segments is
presented in Note 1 of Notes to Consolidated Financial Statements.
TRANSPORTATION
Crouse, headquartered in Carroll Iowa, is a regional motor common carrier
of general commodities in less-than-truckload ("LTL") quantities in 15 states in
the north central and midwest portion of the United States. In 1998, Crouse
entered into a strategic partnership arrangement with a southeastern regional
LTL carrier that enables Crouse to offer its customers service in 7 southeastern
states. Crouse also offers motor common carrier service for truckload
quantities of general and perishable commodities throughout the 48 contiguous
United States. LTL shipments are defined as shipments weighing less than 10,000
pounds.
LTL carriers are referred to as regional, inter-regional or national motor
carriers, based upon length of haul. Carriers with average lengths of haul less
than 500 miles are referred to as regional carriers. Carriers with average
lengths of haul between 500 and 1,000 miles are referred to as inter-regional
carriers. National carriers generally operate coast-to-coast and have average
lengths of haul that exceed 1,000 miles.
In the motor carrier business, revenue is a function of volume and pricing
and is frequently described in relation to weight. Crouse tracks revenue per
hundredweight (pounds divided by 100) as a measure of pricing or rate trends.
In addition to pricing, the average revenue per hundredweight is also a function
of the weight per shipment, length of haul and commodity mix.
LTL carriers can improve profitability by increasing lane and terminal
density. Increased lane density lowers unit operating costs. Increased
terminal density, by increasing the amount of freight handled at a given
terminal location, improves utilization of fixed assets.
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LTL shipments must be handled rapidly and carefully in several coordinated
stages. Local drivers operating from Crouse's network of 68 service locations
pick up shipments from customers. The freight is transported to a terminal,
loaded into intercity trailers, carried by linehaul drivers to the terminal
which services the delivery area, transferred to trucks or trailers and then
delivered to the consignee by local drivers. Much of Crouse's LTL freight is
handled and/or transferred through one of three centrally located "break bulk"
terminals between the origin and destination service areas. LTL operations
require substantial equipment capabilities and an extensive network of terminal
facilities. Accordingly, LTL operations, compared to truckload shipments and
operations, command higher rates per hundredweight shipped and have tended
historically to be less vulnerable to competition from other forms of
transportation such as railroads. Crouse's concentrated and efficient operations
typically allow it to provide next day service (delivery on the day after
pickup) for much of the LTL freight it handles.
The following table sets forth certain financial and operating data with
respect to Crouse:
<TABLE>
<CAPTION>
1998(4) 1997 1996 1995(3) 1994(3)
<S> <C> <C> <C> <C> <C>
Revenue (000's).................................. $ 144,592 $ 126,062 $ 107,502 $ 95,152 $ 95,772
Operating Income (000's)......................... 2,865 3,136 2,915 3,970 6,017
Operating Ratio (1).............................. 98.0% 97.5% 97.3% 95.8% 93.7%
Number of shipments (000's) -
Less-than-truckload ........................... 1,150 1,076 952 742 744
Truckload ............................... 39 31 27 32 33
Revenue per hundredweight -
Less-than-truckload ........................... $ 9.32 $ 9.25 $ 8.84 $ 9.25 $ 9.38
Truckload ............................... 2.36 2.09 2.04 2.30 2.19
Tonnage (000's) -
Less-than-truckload ........................... 638 570 503 402 398
Truckload ............................... 545 495 461 451 479
Intercity miles operated (000's)................. 60,848 51,952 44,523 39,424 36,720
At year-end, number of -
Terminals (2) ............................... 68 66 55 54 53
Tractors and trucks ........................... 684 631 585 527 504
Trailers ...................................... 1,501 1,417 1,194 1,004 948
Employees ............................... 1,338 1,287 1,113 945 965
<FN>
Notes:
(1) Operating ratio is the percent of operating expenses to operating revenue.
(2) Includes owned, leased, agent and other operating locations.
(3) Effective in 1996 the Company prospectively changed its classification of certain shipments, related tonnage and revenues
between less-than-truckload and truckload which affects the comparability of this data with 1994 through 1995 information.
(4) 1998 operating income excludes certain charges totaling $1,544,000 relating to events surrounding the hostile takeover of
Crouse's parent.
</FN>
</TABLE>
SEASONALITY
Crouse's quarterly operating results, as well as those of the motor
carrier industry in general, fluctuate with the seasonal changes in tonnage
levels and with changes in weather-related operating conditions. Tonnage levels
are generally highest from August through October. A smaller peak also
generally occurs in April through June. Inclement weather conditions during the
winter months adversely affect the number of freight shipments and increase
operating costs. Historically, Crouse has achieved its best operating results
in the second and third quarters when adverse weather conditions do not affect
its operations and seasonal peaks occur in the freight shipped via public
transportation.
D-3
<PAGE>
INSURANCE AND SAFETY
Crouse is self-insured for the first $100,000 of losses per occurrence
with respect to public liability, property damage, workers' compensation, cargo
loss or damage, fire, general liability and other risks. In addition, Crouse
maintains excess liability coverage for risks over and above the self-insured
retention limits. In the opinion of management, all claims pending against
Crouse are adequately reserved under Crouse's self-insurance program, or are
fully covered by outside insurance.*
Because most risks are largely self-insured, Crouse's insurance costs are
primarily a function of the success of its safety programs and less subject to
increases in insurance premiums. Crouse conducts a comprehensive safety program
to meet its specific needs.
COMPETITION
The motor carrier industry is highly competitive and fragmented. Crouse
competes on the basis of both price and service with other regional LTL motor
common carriers and, to a lesser degree, with contract and private carriage.
Such competition has resulted in a proliferation of discount programs among
competing carriers. Crouse negotiates rate discounts on an account by account
basis, taking into consideration the cost of services relative to the net
revenue to be obtained, the competing carriers and the need for freight in
specific traffic lanes. For freight moving over greater distances, Crouse must
compete with national and large inter-regional carriers and, to a lesser extent,
with truckload carriers, railroads and overnight delivery companies.
REGULATION
The interstate operations of Crouse are subject to regulation by the
Department of Transportation ("DOT") and a panel within the DOT, the Surface
Transportation Board ("STB"). Motor carriers are required to register with the
DOT. Registration is granted by the DOT upon showing safety, fitness, financial
responsibility and willingness to abide by DOT regulations.
The trucking industry remains subject to the possibility of regulatory and
legislative changes that can influence operating practices and the demands for
and the costs of providing services to shippers.
Interstate motor carrier operations are subject to safety requirements
prescribed by DOT, while such matters as the weight and dimensions of equipment
are also subject to Federal and state regulations. Professional truck drivers
must be licensed to operate commercial vehicles in compliance with the DOT
regulations, and are subject to strict drug testing standards. These
requirements increase the safety standards for conducting operations, but add
administrative costs and have affected the availability of qualified, safety
conscious drivers throughout the trucking industry.
Crouse is subject to state public utility commissions and similar state
regulatory agencies with respect to safety and financial responsibility in its
intrastate operations. Crouse is also subject to safety regulations of the
states in which it operates, as well as regulations governing the weight and
dimensions of equipment.
Crouse's operations are also subject to various federal, state and local
environmental laws and regulations governing the transportation, storage,
presence, use, disposal and handling of hazardous materials and the maintenance
of underground fuel storage tanks. Management does not know of any existing
condition that would cause compliance with applicable environmental regulations
to have a material effect on the Company's financial condition or results of
operations.* In the event that the Company should fail to comply with applicable
laws and regulations, the Company
D-4
<PAGE>
could be subject to substantial liability.* For a discussion of facilities used
by Crouse which maintain underground fuel storage tanks, see Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition."
EMPLOYEES
At December 31, 1998, Crouse employed 1,338 persons, of whom 1,068 were
drivers, mechanics, dockworkers or terminal office clerks. The remaining
employees were engaged in managerial, sales and administrative functions.
Approximately 80% of Crouse employees, including primarily drivers,
dockworkers and mechanics, are represented by the International Brotherhood of
Teamsters, Chauffeurs, Warehousemen and Helpers of America ("Teamsters Union")
or other local unions. Crouse and the Teamsters Union are parties to the
National Master Freight Agreement ("NMFA") which expires on March 31, 2003.
Crouse achieved ratification in 1998 of new five-year pacts with the
International Brotherhood of Teamsters or other local unions covering
substantially all of its union employees. The new contracts generally provide
for all of the terms of the NMFA with a separate addendum for wages. Crouse
will continue to maintain its past work rules, practices and flexibility within
its operating structure. Crouse continues to negotiate with the union local
representing the remaining employees. There can be, however, no assurance that
Crouse's remaining union employees will ratify a new contract acceptable to both
the Company and the union, or that work stoppages will not occur. If a work
stoppage should occur, Crouse's customer base would be put at risk inasmuch as
its competition would have a continuing operating advantage. Any of these
actions could have a material adverse effect on the Company's business,
financial condition, liquidity or results of operations.*
As an employer signatory to the NMFA, Crouse must contribute to certain
pension plans established for the benefit of employees belonging to the
Teamsters Union. Amendments to the Employee Retirement Income Security Act of
1974 ("ERISA") pursuant to the Multiemployer Pension Plan Amendments Act of 1980
(the "MPPA Act") substantially expanded the potential liabilities of employers
who participate in such plans. Under ERISA, as amended by the MPPA Act, an
employer who contributes to a multiemployer pension plan and the members of such
employer's controlled group may be jointly and severally liable for their
proportionate share of the plan's unfunded liabilities in the event the employer
ceases to have an obligation to contribute to the plan or substantially reduces
its contributions to the plan (i.e., in the event of plan termination or
withdrawal by Crouse from the multiemployer plans). Although Crouse has no
current information regarding its potential liability under ERISA in such an
event, management believes that such liability would be material.*
Under provisions of the former NMFA, Crouse maintained a profit sharing
program for all employees from 1988 through September 1998 ("Profit Sharing").
Profit Sharing was structured to allow all Crouse employees to ratably share 50%
of Crouse's income before income taxes (excluding extraordinary items and gains
and losses on the sale of assets) in return for a 15% reduction in wages. The
profit sharing program was not extended in the new contract ratified in 1998.
The new contract includes a separate wage reduction provision that specifies
wage rates below those provided in the NMFA.
FINANCIAL SERVICES
UPAC, headquartered in Lenexa, Kansas, is engaged in the business of
financing the payment of insurance premiums. UPAC offers financing of insurance
premiums primarily to commercial purchasers of property and casualty insurance
who wish to pay their insurance premiums on an installment basis. Whereas some
insurance carriers require advance payment of a full year's premium, UPAC allows
the insured to spread the payment of the insurance premium over time.
UPAC finances insurance premiums without assuming the risk of claims loss
borne by insurance carriers. When insureds buy an insurance policy from an
independent
D-5
<PAGE>
insurance agent or broker who offers financing through UPAC, the insureds
generally pay a down payment of 20% to 25% of the total premium and sign a
premium finance agreement for the balance, which is generally payable in
installments over the following nine months. Under the terms of UPAC's standard
form of financing contract, UPAC is given the power to cancel the insurance
policies if there is a default in the payment on the finance contracts and to
collect the unearned portion of the premiums from the insurance carrier. The
down payments are usually set at a level determined, in the event of
cancellation of a policy, such that the unearned premiums returned by insurance
carriers are expected to be sufficient to cover the loan balances plus interest
and other charges due to UPAC.
UPAC currently does business with more than 3,200 insurance agencies or
brokers, the largest of which referred approximately 3% of the total premiums
financed by UPAC in 1998. The following table sets forth certain financial and
operating data with respect to UPAC since the entry into this segment by
TransFinancial in May 1995:
1998 1997 1996 1995
Premiums financed (000's) $ 160,773 $ 122,981 $ 120,355 $37,852
Number of premium finance contracts 49,789 48,818 46,968 7,214
Average amount of contracts $ 3,229 $ 2,519 $ 2,562 $ 5,247
UPAC had 55 employees at December 31, 1998.
REGULATION
UPAC's operations are governed by state statutes, and regulations
promulgated thereunder, which provide for the licensing, administration and
supervision of premium finance companies. Such statutes and regulations impose
significant restrictions on the operation of UPAC's business. The Federal Truth
in Lending statute also governs a portion of the format of UPAC's premium
finance agreements.
UPAC currently operates as an insurance premium finance company in the 48
contiguous states under state licenses it holds or under foreign corporation
qualification in states that do not require licensing of insurance premium
finance companies. UPAC generally must renew its licenses annually. UPAC is
also subject to periodic examinations and investigations by state regulators.
The licensing agency for insurance premium finance companies is generally the
banking department or the insurance department of the applicable state.
State statutes and regulations impose minimum capital requirements, govern
the form and content of financing agreements and limit the interest and service
charges UPAC may impose. State statutes also prescribe notice periods prior to
the cancellation of policies for non-payment, limit delinquency and collection
charges and govern the procedure for cancellation of policies and collection of
unearned premiums. In the event of cancellation, after deducting all interest,
service and late charges due it, UPAC must, under applicable state laws, refund
the surplus unearned premium, if any, to the insureds.
Changes in the regulation of UPAC's activities, such as increased rate
regulation, could have an adverse effect on its operations. The statutes do not
provide for automatic adjustments in the rates a premium finance company may
charge. Consequently, during periods of high prevailing interest rates on
institutional indebtedness and fixed statutory ceilings on rates UPAC may charge
its insureds, UPAC's ability to operate profitably could be adversely affected.*
COMPETITION
UPAC encounters intense competition from numerous other firms, including
insurance carriers offering installment payment plans, finance companies
affiliated
D-6
<PAGE>
with insurance carriers, independent insurance brokers who offer premium finance
services, banks and other lending institutions. Many of UPAC's competitors are
larger and have greater financial and other resources and are better known to
insurance agents and brokers than UPAC. In addition, there are few, if any,
barriers to entry in the event other firms, particularly insurance carriers and
their affiliates, seek to compete in this market.
The market for premium finance companies is two-tiered. The first tier is
that of large, national premium finance companies owned by large insurance
companies, banks, or commercial finance companies. This group is composed of a
small number companies that, on a combined basis, finance in excess of 80% of
the total market. The second tier, which includes UPAC, is highly fragmented
and is composed of numerous smaller local, regional and national premium finance
companies, which finance the remainder of the total market.
Competition to provide premium financing to insureds is based primarily on
interest rates, level of service to the agents and insureds, and flexibility of
terms for down payment and number of payments. Management believes that its
commitment to technology and account service distinguishes it from its first
tier competitors and that its cost of funds allows it to compete favorably with
second tier competitors.*
INDUSTRIAL TECHNOLOGY
In July 1997, the Company acquired a controlling interest in Presis and
subsequently purchased the minority interests from the former owners in 1998.
Presis is a start-up business involved in developing technical advances in dry
particle processing. Presis has working prototypes that it is utilizing for
research and testing which will require further engineering before being placed
in commercial operation. In the event the process is successfully developed,
Presis expects to market its process to companies processing pigments used in
the production of inks, paints and coatings.*
Competition in the particle processing field is primarily with
manufacturers of machinery using various milling processes (including three-roll
mills, media mills, air jet mills and hammer mills). Many of the manufacturers
of such machinery used in competing processes are more established and have
substantially greater resources than Presis.
DISCONTINUED OPERATION
American Freight System, Inc. ("AFS") is treated as a discontinued
operation of TransFinancial. The primary obligation of AFS is to administer the
provisions of a Joint Plan of Reorganization ("Joint Plan"). As of December 31,
1994, all unsecured creditors were paid an amount equal to 130% of their allowed
claims, which was the maximum distribution provided under the Joint Plan.
In 1992 through 1994 TransFinancial received distributions in accordance
with the Joint Plan of $36 million. In addition, AFS paid dividends of $25.0
million, $6.8 million $8.5 million and $9.2 million to TransFinancial on
December 28, 1994, July 5, 1995, July 11, 1996 and April 30, 1998.
AFS had minimal remaining undistributed net assets as of December 31,
1998. The closure of the bankruptcy estate is anticipated to occur in 1999.*
ITEM 2. PROPERTIES.
TransFinancial's, UPAC's and Presis' corporate offices are located in
approximately 16,000 square feet of a 24,000 square foot office building owned
by the Company at 8245 Nieman Road, Lenexa, Kansas 66214. The remainder of the
space is leased to third-party tenants.
D-7
<PAGE>
In connection with its operations, Crouse operates a fleet of tractors and
trailers and maintains a network of terminals to support the intercity movement
of freight. Crouse owns most of its fleet. In 1998 Crouse entered into a long-
term operating lease for certain tractors and trailers. Crouse also leases some
equipment from owner-operators to supplement the owned and leased equipment and
to provide flexibility in meeting seasonal and cyclical business fluctuations.
As of December 31, 1998, Crouse owned 484 tractors and leased 200 tractors
under a long-term operating lease. During 1998, Crouse leased 284 tractors and
34 flatbed trailers from owner-operators. On December 31, 1998, it also owned
319 temperature controlled trailers, 1,053 volume vans (including 470 53-foot
van trailers), and 29 flatbed trailers. Crouse also leased 100 53-foot van
trailers under a long-term operating lease.
The table below sets forth the number of Crouse operating locations at
year-end for the last five years:
1998 1997 1996 1995 1994
Owned terminals......... 28 28 27 26 26
Leased terminals........ 16 14 8 8 8
Agency terminals........ 24 24 20 20 19
Total............. 68 66 55 54 53
The above operating locations include; break bulk facilities in Des
Moines, Iowa, Davenport, Iowa and Indianapolis, Indiana; and terminals in
Crouse's principal markets, Chicago, Illinois, Milwaukee, Wisconsin,
Minneapolis, Minnesota, Kansas City, Missouri, Omaha, Nebraska, St. Louis,
Missouri, Cleveland, Ohio, Cincinnati, Ohio and Columbus, Ohio.
ITEM 3. LEGAL PROCEEDINGS.
TransFinancial's subsidiaries are parties to routine litigation primarily
involving claims for personal injury and property damage incurred in the
transportation of freight. TransFinancial and its subsidiaries maintain
insurance programs and accrue for expected losses in amounts designed to cover
liability resulting from personal injury and property damage claims. In the
opinion of management, the outcome of such claims and litigation will not
materially affect the Company's financial position or results of operations.*
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the security holders during the
fourth quarter of 1998.
Included herein, pursuant to General Instruction G, is the information
regarding executive officers of the Company required by Item 401 of Regulation
S-K, as of March 12, 1999.
EXECUTIVE OFFICERS OF THE COMPANY
Name Age Position
Timothy P. O'Neil 42 President, Chief Executive Officer, and Director
David D. Taggart 54 Executive Vice President and Director
Kurt W. Huffman 40 Executive Vice President
Mark A. Foltz 40 Vice President, Finance and Corporate Secretary
Timothy P. O'Neil, a member of the Company's Board since August 1995, has
been President and Chief Executive Officer since May
D-8
<PAGE>
1995. From October 1989 through May 1995, Mr. O'Neil served in various positions
with the Company, including, Senior Vice President, Vice President, Treasurer
and Director of Finance. From March 1997 through October 1998, he also served as
President and Chief Executive Officer of UPAC. Mr. O'Neil has been President,
Chief Executive Officer, Chief Financial Officer and Treasurer of AFS since July
1991.
David D. Taggart, a member of the Board since July 1998, has been
Executive Vice President of TransFinancial since April 1998. From August 1997
to April 1998 he served as Vice President of TransFinancial. He has also served
as Chairman and Chief Executive Officer of Crouse since January 1997. Mr.
Taggart joined Crouse in October 1995 as Executive Vice President. Prior to his
service at Crouse, he served as President and Chief Executive Officer of G.I.
Trucking, a regional LTL carrier based in LaMirada, California, from 1991 to
1995.
Kurt W. Huffman has been Executive Vice President of TransFinancial since
August 1998, President and Chief Executive Officer of Presis since March 1998
and President and Chief Executive Officer of UPAC since October 1998. From
August 1997 to March 1998 he served as Executive Vice President of Presis.
Prior to joining the Company in a management capacity in June 1997, Mr. Huffman
served as Chief Information Officer of Laidlaw Transit Services, Overland Park,
Kansas, a publicly-held provider of school and municipal bus services, from May
1993 to February 1998. Prior to his service with Laidlaw, he was a senior
manager with the international accounting firm of Arthur Andersen LLP.
Mark A. Foltz has been Vice President, Finance since June 1997 and
Treasurer and Corporate Secretary of TransFinancial since May 1996. He was
employed with TransFinancial as Director of Finance in July 1995 and also served
as Assistant Treasurer and Assistant Secretary from August 1995 to May 1996.
Mr. Foltz served in various financial positions, most recently as Assistant Vice
President - Finance, with Mark VII, Inc., a publicly-held transportation
company, headquartered in Memphis, Tennessee, from October 1987 to June 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
(A) MARKET INFORMATION.
TransFinancial's Common Stock is traded on the American Stock Exchange
under the symbol TFH. Prior to July 2, 1997, the Common Stock traded under the
symbol ANU. The following table shows the sales price information for each
quarterly period of 1998 and 1997.
1998 High Low
Fourth Quarter....................... $ 6 1/2 $4 1/8
Third Quarter........................ 9 1/2 5 13/16
Second Quarter....................... 9 5/8 8 7/8
First Quarter........................ 10 1/2 8 7/8
1997 High Low
Fourth Quarter....................... $10 1/4 $8 5/8
Third Quarter........................ 10 1/8 8 7/8
Second Quarter....................... 9 1/16 7 1/2
First Quarter........................ 8 7 3/8
D-9
<PAGE>
(B) HOLDERS.
Number of
Holders of Record
Title of Class at December 31, 1998
Common Stock, par value $0.01 per share 1,158
(C) DIVIDENDS.
No cash dividends were paid during 1998 or 1997 on TransFinancial's Common
Stock. TransFinancial currently intends to retain earnings to finance expansion
and does not anticipate paying cash dividends on its Common Stock in the near
future.* TransFinancial's future policy with respect to the payment of cash
dividends will depend on several factors including, among others, acquisitions,
earnings, capital requirements, financial conditions and operating results. See
Note 4 of Notes to Consolidated Financial Statements for a discussion of
restrictions on the ability of TransFinancial's subsidiaries to pay dividends to
TransFinancial and the ability of TransFinancial to pay cash dividends.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Operating Revenue........................... $ 151,701 $ 133,223 $113,693 $ 96,847 $ 95,772
Income (Loss) from Continuing
Operations............................. $ (2,027) $ 1,100 $ 852 $ 2,810 $ 5,495
Income from Discontinued
Operations............................. $ -- $ -- $ -- $ 3,576 $ 54,845
Net Income (Loss)........................... $ (2,027) $ 1,100 $ 852 $ 6,386 $ 60,340
Basic Earnings (Loss) per Share -
Continuing Operations.................. $ (0.39) $ 0.18 $ 0.13 $ 0.38 $ 0.73
Discontinued Operations................ -- -- -- 0.48 7.27
Total.................................. $ (0.39) $ 0.18 $ 0.13 $ 0.86 $ 8.00
Diluted Earnings (Loss) per Share -
Continuing Operations.................. $ (0.39) $ 0.18 $ 0.12 $ 0.37 $ 0.72
Discontinued Operations................ -- -- -- 0.48 7.21
Total.................................. $ (0.39) $ 0.18 $ 0.12 $ 0.85 $ 7.93
Total Assets................................ $ 77,763 $ 89,755 $ 86,812 $ 88,426 $ 85,399
Long-Term Debt.............................. $ 9,700 $ -- $ -- $ -- $ --
Cash Dividends per
Common Share........................... $ -- $ -- $ -- $ -- $ --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
TransFinancial operates in three distinct industries; transportation,
through its subsidiary, Crouse; insurance premium finance, through its
subsidiary, UPAC; and industrial technology, through its subsidiary, Presis.
In June 1998, TJS Partners, LP ("TJS"), a shareholder of the Company,
announced its intent to acquire an additional 23% of the Company's outstanding
common stock held by one family (the "Crouse family"), obtain control of the
Company's board of directors and study possible actions such as the liquidation
or sale of part or all of the Company's businesses or assets. The board of
directors determined that the hostile takeover attempt was not in the best
interest of the Company and its
D-10
<PAGE>
shareholders and agreed to repurchase the shares held by TJS and the Crouse
family. The failed takeover attempt, together with other events, led
TransFinancial to record after-tax charges totaling $2.9 million. These charges
included costs related to management and personnel changes, asset and liability
valuation adjustments and transaction costs and other expenses related to the
takeover attempt. See Notes 1 and 5 of Notes to Consolidated Financial
Statements.
Transportation
OPERATING REVENUE - The changes in transportation operating revenue are
summarized in the following table (in thousands):
1998 1997
vs. vs.
1997 1996
---- ----
Increase (decrease) from:
Increases in LTL tonnage.................. $ 12,615 $11,792
Increase in LTL revenue
per hundredweight....................... 892 4,934
Increases in truckload revenues........... 5,023 1,834
Net increase............................ $ 18,530 $18,560
Less-than-truckload ("LTL") operating revenues rose 12.8% and 18.8% in
1998 and 1997, in comparison to the preceding years. LTL tonnage rose 12.0% and
13.3% in 1998 and 1997, as compared to 1997 and 1996. The substantial increases
in LTL tonnage in 1998 and 1997 were due to increased freight volumes with
existing and new customers resulting primarily from expansion of the Company's
markets. Additionally, 1997 LTL revenues, tons and shipments temporarily
increased during the Teamsters' strike against UPS, as Crouse met customers'
needs for small parcel shipments. Crouse's LTL revenue yield rose 0.9% in 1998
as compared to 1997. The effects of a softening agricultural economy, a slowing
in the growth of LTL tons and an increase in competitive pressures on freight
rates, were substantially offset by additional, high yield freight handled as a
result of Crouse's partnership with a southeastern regional carrier which was
initiated in the third quarter of 1998. Crouse's LTL revenue yield improved
approximately 4.8% in 1997 compared to 1996. This improvement in revenue yield
was the result of Crouse's ability to sustain a significant portion of a general
rate increase placed in effect on January 1, 1997, negotiated rate increases on
certain shipping contracts and fuel surcharges. Revenue per hundredweight in
1997 also benefited temporarily from a decrease in average weight per shipment,
which was, in part due to the additional volume of small parcel shipments
handled. Smaller shipments typically yield more revenue per hundredweight.
Crouse's average revenue per hundredweight in 1997 also was positively impacted
when the Company stopped hauling freight for certain customers who would not
agree to increases in rates to levels providing adequate compensation for
services provided and costs incurred.
Truckload operating revenue rose 24.3% and 9.7% in 1998 and 1997,
primarily as a result of 26.3% and 13.9% increases in numbers of shipments.
Truckload revenues and tons benefited principally from strong volumes in the
Company's refrigerated division as the volume of meat hauled continued to be
strong. Revenue per shipment declined 2.0% and 4.2% in 1998 and 1997 compared
to 1997 and 1996 as a result of decreases in average weight per shipment.
D-11
<PAGE>
OPERATING EXPENSES - A comparative summary of transportation operating
expenses as a percent of transportation operating revenue follows:
Percent of
Operating Revenue
1998(1) 1997 1996
Salaries, wages & employee benefits..... 56.8% 56.8% 55.9%
Operating supplies and expenses......... 12.5 12.5 13.2
Operating taxes and licenses............ 2.6 2.6 2.7
Insurance and claims.................... 1.8 2.3 1.9
Depreciation and amortization........... 2.3 3.1 2.7
Purchased transportation and rents...... 22.0 20.2 20.9
Total operating expenses............. 98.0% 97.5% 97.3%
(1) Additionally, in connection with the failed takeover attempt by certain
shareholders, an in-depth evaluation was performed on each of the Company's
business enterprises utilizing both internal and external resources. As a
result of this process the Company effected certain changes in its
management team and corporate structure, and recorded valuation adjustments
to certain assets and liabilities. The following charges relative to the
Company's transportation business are not reflected in the percentages
above: $494,000 in Salaries, Wages and Employee Benefits; $450,000 in
Operating Supplies and Expenses; and $600,000 in Insurance and Claims.
Crouse's operating expenses as a percentage of operating revenue, or
operating ratio, excluding the charges discussed above, were 98.0% for 1998
compared to 97.5% for 1997. The increase in operating ratio was primarily the
result of operating costs associated with the Company's substantial investments
in market expansion; the replacement and modernization of its fleet, and the
development of management information systems. The operating costs of these
investments will continue to impact Crouse's operating ratio into 1999. The
Company also believes that its labor productivity and operating efficiency were
adversely impacted during 1998 by employee and management attention to issues
relating to the union negotiations and attempted hostile takeover and possible
liquidation of the Company. With the favorable resolution of these issues and
renewed focus on operating performance, the Company believes the unfavorable
trend in operating ratios can be reversed in 1999.* Crouse's operating expenses
were positively impacted by approximately $756,000 in 1998 as a result of a
change in accounting estimate of the remaining useful lives of certain revenue
equipment.
Crouse's operating ratio for 1997 rose slightly to 97.5% compared to 97.3%
for 1996. The fixed costs related to Crouse's investment in expanding its market
throughout Ohio, Michigan and Kentucky exceeded revenues generated in these new
markets. Insurance and claims expenses were increased as Crouse incurred
unusually high claims costs due to an increase in the number and severity of
accidents and cargo damage occurring in 1997. Salaries and wages were adversely
impacted as Crouse operating and administrative personnel devoted significant
man-hours, primarily on an overtime basis, in training and making the transition
to Crouse's new computer system, which was in service January 1, 1998. Crouse
also incurred incrementally greater variable costs due to the different freight
handling characteristics of the small parcel shipments moved during the strike
against UPS as compared to the freight Crouse typically handles.
Financial Services
As a result of the in-depth evaluation of the Company's business
enterprises, changes in its management team and adjustments to certain assets
and liabilities discussed previously, UPAC recorded charges relative to its
financial services business in 1998. These charges include $392,000 relative to
management and personnel costs and $683,000 of charges related to adjustments in
asset values, including $333,000 of additional depreciation related to the
change in estimated useful life for purchased software (See Note 1 of Notes to
Consolidated Financial Statements).
D-12
<PAGE>
In 1998, UPAC reported operating income, excluding the charges discussed
above, of $422,000 on net financial services revenue of $7.0 million and total
insurance premiums financed of $160.8 million. A slight decrease in net
financial services revenue in 1998 was primarily due to an increase in the
percentage of finance receivables sold and a decrease in gains realized on sale
of receivables pursuant to the securitization agreement resulting from a lower
average yield on contracts originated in 1998. Operating income, excluding the
charges discussed above, was slightly higher due to reduced operating expenses
in 1998, principally provisions for credit losses. The increase in total
insurance premiums financed in 1998 was the result of the acquisition of Oxford
Premium Finance, Inc. on May 29, 1998 and increased volumes financed with
existing and new agents.
In 1997, UPAC generated operating income of $396,000 on net financial
services revenue of $7.1 million from total insurance premiums financed of
$123.0 million. In 1996, UPAC financed $120.4 million of insurance premiums and
generated net financial services revenue of $6.1 million and an operating loss
of $685,000. The increase in premiums financed and net financial services
revenue was primarily the result of the acquisition of UPAC effective March 29,
1996. The improvement in operating income in 1997 from the operating loss
incurred in 1996 was primarily the result of the integration of the operations
of UPAC in Lenexa, Kansas that eliminated substantial duplicate administrative
costs incurred in 1996. Also positively impacting operating income in 1997 was
the improved cost of funds under the Company's new receivable securitization
agreement effective December 31, 1996, and an increase in gain recognized on
receivables sold under the new securitization agreement. Operating income in
1997 was adversely impacted by unusually high levels of credit losses during the
year, primarily as a result of apparently falsified financings by insurance
agents.
Industrial Technology
As a result of the in-depth evaluation of the Company's business
enterprises, changes in its management team and adjustments to certain assets
and liabilities discussed previously, Presis, the Company's start-up industrial
technology business, recorded charges related to its industrial technology
investment in 1998. These charges include $244,000 related to management and
consulting contracts and $525,000 resulting from the adjustment of the carrying
value of certain equipment and intangibles to fair value (See Note 1 of Notes to
Consolidated Financial Statements).
In 1998, Presis incurred operating expenses, excluding the charges
discussed above, of $700,000, primarily in salaries, wages and employee benefits
as compared to operating expenses of $295,000 during the partial year of 1997.
In its initial phase Presis has focused on continued research and testing of its
technology. The Company expects this operation to incur operating losses in
1999 at or below its current expenditure levels of $100,000 per quarter as it
continues to pursue the research, testing and commercialization of its
technology.*
Other
In connection with the failed takeover attempt, the Company incurred
$500,000 in transaction costs and expenses that are included in general
corporate expenses in 1998. Additionally, general corporate charges of $700,000
were recorded principally to reflect certain excess costs incurred to remove
contaminated soil from a site formerly owned by the Company. A lawsuit has been
filed against the environmental engineering firm that performed the initial
cleanup to recover such excess costs. The Company has not recorded the benefit
of potential recovery pursuant to this lawsuit and none can be assured.
As a result of the Company's use of funds for the Crouse market expansion
and new computer system, the UPAC acquisition and stock repurchases, interest
earnings on invested funds were substantially lower in 1998 and 1997 than in the
preceding years. Interest income is expected to continue to decline as the
Company invests its cash and short-term investments in its operations.*
Interest expense increased in 1998
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<PAGE>
due to borrowings on long-term debt incurred to repurchase stock (See Note 4 of
Notes to Consolidated Financial Statements).
TransFinancial's effective income tax provision (benefit) rates for 1998,
1997 and 1996 were (29%), 58% and 51%. The effective income tax rate for 1998
was a lower percentage due to the impact of non-deductible amortization of
intangibles and meals and entertainment expenses, which reduce the tax benefit
of pre-tax losses in 1998, as compared to the impact of these items on pre-tax
income in 1997. The increase in the effective rate in 1997 was the result of
the greater significance of non-deductible amortization of intangibles relative
to reduced pre-tax income. Also, in 1997 the Company provided additional income
tax reserves for tax adjustments resulting from an examination of the Company's
income tax returns. This examination was concluded in 1998 with no additional
tax provision required.
Outlook
The following statements are forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, and as such
involve risks and uncertainties which are detailed below under the caption
"Forward-Looking Statements".
The Company utilizes a three-year strategic planning process with the goal
of maximizing shareholder value through profitable growth of its business
segments. In the transportation segment the plan calls for the Company to
continue to provide and improve upon its already superior service to its
customers in its primary operating territory, while increasing the density of
its operations in the eastern portion of its service area. The Company also
intends to continue to focus on improving the efficiency and effectiveness of
its operations.
The Financial services segment will focus on targeting its marketing
efforts to improve its contribution to the Company's return on equity.
Additionally, the Company intends to focus on utilizing technology to improve
its operating efficiency.
The industrial technology operation will focus on continued research,
testing and commercialization of its technology. The Company expects this
operation to incur operating losses in 1999 at or below its current expenditure
levels of $100,000 per quarter.
Forward-Looking Statements
Certain statements contained in this Annual Report on Form 10-K which are
not statements of historical fact constitute forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
including, without limitation, the statements specifically identified as
forward-looking statements in this Form 10-K. In addition, certain statements in
future filings by the Company with the Securities and Exchange Commission, in
the Company's press releases, and in oral statements made by or with the
approval of an authorized executive officer of the Company which are not
statements of historical fact constitute forward-looking statements within the
meaning of the Act. Examples of forward-looking statements include, but are not
limited to (i) projections of revenues, income or loss, earnings or loss per
share, capital expenditures, the payment or non-payment of dividends, capital
structure and other financial items, (ii) statements of plans and objectives of
the Company or its management or Board of Directors, including plans or
objectives relating to the products or services of the Company, (iii) statements
of future economic performance, and (iv) statements of assumptions underlying
the statements described in (i), (ii) and (iii). These forward-looking
statements involve risks and uncertainties which may cause actual results to
differ materially from those anticipated in such statements. The following
discussion identifies certain important factors that could affect the Company's
actual results and actions and could cause such results or actions to differ
materially from any forward-looking statements made by or on behalf of the
Company
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<PAGE>
that relate to such results or actions. Other factors, which are not identified
herein, could also have such an effect.
Transportation
Certain specific factors which may affect the Company's transportation
operation include: competition from other regional and national carriers for
freight in the Company's primary operating territory; price pressure; changes in
fuel prices; labor matters, including changes in labor costs, and other labor
contract issues resulting from the negotiation of new contracts to replace
current contracts, covering certain terminal employees which expired March 31,
1998; and environmental matters.
Financial Services
Certain specific factors which may affect the Company's financial services
operation include: the performance of financial markets and interest rates; the
performance of the insurance industry; competition from other premium finance
companies and insurance carriers for finance business in the Company's key
operating states; adverse changes in interest rates in states in which the
Company operates; greater than expected credit losses; the acquisition and
integration of additional premium finance operations or receivables portfolios;
and the inability to obtain continued financing at a competitive cost of funds.
Industrial Technology
Presis is a start-up business formed to develop an industrial technology
for dry particle processing. This technology is subject to risks and
uncertainties in addition to those generally applicable to the Company's
operations described herein. These additional risks and uncertainties include
the efficacy and commercial viability of the technology, the ability of the
venture to market the technology, the acceptance of such technology in the
marketplace, the general tendency of large corporations to be slow to change
from known technology, the ability to protect its proprietary information in the
technology and potential future competition from third parties developing
equivalent or superior technology. As a result of these and other risks and
uncertainties, the future results of operations of the venture are difficult to
predict, and such results may be materially better or worse than expected or
projected.
Other Matters
With respect to statements in Item 1 and under "Financial Condition" below
regarding the adequacy of reserves and insurance with respect to claims against
Crouse, such statements are subject to a number of risks and uncertainties,
including without limitation the difficulty of predicting the actual number and
severity of future accidents and damage claims.
With respect to statements in Item 3 regarding the outcome of claims and
litigation, such statements are subject to a number of risks and uncertainties,
including without limitation the difficulty of predicting the final resolution
of ongoing claims and litigation.
With respect to statements in this Report which relate to the current
intentions of the Company and its subsidiaries or of management of the Company
and its subsidiaries, such statements are subject to change by management at any
time without notice.
With respect to statements in "Financial Condition" regarding the adequacy
of the Company's capital resources, such statements are subject to a number of
risks and uncertainties including, without limitation: the future economic
performance of the Company (which is dependent in part upon the factors
described above); the ability of the Company and its subsidiaries to comply with
the covenants contained in the
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<PAGE>
financing agreements; future acquisitions of other businesses not currently
anticipated by management of the Company; and other material expenditures not
currently anticipated by management.
With respect to statements in "Financial Condition" regarding the adequacy
of the allowances for credit losses, such statements are subject to a number of
risks and uncertainties including, without limitation: greater than expected
defaults by customers, fraud by insurance agents and general economic
conditions.
General Factors
Certain general factors that could impact any or all of the Company's
operations include: changes in general business and economic conditions; changes
in governmental regulation; and tax changes. Expansion of these businesses into
new states or markets is substantially dependent on obtaining sufficient
business volumes from existing and new customers in these new markets at
compensatory rates.
The cautionary statements made pursuant to Section 21E of the Securities
Exchange Act of 1934, as amended, are made as of the date of this Report and are
subject to change. The cautionary statements set forth in this Report are not
intended to cover all of the factors that may affect the Company's businesses in
the future. Forward-looking information disseminated publicly by the Company
following the date of this Report may be subject to additional factors hereafter
published by the Company.
FINANCIAL CONDITION
The Company's financial condition remained strong at December 31, 1998
with approximately $3.3 million in cash and investments. The Company's current
ratio was 2.3 to 1.0 and its ratio of total liabilities to tangible net worth
was 0.7 to 1.0. In addition to utilizing cash and investment reserves, a
substantial amount of the Company's cash is generated by operating activities.
Cash generated from operating activities decreased in 1997 from 1996, due
primarily to a temporary increase in freight accounts receivable resulting from
a lag in billing and collections during Crouse's transition to its new computer
system. Substantially all of these delinquent receivables were collected in
1998 resulting in the improvement in cash generated from operating activities in
that period.
Investing Activities - The continuing winddown of its discontinued
operation, AFS, has been a source of cash to the Company's operation as AFS has
distributed $6.3 million and $8.5 million in cash dividends in 1998 and 1996.
AFS had minimal remaining undistributed net assets as of December 31, 1998. The
principal use of cash has been the acquisitions of Oxford for approximately $4.2
million in 1998 and UPAC for approximately $12.0 million in 1996. In addition,
Crouse expended $13.1 million, $9.6 million and $4.0 million in 1998, 1997 and
1996, to replace and expand its fleet of tractors and trailers and to acquire
new terminals.
A substantial portion of the capital required for UPAC's insurance premium
finance operations has been provided through the sale of undivided interests in
a designated pool of receivables on an ongoing basis under receivables
securitization agreements, as well as, from the date of the acquisition of UPAC
through December 30, 1996, secured borrowings against UPAC's receivables. The
current securitization agreement that matures December 31, 2001 currently
provides for the sale of a maximum of $85 million of eligible receivables. As
of December 31, 1998, $61.6 million of such receivables had been securitized
(See Note 4 of Notes to Consolidated Financial Statements).
Financing Activities - From March 31, 1996 to December 31, 1996, UPAC's
receivables were financed by secured borrowings under a $30 million revolving
credit agreement. The balance outstanding under this agreement at December 30,
1996, $22.5
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<PAGE>
million, was repaid from the proceeds of the initial sale of receivables under
UPAC's new receivable securitization agreement on December 31, 1996 described
above.
Effective January 5, 1998, Crouse entered into a new Secured Loan
Agreement that provides for a working capital line of credit of $4.5 million at
the bank's prime rate and an equipment line of credit of $4.5 million accruing
interest, at Crouse's option at either a variable rate equal to the bank's prime
rate, or a fixed rate at 200 basis points over the Federal Home Loan Bank Rate
then existing. Crouse's revenue equipment and bank deposit balances are pledged
as collateral for both lines. In 1996 through 1998, Crouse has utilized this
and previous agreements only on a limited basis for short-term operational
needs. No borrowings were outstanding on the lines at December 31, 1998.
In the third quarter of 1995, the Company initiated a program to repurchase
up to 10% of its outstanding shares of common stock. During the second quarter
of 1996, the Company completed this initial repurchase program and expanded the
number of shares authorized to be repurchased by an additional 10% of its then
outstanding shares. The second program was completed in the fourth quarter of
1997. During 1997 and 1996, the Company repurchased 257,099 and 768,600 shares,
at a total cost of $8.7 million. Additionally, during the fourth quarter of
1996, the Company repurchased 28,541 shares of common stock at a cost of
$237,000 pursuant to an "Odd Lot Tender Offer" to holders of less than 100
shares.
On June 26, 1997, the shareholders of the Company approved a 1-for-100
reverse stock split followed by a 100-for-1 forward stock split. These stock
splits were effected on July 1, 1997. The result of this transaction was the
cancellation of approximately 107,000 shares of common stock held by holders of
fewer than 100 shares at the then current market price of $8.89 per share.
Pursuant to a definitive stock purchase agreement resolving the hostile
takeover attempt, the Company repurchased 2,115,422 shares of its common stock
held by the Crouse family, including 881,550 shares registered in the name of
TJS Partners, LP, all at a price of $9.125 per share, effective August 14, 1998.
The Company paid and expensed $350,000 of legal and other expenses incurred by
the Crouse family in connection with the takeover attempt. See Note 5 of Notes
to Consolidated Financial Statements. The Company funded the stock repurchase
out of available cash and short-term investments, the proceeds from the sale and
leaseback of approximately $4.2 million of revenue equipment and the proceeds
from a $10.0 million secured loan from one of the Company's existing bank
lenders as described below.
In September 1998, the Company entered into a two-year secured loan
agreement with a commercial bank to borrow $10.0 million (the "Loan"). Freight
accounts receivable and a second lien on revenue equipment are pledged as
collateral for the Loan. The Loan bears interest at the bank's prime rate,
7.75% at December 31, 1998. The terms of the Loan provide for monthly payments
of interest only through September 30, 1999, with monthly principal payments
thereafter of $100,000 plus interest through maturity on September 30, 2000. At
December 31, 1998 current maturities of long-term debt were $300,000, with the
remaining $9,700,000 due in 2000 (See Note 4 of Notes to Consolidated Financial
Statements).
The Company believes available cash and investments, cash generated from
operations and funds available under the receivables securitization agreement
and Secured Loan Agreement will be sufficient to fund operations and other cash
needs for 1999.*
As of December 31, 1998, Crouse owned or leased 44 parcels of real
property which are utilized in its operations. Six of these facilities maintain
underground fuel storage tanks. These fuel systems were replaced with new tanks
equipped with corrosion protection and automatic tank monitoring equipment. Any
contamination detected during the tank replacement process at these sites was
remediated at the same time. The cost of replacing and upgrading tanks and
remediating contamination, if any was detected, was not material to the
financial position of the Company. The
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<PAGE>
Company is not currently under any requirement to incur mandated expenditures to
remediate previously contaminated sites and does not anticipate any material
costs for other infrequent or non- recurring clean-up expenditures.*
Crouse retains a $100,000 per occurrence self-insured exposure, or
deductible, on its workers' compensation, general and automobile liability,
bodily injury and property damage and cargo damage insurance coverages. The
Company maintains reserves for the estimated cost of the self-insured portion of
claims based on management's evaluation of the nature and severity of individual
claims and the Company's past claims experience. Based upon management's
evaluation of the nature and severity of individual claims and the Company's
past claims experience, management believes accrued reserves are adequate for
its self-insured exposures as of December 31, 1998.*
The amount of the allowance for credit losses is based on periodic (not
less than quarterly) evaluations of the portfolios based on historical loss
experience, detail account by account agings of the portfolios and management's
evaluation of specific accounts. Management believes the allowances for credit
losses are adequate to provide for potential losses.* See Note 1 of Notes to
Consolidated Financial Statements - Summary of Significant Accounting Policies -
Allowance for Credit Losses.
Crouse has achieved ratification of new five-year pacts with the
International Brotherhood of Teamsters or other local unions covering
substantially all of its union employees. The new contracts generally provide
for all of the terms of the National Master Freight Agreement with a separate
addendum for wages. Crouse will continue to maintain its past work rules,
practices and flexibility within its operating structure. Crouse continues to
negotiate with the union local representing the remaining employees. There can
be, however, no assurance that Crouse's remaining union employees will ratify a
new contract acceptable to both the Company and the union, or that work
stoppages will not occur. If a work stoppage should occur, Crouse's customer
base would be put at risk inasmuch as its competition would have a continuing
operating advantage. Any of these actions could have a material adverse effect
on the Company's business, financial condition, liquidity or results of
operations.*
Year 2000 Issues
The Year 2000 Issue is the result of computer programs being written using
two digits to represent years rather than four digits, which include the century
designation. Without corrective action, it is possible that the Company's
computer programs, or its major service providers, vendors, suppliers, partners
or customers that have date-sensitive software could recognize a date using "00"
as the year 1900 rather than the year 2000. Additionally, certain other assets
may contain embedded chips that include date functions that could be affected by
the transition to the year 2000. In some systems this could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has developed and is executing a Year 2000 Compliance
Strategic Plan ("Year 2000 Plan") to enable management of TransFinancial and
each of its business operations to ensure that each of its critical business
systems are "Year 2000 Compliant". The Company considers a business system to
be Year 2000 Compliant if it is able to transition into the year 2000 without
significant disruption to the Company's internal operations or those of its key
business partners. The Year 2000 Plan encompasses the Company's information
technology assets, including computer hardware and software ("IT assets") and
non-information technology assets, goods and services, including assets
utilizing embedded chip technology and significant customer and vendor
relationships ("non-IT assets").
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<PAGE>
The Company's Year 2000 Plan includes three principal sections: (1)
mainframe computer and personal computer hardware and software utilized by the
Company's transportation operations ("Transportation IT assets"); (2) desktop
computer applications, embedded chips, significant business partners of the
transportation operations ("Transportation non-IT assets"); and (3) personal
computer hardware and software, desktop computer applications, embedded chips,
significant business partners of the financial services operations ("Financial
Services IT and non-IT assets"). The general phases common to all sections are:
(1) inventorying, assessing and assigning priorities to Year 2000 items
("Inventory Phase"); (2) taking corrective actions to modify, repair or replace
items that are determined not to be Year 2000 Compliant ("Corrective Action
Phase"); (3) testing material items ("Testing Phase"); and (4) developing and
implementing contingency plans for each organization and location ("Contingency
Planning Phase"). The Company intends to utilize primarily internal personnel
and resources to execute its Year 2000 Plan but may utilize external consultants
as needed in certain phases.
Transportation IT assets
With regard to the Transportation IT assets section, the Inventory Phase
is completed. The Company has identified its computer applications, programs
and hardware and is in the processing of assessing the Year 2000 risk associated
with each item. The Company has begun executing the Corrective Action Phase by
modifying or upgrading items that are not Year 2000 compliant. This phase is
expected to be substantially complete by the end of the second quarter of 1999.*
The Testing Phase is ongoing as corrective actions are completed. The Testing
Phase is anticipated to be complete in the second quarter of 1999.* The
Contingency Planning Phase will begin in the first quarter of 1999 and be
completed in the third quarter of 1999.*
Transportation non-IT assets
With regard to the Transportation non-IT assets section, the Inventory
Phase is completed. The Company has identified assets that may contain embedded
chip technologies and has contacted the related vendors to gain assurance of
Year 2000 status on each item. The Company has also identified its significant
business relationships and has contacted key vendors, suppliers and customers to
attempt to reasonably determine their Year 2000 status. The Company is in the
process of effecting the Corrective Action Phase, which is anticipated to be
complete by the end of the first quarter of 1999.* The Testing Phase is ongoing
as corrective actions are completed. This phase is anticipated to be complete
in the second quarter of 1999.* The Contingency Planning Phase will begin in
the first quarter of 1999 and be completed in the third quarter of 1999.*
Financial Services IT and non-IT assets
With regard to the Financial Services IT and non-IT assets section, the
Inventory Phase is completed. The Company has identified its computer
applications, programs and hardware and non-IT assets and has assessed the Year
2000 risk associated with each item. The Company has also identified its
significant business relationships and has contacted key vendors, suppliers and
customers to attempt to reasonably determine their Year 2000 status. The
Company has substantially completed the Corrective Action Phase. The Company's
financial services database, operating systems and computer applications have
been upgraded or modified to address the Year 2000. The Testing Phase has been
ongoing as corrections were made and was substantially complete in the fourth
quarter of 1998. Certain testing of bank and other interfaces is expected to be
completed in the first quarter of 1999.* The Contingency Planning Phase will
begin in the first quarter of 1999 and be completed in the second quarter of
1999.*
Costs
It is currently estimated that the aggregate cost of the Company's Year
2000 efforts will be approximately $150,000 to $200,000, of which approximately
$80,000 has
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<PAGE>
been spent.* These costs are being expensed as they are incurred and are being
funded out of operating cash flow. These amounts do not include approximately
$100,000 of costs to be capitalized as the Company replaces certain non-IT
assets, in part to address the Year 2000 issue, as part of the Company's normal
capital replacement and upgrades. These amounts also do not include any internal
costs associated with the development and implementation of contingency plans.
Risks
The failure to correct a material Year 2000 issue could result in an
interruption in, or failure of, certain normal business operations. Such
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 issue, resulting in part from the uncertainty of the
Year 2000 readiness of third-party vendors, suppliers and customers, the Company
is unable to determine at this time whether the consequences of Year 2000
failures will have a material impact on the Company's results of operations,
liquidity and financial condition. The Company's Year 2000 Plan is designed to
gather information concerning Year 2000 issues facing the Company and to address
and resolve such issues to the extent reasonably possible. Even if the Company
successfully implements its Year 2000 Plan, there can be no assurance that the
Company's operations will not be affected by Year 2000 failures or that such
failures will not have a material adverse effect on the Company's results of
operations, liquidity and financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk is interest rate risk. Changes in short-
term interest rates can affect: (a) the amount of the Company's interest expense
on its variable interest rate debt and (b) the amount of the discount on finance
accounts receivables sold by UPAC under its receivable securitization agreement.
The Company has not obtained any financial instruments for trading purposes.
The Company's long-term, variable interest rate debt was $10,000,000 as of
December 31, 1998, with $300,000 maturing in 1999 and the remaining $9,700,000
maturing in 2000. In addition, Crouse has a variable rate credit facility
through which it may borrow $4.5 million for working capital purposes and $4.5
million for equipment purposes. Crouse has utilized this line on a limited
basis for short-term working capital needs, however, no borrowings were
outstanding under this credit facility as of December 31, 1998.
UPAC sells undivided interests in its insurance premium finance accounts
receivables on an ongoing basis under a receivables securitization agreement.
The receivables sold are fixed rate notes and typically have a term of nine
months. An undivided interest in the pool of receivables is sold at a discount
rate based on the average rate on 28 - 35 day commercial paper over the term of
the notes. Consequently, with respect to insurance premium finance receivables
sold by UPAC under the securitization agreement, changes in the rate on 28 - 35
day commercial paper during the term of such receivables will affect the amount
to be received by UPAC in the sale of receivables under the securitization
agreement. The Company recognizes a gain on sale of receivables that represents
the excess of the sale proceeds over the net carrying value of the receivables.
Included in the gain recognized are the estimated effects of prepayments,
recourse provisions and the discount rate in effect at the time of sale. As of
December 31, 1998, UPAC had a total finance accounts receivable portfolio of
$76.5 million, including $61.6 million that had been sold under the
securitization agreement. UPAC closely monitors interest rates and the extent
of its interest rate exposure resulting from its insurance premium finance
activities and the sale of insurance premium finance receivables. UPAC does not
currently use derivatives, such as interest rate swaps, to manage its interest
rate risk and does not engage in any other hedging activities.
The estimated impact of a hypothetical 100 basis point (one percent) change
in short-term interest rates on the Company's interest expense on its variable
interest rate debt and on UPAC's gain on sale of insurance premium finance
receivables is
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<PAGE>
approximately $292,000. This hypothetical short-term interest rate change impact
is based on existing business and economic conditions and assumes that UPAC
would pass the increase in interest rates on to its customers in new finance
contracts generated after the increase.*
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of TransFinancial Holdings, Inc.:
In our opinion, the consolidated financial statements listed in the
accompanying index appearing under Item 14 (a)(1) and (2) herein present fairly,
in all material respects, the financial position of TransFinancial Holdings,
Inc. and its subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Kansas City, Missouri
February 3, 1999, except for Note 10,
as to which the date is February 18, 1999.
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<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31
1998 1997
(In Thousands)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.................................................. $ 3,256 $ 4,778
Short-term investments..................................................... -- 3,543
Freight accounts receivable, less allowance for
credit losses of $387 and $464........................................ 13,351 14,909
Finance accounts receivable, less allowance for
credit losses of $566 and $499........................................ 12,584 14,016
Current deferred income taxes.............................................. 2,548 1
Other current assets....................................................... 2,401 1,831
AFS net assets (Note 8).................................................... -- 7,993
Total current assets.................................................. 34,140 47,071
Operating Property, at Cost
Revenue equipment.......................................................... 31,969 32,275
Land........................................................................ 3,681 3,585
Structures and improvements................................................ 11,130 10,506
Other operating property................................................... 10,500 9,624
57,280 55,990
Less accumulated depreciation.............................................. (24,122) (22,969)
Net operating property................................................ 33,158 33,021
Intangibles, net of accumulated amortization................................... 9,777 9,243
Other Assets ................................................................... 688 420
$ 77,763 $ 89,755
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Cash overdrafts............................................................ $ 1,976 $ 754
Accounts payable........................................................... 3,093 2,855
Current maturities of long-term debt....................................... 300 --
Line of credit payable..................................................... -- 2,500
Accrued payroll and fringes................................................ 6,068 5,956
Claims and insurance accruals.............................................. 283 566
Other accrued expenses..................................................... 3,402 2,374
Total current liabilities............................................. 15,122 15,005
Deferred Income Taxes.......................................................... 1,867 2,265
Long-Term Debt (Note 4)........................................................ 9,700 --
Contingencies and Commitments (Note 7)......................................... -- --
Shareholders' Equity (Notes 2, 5 and 10)
Preferred stock $0.01 par value, authorized
1,000,000 shares, none outstanding.................................... -- --
Common stock $0.01 par value, authorized
13,000,000 shares, issued 7,593,592 and
7,509,622 shares...................................................... 76 75
Paid-in capital............................................................ 6,090 5,581
Retained earnings.......................................................... 77,367 79,394
Treasury stock, 3,661,220 and 1,481,935 shares, at
cost.................................................................. (32,459) (12,565)
Total shareholders' equity............................................ 51,074 72,485
$ 77,763 $ 89,755
<FN>
The accompanying notes to consolidated financial statements
</FN>
are an integral part of these balance sheets.
</TABLE>
D-23
<PAGE>
<TABLE>
<CAPTION>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
1998 1997 1996
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C>
Operating Revenue
Transportation........................................... $ 144,592 $ 126,062 $ 107,502
Financial services and other, net........................ 7,109 7,161 6,191
Total operating revenue............................. 151,701 133,223 113,693
Operating Expenses
Salaries, wages and employee benefits.................... 87,503 74,622 63,165
Operating supplies and expenses.......................... 23,144 19,141 17,297
Provision for credit losses.............................. 827 950 892
Operating taxes and licenses............................. 3,722 3,324 2,978
Insurance and claims..................................... 3,324 3,051 2,224
Depreciation and amortization............................ 6,286 4,758 3,702
Purchased transportation and rents....................... 29,916 25,441 22,589
Total operating expenses............................ 154,722 131,287 112,847
Operating Income (Loss)...................................... (3,021) 1,936 846
Nonoperating Income (Expense)
Interest income.......................................... 301 645 1,141
Interest expense......................................... (311) (34) (27)
Gain on sale of operating property, net.................. 164 56 78
Other, net............................................... 1 22 (299)
Total nonoperating income (expense)................. 155 689 893
Income (Loss) Before Income Taxes............................ (2,866) 2,625 1,739
Income Tax Provision (Benefit)(Note 6)....................... (839) 1,525 887
Net Income (Loss)............................................ $ (2,027) $ 1,100 $ 852
Basic Average Shares Outstanding............................. 5,249 6,214 6,780
Basic Earnings (Loss) Per Share.............................. $ (0.39) $ 0.18 $ 0.13
Diluted Average Share Outstanding............................ 5,263 $ 6,266 $ 6,820
Diluted Earnings (Loss) Per Share............................ $ (0.39) $ 0.18 $ 0.12
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</FN>
</TABLE>
D-24
<PAGE>
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31
1998 1997 1996
(In Thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities-
Net income (loss)........................................ $ (2,027) $ 1,100 $ 852
Adjustments to reconcile net income (loss) to
net cash generated by operating activities-
Depreciation and amortization....................... 6,286 4,758 3,702
Provision for credit losses......................... 1,220 1,070 1,012
Deferred tax provision.............................. (2,644) 1,679 336
Other............................................... (100) 24 194
Net increase (decrease) from change in
working capital items affecting operating
activities-
Freight accounts receivable..................... 1,165 (5,796) (1,401)
Accrued payroll and fringes..................... 112 423 330
Other........................................... 749 (649) 1,860
4,761 2,609 6,885
Cash Flows From Investing Activities-
Proceeds from discontinued operations.................... 6,345 -- 8,500
Purchase of operating property........................... (9,102) (13,660) (10,953)
Sale of operating property............................... 4,639 704 803
Purchase of finance subsidiaries,
net of cash acquired................................ (4,178) -- (11,979)
Origination of finance accounts
receivables......................................... (162,329) (125,391) (120,989)
Sale of finance accounts receivables..................... 128,136 84,974 61,289
Collection of owned finance accounts
receivables......................................... 37,804 40,005 82,836
Purchase of short-term investments....................... (2,998) (10,411) (35,823)
Maturities of short-term investments..................... 6,541 16,825 53,232
Other .................................................. (368) (466) (1,051)
4,490 (7,420) 25,865
Cash Flows From Financing Activities-
Borrowings on long-term debt............................. 10,000 -- --
Borrowings (repayments) on line of credit
agreements, net..................................... (2,500) 2,500 (23,775)
Cash overdrafts.......................................... 1,101 754 --
Payments to acquire treasury stock....................... (19,303) (2,277) (6,656)
Payment for fractional shares from
reverse stock split................................. (96) (459) --
Other .................................................. 25 50 85
(10,773) 568 (30,346)
Net Increase (Decrease) in Cash and
Cash Equivalents......................................... (1,522) (4,243) 2,404
Cash and Cash Equivalents:
Beginning of Period...................................... 4,778 9,021 6,617
End of Period............................................ $ 3,256 $ 4,778 $ 9,021
Cash Paid During the Period for-
Interest ................................................ $ 196 $ 16 $ 1,109
Income Tax............................................... $ 383 $ 106 $ 332
</TABLE>
D-25
<PAGE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Supplemental Schedule of Noncash Investing Activities:
In 1998, the Company acquired all of the capital stock of Oxford for
approximately $4,178,000. In conjunction with the acquisition, liabilities
were assumed as follows (See Note 9):
1998
Fair value of assets acquired............................ $22,338
Cash paid for capital stock and acquisition expenses..... (4,178)
Intangibles.............................................. 1,876
Liabilities assumed...................................... $20,036
In 1996, the Company acquired all of the capital stock of UPAC for
approximately $11,979,000. In conjunction with the acquisition, liabilities
were assumed as follows (See Note 9):
1996
Fair value of assets acquired............................ $30,587
Cash paid for capital stock and acquisition expenses..... (11,979)
Intangibles.............................................. 6,617
Liabilities assumed...................................... $25,225
The accompanying notes to consolidated financial statements
are an integral part of these statements.
D-26
<PAGE>
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Total
Share-
Common Paid-In Retained Treasury holders'
Stock Capital Earnings Stock Equity
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance at Dec. 31, 1995...............$ 76 $ 5,357 $ 78,390 $ (3,543) $ 80,280
Net income............................. -- -- 852 -- 852
Issuance of shares under
Incentive Stock Plan............... -- 172 -- (87) 85
Purchase of 797,141 shares
of common stock.................... -- -- -- (6,656) (6,656)
Balance at Dec. 31, 1996............... 76 5,529 79,242 (10,286) 74,561
Net income............................. -- -- 1,100 -- 1,100
Fractional shares cancelled
in reverse stock split (1) -- (948) -- (949)
Issuance of shares under
Incentive Stock Plan............... -- 52 -- (2) 50
Purchase of 257,099 shares
of common stock.................... -- -- -- (2,277) (2,277)
Balance at Dec. 31, 1997............... 75 5,581 79,394 (12,565) 72,485
Net loss ..............................-- -- (2,027) -- (2,027)
Issuance of shares under
Incentive Stock Plan............... 1 509 -- (591) (81)
Purchase of 2,115,422 shares
of common stock.................... -- -- -- (19,303) (19,303)
Balance at Dec. 31, 1998...............$ 76 $ 6,090 $ 77,367 $ (32,459) $ 51,074
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</FN>
</TABLE>
D-27
<PAGE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include TransFinancial Holdings, Inc. and its subsidiary companies ("the
Company" or "TransFinancial"). TransFinancial's principal holdings include
Crouse Cartage Company ("Crouse"), Universal Premium Acceptance Corporation and
its subsidiaries, Oxford Premium Finance, Inc. ("Oxford") and UPAC of
California, Inc. (together "UPAC"), Presis, L.L.C. ("Presis") and American
Freight System, Inc. ("AFS"). The operating results of UPAC and Oxford are
included from March 31, 1996 and May 29, 1998, the dates of their respective
acquisitions (See Note 9). The Company's proportionate interest in Presis is
included from July 31, 1997, the date of the Company's initial investment. AFS
has been accounted for as a discontinued operation since 1991 with only net
assets reflected in the consolidated financial statements (See Note 8). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Segment Information - The Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The adoption of this statement did not
require significant changes in the way the Company's segments were disclosed.
TransFinancial operates in three industry segments, transportation, financial
services and industrial technology. Through Crouse, the Company operates as a
regional less-than-truckload motor carrier primarily serving the north central
and midwest portion of the United States. A substantial portion of Crouse's
business is concentrated in the states of Iowa, Illinois, Minnesota, Missouri
and Wisconsin. TransFinancial also operates as an insurance premium finance
company through UPAC. The Company provides short-term secured financing for
commercial and personal insurance premiums through insurance agencies throughout
the United States. About half of the insurance premiums financed by UPAC are
placed through insurance agencies in Illinois, California, Missouri and Florida.
Presis is a startup company that involves advances in dry particle processing.
Information regarding the Company's industry segments for the years ended
December 31, 1998, 1997 and 1996 is as follows (in thousands):
D-28
<PAGE>
<TABLE>
<CAPTION>
Operating Depreciation
Operating Income and Capital Total
Revenues (Loss)(1) Amortization Additions Assets
<S> <C> <C> <C> <C> <C> <C>
Transportation 1998 $ 144,592 $ 1,321 $ 4,456 $ 8,754 $ 47,874
1997 126,062 3,136 3,912 13,104 47,076
1996 107,502 2,915 3,001 9,556 33,633
Financial Services 1998 6,972 (653) 1,172 233 24,859
1997 7,078 396 770 143 24,360
1996 6,138 (685) 678 441 26,791
Industrial Technology 1998 -- (1,469) 610 104 185
1997 -- (295) 31 239 640
1996 -- -- -- -- --
Total Segments 1998 151,564 (801) 6,238 9,091 72,918
1997 133,140 3,237 4,713 13,486 72,076
1996 113,640 2,230 3,679 9,997 60,424
Corporate and Other 1998 137 (2,220) 48 11 4,845
1997 83 (1,301) 45 174 17,679
1996 53 (1,384) 23 956 26,388
Consolidated 1998 151,701 (3,021) 6,286 9,102 77,763
1997 133,223 1,936 4,758 13,660 89,755
1996 113,693 846 3,702 10,953 86,812
<FN>
(1) See Note 5 - Common Stock and Earnings Per Share - Stock Repurchases.
</FN>
</TABLE>
Depreciation and Maintenance - Depreciation is computed using the
straight-line method and the following useful lives:
Revenue Equipment -
Tractors............................. 5 - 7 years
Trailers............................. 7 - 10 years
Structures and Improvements............. 19 - 39 years
Other Operating Property................ 2 - 10 years
As of January 1, 1998, the Company prospectively increased the estimated
remaining useful lives of certain revenue equipment to reflect the Company's
actual utilization of such equipment. This change decreased depreciation and
increased operating income by approximately $756,000 for 1998. Net income was
increased by approximately $454,000, or $0.09 per share, for 1998.
As of July 1, 1998, the Company prospectively decreased the estimated
remaining useful life of certain purchased software to reflect the Company's
plan to substantially revise and replace the software. This change increased
amortization expense in 1998 by $333,000 and decreased net income by
approximately $200,000, or $0.04 per share.
Upon sale or retirement of operating property, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
non-operating income. The Company expenses costs related to repairs and
overhauls of equipment as incurred.
Recognition of Revenues - Transportation operating revenues, and related
direct expenses, are recognized when freight is delivered. Other operating
expenses are recognized as incurred.
Finance charges on premium finance receivables that are not sold pursuant
to the Company's securitization agreement are recognized when earned under
applicable
D-29
<PAGE>
state regulations using methods that approximate the interest method.
Recognition of earned finance charges on delinquent accounts is suspended when
it is determined that collectibility of principal and interest is not probable.
Interest on delinquent accounts is recognized when collected. Gains on sale of
receivables under the securitization agreement are recorded when the receivables
are sold (See Note 4). Late fees and other ancillary fees are recognized when
chargeable. Uncollectible accounts are generally charged off after one year,
unless there is specific assurance of collection through return of unearned
premiums from the insurance carrier. Recoveries of charged off accounts are
recognized when collected.
The Company applies a control-oriented, financial-components approach to
financial-asset-transfer transactions, such as the Company's securitization of
finance accounts receivables, whereby the Company (1) recognizes the financial
and servicing assets it controls and the liabilities it has incurred, (2)
removes financial assets from the balance sheet when control has been
surrendered, and (3) removes liabilities from the balance sheet once they are
extinguished. Such transfers result in the recognition of a net gain or loss.
Control is considered to have been surrendered only if (i) the transferred
assets have been isolated from the transferor and its creditors, even in
bankruptcy or other receivership (ii) the transferee has the right to pledge or
exchange the transferred assets, or, is a qualifying special-purpose entity (as
defined) and the holders of beneficial interests in that entity have the right
to pledge or exchange those interests; and (iii) the transferor does not
maintain effective control over the transferred assets through an agreement
which both entitles and obligates it to repurchase or redeem those assets prior
to maturity, or through an agreement which both entitles and obligates it to
repurchase or redeem those assets if they were not readily obtainable elsewhere.
If any of these conditions are not met, the Company accounts for the transfer as
a secured borrowing.
The Company retains the servicing on finance receivables sold under its
securitization agreement. A servicing asset or liability is recognized for the
fair value based on an analysis of discounted cash flows that includes estimates
of servicing fees, servicing costs, projected ancillary servicing revenue and
projected prepayment rates. The Company has not recorded a net servicing asset
as the amount is not material to its financial position or results of
operations.
Allowance for Credit Losses - The allowances for credit losses are
maintained at amounts considered adequate to provide for potential losses. The
amount of each allowance for credit losses is based on periodic (not less than
quarterly) evaluations of the portfolios based on historical loss experience,
detail account by account agings of the portfolios and management's evaluation
of specific accounts. The following is an analysis of changes in the allowance
for credit losses on finance accounts receivable for 1998 and 1997 (in
thousands):
1998 1997
Balance, beginning of year................ $ 499 $ 769
Allowance acquired with Oxford............ 343 --
Provision for credit losses............... 827 950
Charge-offs, net of recoveries of $196
and $257 ............................... (1,103) (1,220)
Balance, at the end of year............... $ 566 $ 499
Income Taxes - The Company accounts for income taxes in accordance with
the liability method. Deferred income taxes are determined based upon the
difference between the book and the tax basis of the Company's assets and
liabilities. Deferred taxes are provided at the enacted tax rates expected to
be in effect when these differences reverse.
D-30
<PAGE>
Cash Equivalents - The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents. The
Company maintains cash and cash equivalents with various major financial
institutions. At times such amounts may exceed the F.D.I.C. limits. The
Company believes that no significant concentration of credit risk exists with
respect to cash and cash equivalents.
Short-Term Investments - The Company's short-term investments generally
are held in U. S. Treasury securities, government agency securities or municipal
bonds of the highest rating. These investments are classified as held to
maturity securities and are recorded at amortized cost which approximates market
value.
Disclosures about Fair Value of Financial Instruments - The following
methods and assumptions are used to estimate the fair value of each class of
financial instruments:
a. Cash Equivalents and Short-Term Investments. The carrying amount
approximates fair value because of the short maturity of these
instruments.
b. Finance Accounts Receivable. The carrying amount approximates fair
value because of the short maturity of these instruments.
c. Long-Term Debt - The carrying amount approximates fair value as the
debt bears interest at a variable market rate.
Pervasiveness of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
Reclassifications - Certain amounts in the accompanying consolidated
statements of income in prior periods have been reclassified to conform with the
current period's presentations.
Accounting for the Impairment of Long-Lived Assets - The Company
periodically reviews its long-lived assets and associated intangible assets and
has identified no events or changes in circumstances which indicate that the
carrying amount of these assets may not be recoverable, except as described
below. When impairment is indicated, any impairment loss is measured by the
excess of carrying values over fair values. The Company currently has no
material assets to be disposed of. An evaluation of certain equipment and
intangible assets of the Company's industrial technology operation resulted in
the determination that these assets were impaired. The impaired assets were
written down by $525,000 effective September 30, 1998. Fair value was based on
estimated discounted future cash flows to be generated by these assets and
management's estimate of the value realizable from sale of the assets. This
writedown is included in "Depreciation and Amortization" in the Consolidated
Statements of Income.
Intangible Assets and Accumulated Amortization - Intangible assets,
consisting primarily of goodwill and intangibles recorded in connection with the
acquisition of insurance premium finance companies, totaled $11,322,000 at
December 31, 1998. These intangibles assets are generally being amortized on
the straight-line basis over 15 - 25 years. The accumulated amortization of
intangible assets as of December 31, 1998 was $1,545,000.
D-31
<PAGE>
2. EMPLOYEE BENEFIT PLANS
Multiemployer Plans
Crouse participates in multiemployer pension plans which provide defined
benefits to substantially all of the drivers, dockworkers, mechanics and
terminal office clerks who are members of a union. Crouse contributed
$6,931,000, $5,762,000 and $4,596,000 to the multiemployer pension plans for
1998, 1997 and 1996. The Multiemployer Pension Plan Amendments Act of 1980
established a continuing liability to such union-sponsored pension plans for an
allocated share of each plan's unfunded vested benefits upon substantial or
total withdrawal by participating employers or upon termination of the pension
plans. Although Crouse has no current information regarding its potential
liability under ERISA in the event it wholly or partially ceases to have an
obligation to contribute or substantially reduces its contributions to the
multiemployer plans to which it currently contributes, management believes that
such liability would be material. Crouse also contributed $8,342,000,
$7,161,000 and $5,904,000, to multiemployer health and welfare plans for 1998,
1997 and 1996.
Non-Union Pension Plan
Crouse has a defined contribution pension plan ("the Non-Union Plan")
providing for a mandatory Company contribution of 5% of annual earned
compensation of the non-union employees. Additional discretionary contributions
may be made by the Board of Directors of Crouse depending upon the profitability
of Crouse. Any discretionary funds contributed to the Non-Union Plan will be
invested 100% in TransFinancial Common Stock.
Pension expense, exclusive of the multiemployer pension plans, was
$357,000, $131,000 and $420,000 for the years 1998, 1997 and 1996. The
accompanying consolidated balance sheets include accrued pension contributions
of $95,000 and $70,000 as of December 31, 1998 and 1997.
Profit Sharing
In September 1988, the employees of Crouse approved the establishment of a
profit sharing plan ("the Plan"). The Plan was structured to allow all
employees (union and non-union) to ratably share 50% of Crouse's income before
income taxes (excluding extraordinary items and gains or losses on the sale of
assets) in return for a 15% reduction in their wages. The Plan calls for profit
sharing distributions to be made on a quarterly basis. The Plan was recertified
in 1991 and 1994, and continued in effect through October 3, 1998, when a
replacement Collective Bargaining Agreement was reached between the parties.
The Plan was not renewed under the new Collective Bargaining Agreement effective
October 4, 1998. A separate wage reduction provision was substituted in its
place. The accompanying consolidated balance sheets include a profit sharing
accrual of $276,000 for 1997. The accompanying consolidated statements of
income include profit sharing expense of $2,013,000, $3,088,000, $2,833,000 for
1998, 1997 and 1996.
401(k) Plan
Effective January 1, 1990, Crouse established a salary deferral program
under Section 401(k) of the Internal Revenue Code. To date, participant
contributions to the 401(k) plan have not been matched with Company
contributions. All employees of Crouse are eligible to participate in the 401(k)
plan after they attain age 21 and complete one year of qualifying employment.
UPAC Plans
D-32
<PAGE>
Effective June 1, 1995, the Company established a 401(k) Savings Plan and
a Money Purchase Pension Plan, both of which are defined contribution plans.
Employees of UPAC and TransFinancial are eligible to participate in the plans
after they attain age 21 and complete one year of employment.
Participants in the 401(k) Savings Plan may defer up to 13% of annual
compensation. The Company matches 50% of the first 10% deferred by each
employee. Company contributions vest after five years. Company matching
contributions in 1998, 1997 and 1996 were $63,000, $48,000 and $27,000.
Under the Money Purchase Pension Plan, the Company contributes 7% of each
eligible employee's annual compensation plus 5.7% of any compensation in excess
of the Social Security wage base. Company contributions in 1998, 1997 and 1996
were $108,000, $112,000 and $66,000.
Stock Option Plans
A Long-Term Incentive Plan adopted in 1998 ("1998 Plan") provides that
options for shares of TransFinancial Common Stock be granted to directors, and
that options and other shares may be granted to officers and key employees. All
such option grants are at or above fair market value at the date of grant.
Options granted generally become exercisable ratably over two to five years and
remain exercisable for ten years from the date of grant. Initially, 600,000
shares were reserved for issuance pursuant to the 1998 Plan. As of December 31,
1998, 590,000 shares were available for grant pursuant to the 1998 Plan.
An Incentive Stock Plan was adopted in 1992 ("1992 Plan") which provides
that options for shares of TransFinancial Common Stock shall be granted to
directors, and may be granted to officers and key employees at fair market value
of the stock at the time such options are granted. Initially, 500,000 shares of
TransFinancial common stock were reserved for issuance pursuant to the 1992
Plan. As of December 31, 1998, options for 48,630 shares were available for
grant pursuant to the 1992 Plan. These options generally become exercisable
ratably over two to five years and remain exercisable for ten years from the
date of grant.
In each of 1995 and 1996 the Company granted non-qualified options to
acquire 10,000 shares of common stock to an officer of UPAC pursuant to an
employment agreement. These options become exercisable in 1998 and 1999 and
expire in 2005 and 2006.
The Company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of each of the Company's stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
SFAS No. 123 "Accounting for Stock-Based Compensation," requires the use
of option valuation models to estimate the fair value of stock options granted
and recognize that estimated fair value as compensation expense. Pro forma
information regarding net income and earnings per share is required by SFAS No.
123, and has been determined as if the Company had accounted for its stock
options under the fair value method of SFAS No.123. The fair value of these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions for 1998, 1997 and 1996:
risk-free interest rates of 5.5%, 6.1% and 6.1%; expected life of options of 4.4
years, 4.9 years and 4.5 years; and a volatility factor of the expected market
price of the Company's common stock of .20. The preceding assumptions used as
inputs to the option valuation model are highly subjective in nature. Changes
in the subjective input assumptions can materially affect the fair value
estimates; thus, in management's opinion, the estimated fair values presented do
not necessarily represent a reliable single measure of the fair
D-33
<PAGE>
value of its employee stock options. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the options'
vesting periods. The Company's unaudited pro forma information follows (in
thousands, except for per share amounts):
1998 1997 1996
Pro forma net income (loss).............. $(2,234) $ 949 $ 743
Pro forma basic earnings (loss) per share $ (0.43) $0.15 $ 0.11
The following table is a summary of data regarding stock options granted
during the three years ended December 31, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year............. 350,650 $7.47 263,200 $7.17 198,200 $6.43
Granted........................... 131,050 $9.03 118,250 $7.99 106,500 $7.96
Forfeited......................... (44,580) $9.13 (19,900) $8.09 (18,000) $6.85
Exercised......................... (83,970) $6.07 (10,900) $4.84 (23,500) $4.73
Options outstanding at end
of year....................... 353,150 $8.17 350,650 $7.47 263,200 $7.17
Options exercisable at end
of year....................... 114,180 $7.49 119,000 $6.38 91,650 $5.62
Estimated weighted average
fair value per share of
options granted during
the year....................... $ 2.12 $ 2.00 $ 2.00
<FN>
The per share exercise prices of options outstanding as of December 31, 1998, ranged from $2.41 to $9.79 per share. The
weighted average remaining contractual life of those options was 7.7 years.
</FN>
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options as of December 31, 1998.
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices Options Life Price Options Price
<S> <C> <C> <C> <C> <C>
$0.00-$2.50 4,150 1.9 $2.41 4,150 $2.41
$2.50-$5.50 17,050 4.2 $4.90 15,300 $4.85
$5.50-$8.00 156,300 7.6 $7.68 51,780 $7.64
$8.00-$10.00 175,650 8.2 $9.05 42,950 $8.73
353,150 114,180
</TABLE>
3. INSURANCE COVERAGE
Claims and insurance accruals reflect accrued insurance premiums and the
estimated cost of incurred claims for cargo loss and damage, bodily injury and
property damage and workers' compensation not covered by insurance. The Company
estimates reserves required for the self-insured portion of claims based on
management's evaluation of the nature and severity of individual claims and the
Company's past claims experience. The Company regularly assesses and adjusts
D-34
<PAGE>
estimated reserves based on continued development of information regarding
claims through the ultimate claims settlement. Adjustments to estimated
reserves are recorded in the period in which additional information becomes
known. Workers' compensation expense is included in "Salaries, wages and
employee benefits" in the accompanying consolidated statements of income.
The Company's public liability and property damage, cargo and workers'
compensation premiums are subject to retrospective adjustments based on actual
incurred losses. The actual adjustments normally are not known for at least one
year; however, based upon a review of the preliminary compilation of losses
incurred through December 31, 1998, management does not believe any material
adjustment will be made to the premiums paid or accrued at that date.
4. FINANCING AGREEMENTS
Securitization of Receivables
In December, 1996, the Company, UPAC and APR Funding Corporation (wholly-
owned subsidiary of UPAC) entered into an extendible three year securitization
agreement whereby undivided interests in a designated pool of accounts
receivable can be sold on an ongoing basis. In 1998, this agreement was amended
to extend through December 2001, to expand the facility capacity, and to
increase the percent of finance receivables eligible under the agreement. The
maximum allowable amount of receivables to be sold under the agreement is $85.0
million. The purchaser permits principal collections to be reinvested in new
financing agreements. UPAC had securitized receivables of $61.6 million and
$34.5 million at December 31, 1998 and 1997. The cash flows from the sale of
receivables are reported as investing activities in the accompanying
consolidated statement of cash flows. The securitized receivables are reflected
as sold in the accompanying balance sheet. The proceeds from the initial
securitization of the receivables were used to purchase previous securitized
receivables under the prior agreement and to pay off the secured note payable
under UPAC's former secured credit agreement.
Among other things, the terms of the agreement require UPAC to maintain a
minimum tangible net worth of $5.0 million, contain restrictions on the payment
of dividends by UPAC to TransFinancial without prior consent of the financial
institution and require UPAC to report any material adverse changes in its
financial condition. The terms of the agreement also require the Company to
maintain a minimum tangible net worth of $40.0 million. The Company was in
compliance with all such provisions at December 31, 1998.
The terms of the securitization agreement require UPAC to maintain a
reserve at specified levels which serves as collateral. At December 31, 1998,
approximately $6.9 million of owned finance receivables served as collateral
under the reserve provision.
Long-Term Debt
In September 1998, the Company entered into a two-year secured loan
agreement with a commercial bank to borrow $10.0 million (the "Loan"). Freight
accounts receivable and a second lien on revenue equipment are pledged as
collateral for the Loan. The Loan bears interest at the bank's prime rate,
7.75% at December 31, 1998. The terms of the Loan provide for monthly payments
of interest only through September 30, 1999, with monthly principal payments
thereafter of $100,000 plus interest through maturity on September 30, 2000. At
December 31, 1998 current maturities of long-term debt were $300,000, with the
remaining $9,700,000 due in 2000.
The terms of the Loan require the Company to maintain a minimum tangible
net worth of $40 million, a ratio of current assets to current liabilities of
1.25 to 1.00, a ratio of total liabilities to tangible net worth of 1.0 to 1.0,
and contain
D-35
<PAGE>
restrictions on the payment of dividends without prior consent of the financial
institution. In connection with the closing of the Loan the Company represented
to the bank that it would take all measures reasonably necessary to make its
computer hardware and software compliant with the year 2000. The Company was in
compliance with all such provisions at December 31, 1998. The proceeds of the
Loan were used to repurchase shares of the Company's common stock (See Note 5).
Secured Loan Agreement
Effective January 5, 1998, Crouse's former revolving credit agreement was
terminated and replaced with a five year Secured Loan Agreement which provides
for a $4.5 million working capital line of credit loan ("Working Capital Line")
and a $4.5 million equipment line of credit loan ("Equipment Line"). Interest
on the Working Capital Line accrues at a floating rate equal to the bank's prime
rate, 7.75% at December 31, 1998. Interest on the Equipment Line accrues, at
Crouse's option, at either a floating rate equal to the bank's prime rate or a
fixed rate equal to the Federal Home Loan Bank Rate plus 200 basis points at the
time of each advance. The Secured Loan Agreement is collateralized by Crouse's
revenue equipment and specified bank deposit balances. No borrowings were
outstanding under the Working Capital Line or Equipment Line as of December 31,
1998.
The terms of the Secured Loan Agreement require Crouse to maintain
tangible net worth of $24.0 million, increasing by $1.0 million per year
beginning in 1998, and contain restrictions on the payment of dividends,
incurring debt or liens, or change in majority ownership of Crouse. The terms
of the agreement also permit the bank to accelerate the due date of borrowings
if there is a material adverse change in the financial condition of Crouse.
Crouse was in compliance with all such provisions at December 31, 1998.
5. COMMON STOCK AND EARNINGS PER SHARE
Stock Repurchases
In June 1998, TJS Partners, LP ("TJS"), a shareholder of the Company,
announced its intent to acquire an additional 23% of the Company's outstanding
common stock held by one family (the "Crouse family"), obtain control of the
Company's board of directors and study possible actions such as the liquidation
or sale of part or all of the Company's businesses or assets. The board of
directors determined that the hostile takeover attempt was not in the best
interest of the Company and its shareholders and agreed to repurchase the shares
held by TJS and the Crouse family. The failed attempt at a hostile takeover of
the Company, together with other events, led the Company to record charges for
management and personnel restructuring, asset and liability valuation
adjustments, and transaction costs and other expenses related to the takeover
attempt.
Pursuant to a definitive stock purchase agreement resolving the hostile
takeover attempt, the Company repurchased 2,115,422 shares of its common stock
held by the Crouse family, including 881,550 shares registered in the name of
TJS Partners, LP, all at a price of $9.125 per share, effective August 14, 1998.
In addition, the Company paid and expensed $350,000 of legal and other costs
incurred by the Crouse family in connection with the takeover attempt. The
Company funded the payment out of available cash and short-term investments, the
proceeds from the sale and leaseback of approximately $4.2 million of revenue
equipment and the proceeds from the $10.0 million secured loan from one of the
Company's existing bank lenders.
On June 26, 1995, the Company adopted a program to repurchase up to 10% of
its outstanding shares of common stock. During the second quarter of 1996, the
Company completed this initial repurchase program and expanded the number of
shares authorized to be repurchased by an additional 10% of its then outstanding
shares.
D-36
<PAGE>
The second program was completed in the fourth quarter of 1997. During
1997 and 1996, the Company repurchased 257,099 and 768,600 shares of common
stock at a cost of $2.3 million and $6.4 million, respectively. Additionally,
during the fourth quarter of 1996, the Company made an "Odd Lot Tender Offer" to
holders of less than 100 shares of TransFinancial Common Stock. Pursuant to
this offer the Company repurchased 28,541 shares at a cost of $237,000.
On June 26, 1997, the shareholders of the Company approved a 1-for-100
reverse stock split followed by a 100-for-1 forward stock split. These stock
splits were effected on July 2, 1997. The result of this transaction was the
cancellation of approximately 107,000 shares of common stock held by holders of
fewer than 100 shares, at the then current market price of $8.89 per share.
Earnings Per Share
Because of the Company's simple capital structure, income (loss) available
to common shareholders is the same for the basic and diluted earnings per share
computations. Such amounts were $(2,027,000), $1,100,000 and $852,000 for 1998,
1997 and 1996. Following is a reconciliation of basic weighted average common
shares outstanding, weighted average common shares outstanding adjusted for the
dilutive effects of outstanding stock options, and basic and diluted earnings
per share for each of the periods presented (in thousands, except per share
amounts).
<TABLE>
<CAPTION>
1998 1997 1996
Per Share Per Share Per Share
Shares Amounts Shares Amounts Shares Amounts
<S> <C> <C> <C> <C> <C> <C>
Basic earnings (loss)
per share............................ 5,249 $ (0.39) 6,214 $ 0.18 6,780 $ 0.13
Plus incremental shares
from assumed conversion of
stock options........................ 14 52 40
Diluted earnings (loss)
per share............................ 5,263 $ (0.39) 6,266 $ 0.18 6,820 $ 0.12
</TABLE>
Options to purchase 216,150 shares of common stock at an average exercise
price of $8.85 per share were outstanding at December 31, 1998, but were not
included in the computation of diluted earnings per share because the options'
average exercise price was greater than the average market price of the common
shares. These options remain outstanding and expire through 2008.
D-37
<PAGE>
6. INCOME TAXES
Deferred tax assets (liabilities) attributable to continuing operations
are comprised of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
(In Thousands)
<S> <C> <C>
Current Deferred Tax Assets (Liabilities):
Employee benefits..................................... $ 951 $ (401)
Financial services revenue............................ (295) (205)
Claims accruals and other............................. 1,276 421
Allowance for credit losses........................... 616 186
Current deferred tax assets, net................. $ 2,548 $ 1
Deferred Tax Assets (Liabilities):
Operating property, principally
due to differences in depreciation............... $ (3,780) $ (3,367)
Amortization of intangibles........................... (179) (245)
Net operating loss carryforwards...................... 1,054 693
Alternative minimum tax and other
credits.......................................... 1,038 654
Deferred tax liabilities, net.................... $ (1,867) $ (2,265)
</TABLE>
At December 31, 1998, the Company had approximately $3.4 million of net
operating loss carryforwards which were available for Federal income tax
purposes, including $0.7 million which were recorded in the AFS Net Assets,
which expire in 2018. At December 31, 1998 and 1997, the Company had
$1,038,000 and $654,000 of alternative minimum tax and other credit
carryforwards available which do not expire. Net Deferred Tax Assets of $27,000
and $1,396,000 were recorded as a portion of the AFS Net Assets as of December
31, 1998 and 1997. The Internal Revenue Service ("IRS") has examined the
Company's 1994 through 1996 tax returns. In April 1998, the Company and the IRS
settled all issues for tax years 1994 through 1996 within the tax reserves that
the Company made provision for in 1997.
The following is a reconciliation of the Federal statutory income tax rate
to the effective income tax provision (benefit) rate for continuing operations:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Federal statutory income tax rate................ (35.0)% 35.0% 35.0%
State income tax rate, net....................... (3.8) 5.9 6.7
Amortization of non-deductible
acquisition intangibles...................... 3.0 2.3 6.3
Non-deductible meals and
entertainment................................ 3.2 2.4 2.8
Adjustments to prior years' tax
liabilities.................................. - 12.9 -
Other............................................ 3.5 (0.4) 0.2
Effective income tax rate........................ (29.1)% 58.1% 51.0%
</TABLE>
The components of the income tax provision (benefit), attributable to
continuing operations, consisted of the following:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
Current Deferred Total Current Deferred Total
<S> <C> <C> <C> <C> <C> <C>
Federal................... $ 1,444 $ (2,115) $ (671) $ (145) $1,434 $ 1,289
State..................... 361 (529) (168) (9) 245 236
Total................ $ 1,805 $ (2,644) $ (839) $ (154) $1,679 $ 1,525
</TABLE>
D-38
<PAGE>
7. CONTINGENCIES AND COMMITMENTS
The Company is party to certain claims and litigation arising in the
ordinary course of business. In the opinion of management, the outcome of such
claims and litigation will not materially affect the Company's results of
operations, cash flows or financial position.
Payments are made to tractor owner-operators under various short-term
lease agreements for the use of revenue equipment. These lease payments, which
totaled $16,836,000, $14,351,000 and $13,179,000 for 1998, 1997 and 1996, are
primarily based on miles traveled or on a percent of revenue generated through
the use of the equipment.
In 1998, Crouse entered into a long-term operating lease for new and used
tractors and new trailers. Lease terms are five years for tractors and seven
years for trailers. Rental expense relating to these leases was $319,000 in
1998. Minimum future rentals for operating leases are as follows: 1999 -
$1,629,000; 2000 - $1,630,000; 2001 - $1,630,000; 2002 - $1,630,000; 2003 -
$1,381,000; and thereafter - $494,000. Additionally, Crouse has limited
contingent rental obligations of $568,000 if the fair market value of such
equipment at the end of the lease term is less than certain residual values.
Such lease also requires Crouse to maintain tangible net worth of $26.0 million,
increasing by $1.0 million per year beginning in 1999. Crouse was in compliance
with this covenant at December 31, 1998.
8. AFS NET ASSETS
On June 10, 1991, the Joint Plan of Reorganization ("Joint Plan") was
confirmed by the Bankruptcy Court resulting in the formal discharge of AFS and
its affiliates from Chapter 11 Bankruptcy proceedings. As of December 31, 1994
all unsecured creditors were paid an amount equal to 130% of their allowed
claims, which was the maximum distribution provided under the Joint Plan.
TransFinancial received distributions in accordance with the Joint Plan of $36
million. In addition, AFS paid dividends of $6.8 million, $8.5 million, and
$9.2 million to TransFinancial on July 5, 1995, July 11, 1996 and April 30,
1998.
9. ACQUISITION OF PREMIUM FINANCE SUBSIDIARIES
On May 29, 1998, TransFinancial through UPAC, its insurance premium
finance subsidiary, completed the acquisition of all of the issued and
outstanding stock of Oxford for approximately $4.2 million. Oxford offers
short-term collateralized financing of commercial insurance premiums through
approved insurance agencies in 17 states throughout the United States. At May
29, 1998, Oxford had outstanding net finance receivables of approximately $22.5
million. This transaction was accounted for as a purchase. UPAC sold an
additional $4.2 million of its receivables under its receivable securitization
agreement to obtain funds to consummate the purchase. Concurrently with the
closing of the acquisition, UPAC amended its receivables securitization
agreement to increase the maximum allowable amount of receivables to be sold
under the agreement and to permit the sale of Oxford's receivables under the
agreement. Effective on May 29, 1998, Oxford sold approximately $19 million of
its receivables under the securitization agreement using the proceeds to repay
the balance outstanding under its prior financing arrangement. The terms of the
acquisition and the purchase price resulted from negotiations between UPAC and
Oxford Bank & Trust Company, the former sole shareholder of Oxford. In
connection with the purchase of Oxford, based on a preliminary allocation of the
purchase price, UPAC recorded goodwill of $1.9 million, which will be amortized
on the straight-line basis over 15 years.
On March 29, 1996, TransFinancial completed the acquisition of all of the
issued and outstanding stock of UPAC. UPAC offers short-term collateralized
D-39
<PAGE>
financing of commercial and personal insurance premiums through approved
insurance agencies in over 30 states throughout the United States. At March 31,
1996, UPAC had outstanding net finance receivables of approximately $30 million.
This transaction was accounted for as a purchase. The Company utilized a
portion of its available cash and short-term investments to consummate the
purchase at a price of approximately $12.0 million. The terms of the
acquisition and the purchase price resulted from negotiations between
TransFinancial and William H. Kopman, the former sole shareholder of UPAC. In
connection with the purchase of UPAC, the Company has recorded goodwill of $6.6
million, which is being amortized on the straight-line basis over 25 years.
In addition to the Stock Purchase Agreement by which the Company acquired
all of the UPAC stock, TransFinancial entered into a consulting agreement with
Mr. Kopman. Under the consulting agreement, the Company was entitled to consult
with Mr. Kopman on industry developments as well as UPAC operations through
December 31, 1998. In addition to retaining the services of Mr. Kopman under a
consulting agreement, certain existing executive management personnel of UPAC
have been retained under multi-year employment agreements.
The unaudited pro forma operating results of TransFinancial for the years
ended December 31, 1998 and 1997, assuming the acquisitions occurred as of the
beginning of each of the respective periods, are as follows. For the year ended
December 31, 1998, pro forma operating revenue was $152.2 million, pro forma net
loss was $1,994,000, and pro forma basic loss per share was $.38. For the year
ended December 31, 1997, pro forma operating revenue was $134.3 million, pro
forma net income was $1,139,000 and pro forma basic earnings per share was $.18.
The pro forma results of operations are not necessarily indicative of the
actual results that would have been obtained had the acquisition been made at
the beginning of the respective periods, or of results that may occur in the
future.
10. SHAREHOLDER RIGHTS PLAN
On February 18, 1999, the Board of Directors authorized the amendment of
the previously adopted Shareholder Rights Plan by which the Board of Directors
declared a dividend distribution of one Preferred Stock Purchase Right for each
outstanding share of TransFinancial Common Stock.
Under the Shareholder Rights Plan, Rights were issued on July 27, 1998 to
shareholders of record as of that date and will expire in ten years, unless
earlier redeemed or exchanged by the Company. The distribution of Rights was
not taxable to the Company or its shareholders.
The Rights become exercisable only if a person or entity is an "Acquiring
Person" (as defined in the Plan) or announces a tender offer, the consummation
of which would result in any person or group becoming an "Acquiring Person."
Each Right initially entitles the holder to purchase one one-hundredth of a
newly issued share of Series A Preferred Stock of the Company at an exercise
price of $50.00. If, however, a person or group becomes an "Acquiring Person",
each Right will entitle its holder, other than an Acquiring Person and its
affiliates, to purchase, at the Right's then current exercise price, a number of
shares of the Company's common stock having a market value of twice the Right's
exercise price.
In addition, if after a person or group becomes an Acquiring Person, the
Company is acquired in a merger or other business combination transaction, or
sells 50% or more of its assets or earning power, each Right will entitle its
holder, other than an Acquiring Person and its affiliates, to purchase, at the
Right's then current exercise price, a number of shares of the acquiring
company's common stock having a market value at the time of twice the Right's
exercise price.
D-40
<PAGE>
Under the Shareholder Rights Plan, an "Acquiring Person" is any person or
entity which, together with any affiliates or associates, beneficially owns 15%
or more of the shares of Common Stock of the Company then outstanding. The
Shareholder Rights Plan contains a number of exclusions from the definition of
Acquiring Person. The Shareholders Rights Plan will not apply to a Qualifying
Offer, which is a cash tender offer to all shareholders satisfying certain
conditions set forth in the Plan. The Company's Board of Directors may redeem
the Rights at any time prior to a person or entity becoming an Acquiring Person.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
DECEMBER 31, 1998 AND 1997
SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
TransFinancial's quarterly operating results from Crouse, as well as those
of the motor carrier industry in general, fluctuate with the seasonal changes in
tonnage levels and with changes in weather related operating conditions.
Inclement weather conditions during the winter months may adversely affect
freight shipments and increase operating costs. Historically, TransFinancial has
achieved its best operating results in the second and third quarters when
adverse weather conditions have a lesser effect on operating efficiency.
The following table sets forth selected unaudited financial information
for each quarter of 1998 and 1997 (in thousands, except per share amounts).
<TABLE>
<CAPTION>
1998
First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
Revenue................................... $ 37,003 $ 37,036 $ 39,614 $ 38,048 $ 151,701
Operating Income (Loss)................... 300 266 (4,031) 444 (3,021)
Nonoperating Income (Expense)............. 51 131 174 (201) 155
Net Income (Loss)......................... 161 176 (2,474) 110 (2,027)
Basic and Diluted Earnings
(Loss) per Share...................... 0.03 0.03 (0.50) 0.03 (0.39)
1997
First Second Third Fourth Total
Revenue................................... $ 31,057 $ 32,513 $ 35,100 $ 34,553 $ 133,223
Operating Income (Loss)................... 935 1,065 866 (930) 1,936
Nonoperating Income (Expense)............. 215 215 181 78 689
Net Income (Loss)......................... 632 704 569 (805) 1,100
Basic and Diluted Earnings
(Loss) per Share...................... 0.10 0.11 0.09 (0.13) 0.18
</TABLE>
D-41
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3), the information required by this
Item 10 is hereby incorporated by reference from the TransFinancial Holdings,
Inc. Proxy Statement for the 1999 Annual Meeting of Shareholders, which the
Registrant will file pursuant to Regulation 14A. (See Item 4, included
elsewhere herein, for a listing of Executive Officers of the Registrant).
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3), the information required by this
Item 11 is hereby incorporated by reference from the TransFinancial Holdings,
Inc. Proxy Statement for the 1999 Annual Meeting of Shareholders, which the
Registrant will file pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3), the information required by this
Item 12 is hereby incorporated by reference from the TransFinancial Holdings,
Inc. Proxy Statement for the 1999 Annual Meeting of Shareholders, which the
Registrant will file pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), the information required by this
Item 13 is hereby incorporated by reference from the TransFinancial Holdings,
Inc. Proxy Statement for the 1999 Annual Meeting of Shareholders, which the
Registrant will file pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Financial Statements
Included in Item 8, Part II of this Report -
Consolidated Balance Sheets at December 31, 1998 and 1997
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
D-42
<PAGE>
Supplemental Financial Information (Unaudited) - Summary of Quarterly
Financial Information for 1998 and 1997
(a)2. Financial Statement Schedules
Included in Item 14, Part IV of this Report -
Financial Statement Schedules for the three years ended December 31,
1998:
Schedule II - Valuation and Qualifying Accounts
Other financial statement schedules are omitted either because of the
absence of the conditions under which they are required or because the
required information is contained in the consolidated financial
statements or notes thereto.
(a)3. Exhibits
The following exhibits have been filed as part of this report in
response to Item 14(c) of Form 10-K. The management contracts or
compensatory plans or arrangements required to be filed at exhibits to
this form pursuant Item 14(c) are contained in Exhibits 10(a), 10(b),
10(d), and 10(h).
Exhibit No. Exhibit Description
2(a) Fifth Amended Joint Plan of Reorganization of the Registrant
and others and Registrant's Disclosure Statement relating to
the Fifth Amended Joint Plan of Reorganization. Filed as
Exhibit 28(a) and 28(b) to the Registrant's Form 8-K dated
March 21, 1991.
2(b) United States Bankruptcy Court order confirming the Fifth
Amended Joint Plan of Reorganization of the Registrant and
others. Filed as Exhibit 28(c) to Registrant's Form 8-K
dated June 11, 1991.
3(a) 1998 Restated Certificate of Incorporation of the
Registrant. Filed as Exhibit 3(a) to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.
3(b) Restated By-Laws of the Registrant. Filed as Exhibit 3(b)
to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997.
4(a) Specimen Certificate of the Common Stock, $.01 par value, of
the Registrant. Filed as Exhibit 4.3 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.
4(b) Certificate of Designations of Series A Preferred Stock,
dated July 15, 1998. Filed as Exhibit 4.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.
4(c) First Amended and Restated Rights Agreement, between
TransFinancial Holdings, Inc. and UMB Bank, N.A., dated
March 4, 1999. Filed as Exhibit 1 to Registrant's Current
Report on Form 8-K dated March 5, 1999.
D-43
<PAGE>
10(a) Form of Indemnification Agreement with Directors and
Executive Officers. Filed as Exhibit 10(k) to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1986.
10(b) Registrant's 1992 Incentive Stock Plan. Filed as Exhibit
10(j) to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992.
10(c) Stock Purchase Agreement by and between Universal Premium
Acceptance Corporation and Oxford Bank and Trust Company,
dated April 29, 1998. Filed as Exhibit 2(a) to Registrant's
Current Report on Form 8-K, dated May 29, 1998.
10(d)* Registrant's 1998 Long-Term Incentive Plan.
10(e) Stock Purchase Agreement by and between Anuhco, Inc. and
William H. Kopman, dated December 18, 1995. Filed as
Exhibit 2(a) to Registrant's Current Report on Form 8-K,
dated March 29, 1996.
10(f) First Amendment to Stock Purchase Agreement by and between
Anuhco, Inc. and William H. Kopman, dated March 7, 1996.
Filed as Exhibit 2(b) to Registrant's Current Report on Form
8-K dated March 29, 1996.
10(g) Second Amendment to Stock Purchase Agreement by and between
Anuhco, Inc. and William H. Kopman, dated March 29, 1996.
Filed as Exhibit 2(c) to Registrant's Current Report on Form
8-K dated March 29, 1996.
10(h) Consulting Agreement by and between William H. Kopman and
Anuhco, Inc., dated March 29, 1996. Filed as Exhibit 10(a)
to Registrant's Current Report on Form 8-K, dated March 29,
1996.
10(i) Receivables Purchase Agreement by and among APR Funding
Corporation, Universal Premium Acceptance Corporation,
Anuhco, Inc., EagleFunding Capital Corporation, The First
National Bank of Boston, dated December 31, 1996. Filed as
Exhibit 10(j) to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996.
10(j) Amendment No. 4 to Receivables Purchase Agreement by and
among APR Funding Corporation, Universal Premium Acceptance
Corporation, TransFinancial Holdings, Inc., EagleFunding
Capital Corporation and BankBoston, N.A., dated May 29,
1998. Filed as Exhibit 10(a) to Registrant's Current Report
on Form 8-K, dated May 29, 1998.
10(k) Amendment No. 5 to Receivables Purchase Agreement by and
among APR Funding Corporation, Universal Premium Acceptance
Corporation, TransFinancial Holdings, Inc., EagleFunding
Capital Corporation and BankBoston, N.A., dated August 25,
1998. Filed as Exhibit 10.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter filed September 30,
1998.
10(l) Amendment No. 6 to Receivables Purchase Agreement by and
among APR Funding Corporation, Universal Premium Acceptance
Corporation, TransFinancial Holdings, Inc., EagleFunding
Capital Corporation and BankBoston, N.A., dated September
11,
D-44
<PAGE>
1998. Filed as Exhibit 10.2 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998.
10(m) Secured Loan Agreement by and between Bankers Trust Company
of Des Moines, Iowa and Crouse Cartage Company, dated
January 5, 1998.
10(n) Stock Purchase Agreement, dated August 14, 1998, by and
between TransFinancial Holdings, Inc. and certain members of
the Crouse family. Filed as Exhibit 10.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.
10(o) Secured Loan Agreement by and between Bankers Trust of Des
Moines, Iowa, TransFinancial Holdings, Inc., and Crouse
Cartage Company, dated September 29, 1998. Filed as Exhibit
10.3 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998.
21* List of all subsidiaries of TransFinancial Holdings, Inc.
the state of incorporation of each such subsidiary, and the
names under which such subsidiaries do business.
23* Consent of Independent Accountant.
27* Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31, 1998.
*Filed herewith.
D-45
<PAGE>
<TABLE>
<CAPTION>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged Charged Balance
Beginning to to Other Deduc- at End
Description of Year Expense Accounts tions(1) of Year
(In Thousands)
<S> <C> <C> <C> <C> <C>
Allowance for credit losses
accounts (deducted from
freight accounts receivable)
Year Ended December 31 -
1998............................... $ 464 $ 393 $ -- $ (470) $ 387
1997............................... 419 120 -- (75) 464
1996............................... 409 120 -- (110) 419
Allowance for credit losses (deducted from
finance accounts receivable)
Year Ended December 31 -
1998............................... $ 499 $ 827 $ 343(3) $ (1,103) $ 566
1997............................... 769 950 -- (1,220) 499
1996............................... 351 892 510(2) (984) 769
<FN>
(1)Deduction for purposes for which reserve was created.
(2)Allowance established as of March 29, 1996, the date of acquisition of Universal Premium Acceptance Corporation and UPAC of
California, Inc.
(3)Allowance established as of May 29, 1998, the date of acquisition of Oxford Premium Finance, Inc.
</FN>
</TABLE>
D-46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 15, 1999 By /s/Timothy P. O'Neil
Timothy P. O'Neil,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/Timothy P. O'Neil President and Chief Executive Officer
Timothy P. O'Neil
/s/Mark A. Foltz Vice President, Finance and Secretary
Mark A. Foltz (Principal Accounting Officer)
/s/William D. Cox /s/Timothy P. O'Neil
William D. Cox, Chairman Timothy P. O'Neil, Director
of the Board of Directors
/s/J. Richard Devlin /s/ Clark D. Stewart
J. Richard Devlin, Director Clark D. Stewart, Director
/s/ Harold C. Hill /s/David D. Taggart
Harold C. Hill, Jr., Director David D. Taggart, Director
/s/Roy R. Laborde
Roy R. Laborde, Vice Chairman of
the Board of Directors
March 15, 1999
Date of all signatures
D-47
<PAGE>
ANNEX E
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
AMENDMENT NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-12070
TRANSFINANCIAL HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 46-0278762
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8245 Nieman Road, Suite 100
Lenexa, Kansas 66214
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (913) 859-0055
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ( X ) No ( )
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at October 22, 1999
Common stock, $0.01 par value 3,252,370 Shares
E-1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Operating Revenues.......................................................... $ 39,294 $ 39,614
Operating Expenses.......................................................... 40,653 43,645
---------- --------
Operating Income (Loss)..................................................... (1,359) (4,031)
---------- --------
Nonoperating Income (Expense)
Interest income.......................................................... 23 111
Interest expense......................................................... (331) (5)
Other.................................................................... 22 68
---------- --------
Total nonoperating income (expense).................................. (286) 174
---------- --------
Income (Loss) Before Income Taxes........................................... (1,645) (3,857)
Income Tax Provision (Benefit).............................................. (610) (1,383)
---------- --------
Net Income (Loss)........................................................... $ (1,035) $ (2,474)
========== ========
Basic and Diluted Earnings (Loss) Per Share................................. $ (0.32) $ (0.50)
========== ========
Basic Average Shares Outstanding............................................ 3,276 4,964
========== ========
Diluted Average Shares Outstanding.......................................... 3,294 4,980
========== ========
<FN>
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
</FN>
</TABLE>
E-2
<PAGE>
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Operating Revenues.......................................................... $ 119,412 $113,652
Operating Expenses.......................................................... 120,944 117,117
---------- --------
Operating Income (Loss)..................................................... (1,532) (3,465)
---------- --------
Nonoperating Income (Expense)
Interest income.......................................................... 70 265
Interest expense......................................................... (876) (73)
Other.................................................................... 31 163
---------- --------
Total nonoperating income (expense).................................. (775) 355
---------- --------
Income (Loss) Before Income Taxes........................................... (2,307) (3,110)
Income Tax Provision (Benefit).............................................. (779) (973)
---------- --------
Net Income (Loss)........................................................... $ (1,528) $ (2,137)
========== ========
Basic and Diluted Earnings (Loss) Per Share................................. $ (0.44) $ (0.38)
========== ========
Basic Average Shares Outstanding............................................ 3,461 5,684
========== ========
Diluted Average Shares Outstanding.......................................... 3,469 5,715
========== ========
<FN>
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
</FN>
</TABLE>
E-3
<PAGE>
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------- -----------
ASSETS (Unaudited)
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................................ $ 1,530 $ 3,256
Freight accounts receivable, less allowance
for credit losses of $200 and $387................................... 15,050 13,351
Finance accounts receivable, less allowance
for credit losses of $767 and $566................................... 15,628 12,584
Current deferred income taxes............................................ 2,640 2,548
Other current assets..................................................... 3,509 2,401
---------- ---------
Total current assets................................................. 38,357 34,140
---------- ---------
Operating Property, at Cost:
Revenue equipment........................................................ 30,835 31,969
Land..................................................................... 3,794 3,681
Structures and improvements.............................................. 11,880 11,130
Other operating property................................................. 11,249 10,500
---------- ---------
57,758 57,280
Less accumulated depreciation........................................ (25,141) (24,122)
---------- ---------
Net operating property........................................... 32,617 33,158
---------- ---------
Intangibles, net of accumulated amortization................................ 9,253 9,777
Other Assets................................................................ 966 688
$ 81,193 $ 77,763
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Cash overdrafts.......................................................... $ 317 $ 1,976
Line of credit borrowings................................................ 2,272 --
Accounts payable......................................................... 4,899 3,093
Current maturities of long-term debt (Note 5)............................ 15,000 300
Accrued payroll and fringes.............................................. 6,279 6,068
Other accrued expenses................................................... 4,079 3,685
---------- ---------
Total current liabilities............................................ 32,846 15,122
---------- ---------
Deferred Income Taxes....................................................... 1,396 1,867
Long-Term Debt (Note 5)..................................................... -- 9,700
Shareholders' Equity (Note 6)
Preferred stock with $0.01 par value, authorized 1,000,000 shares,
none outstanding..................................................... -- --
Common stock with $0.01 par value, authorized 13,000,000 shares,
issued 7,597,676 and 7,593,592 shares................................ 76 76
Paid-in capital.......................................................... 6,103 6,090
Retained earnings........................................................ 75,839 77,367
Treasury stock 4,345,561 and 3,661,220 shares, at cost................... (35,067) (32,459)
---------- ---------
Total shareholders' equity........................................... 46,951 51,074
---------- ---------
$ 81,193 $ 77,763
========== =========
<FN>
The accompanying notes to condensed consolidated balance sheets are an integral part of these statements.
</FN>
</TABLE>
E-4
<PAGE>
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(In thousands) (Unaudited)
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss)................................................... $ (1,528) $ (2,137)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities
Depreciation and amortization..................................... 3,812 5,053
Provision for credit losses....................................... 675 1,033
Deferred income tax benefit....................................... (563) (3,047)
Other............................................................. 27 --
Net increase (decrease) from change in other
working capital items affecting operating activities........... (222) 3,459
--------- ----------
2,201 4,361
--------- ----------
Cash Flows From Investing Activities
Proceeds from discontinued operations............................... -- 6,345
Purchase of finance subsidiary...................................... -- (4,178)
Purchase of operating property, net................................. (2,819) (2,415)
Origination of finance accounts receivable.......................... (148,652) (117,599)
Sale of finance accounts receivable................................. 111,765 92,078
Collection of owned finance accounts receivable..................... 33,005 28,749
Purchases of short-term investments................................. -- (2,998)
Maturities of short-term investments................................ -- 6,024
Other............................................................... (233) (329)
--------- ----------
(6,934) 5,677
--------- ----------
Cash Flows From Financing Activities
Cash overdrafts..................................................... (1,659) --
Borrowings on long-term debt........................................ 5,000 10,000
Payments to acquire treasury stock.................................. (2,603) (18,847)
Borrowing (repayments) on line of credit agreements, net............ 2,272 (2,500)
Other............................................................... (3) (79)
--------- ----------
3,007 (11,426)
--------- ----------
Net Decrease in Cash and Cash Equivalents............................. (1,726) (1,388)
Cash and Cash Equivalents at beginning of period...................... 3,256 4,778
--------- ----------
Cash and Cash Equivalents at end of period............................ $ 1,530 $ 3,390
========= ==========
Cash Paid During the Period for
Interest............................................................ $ 876 $ 62
Income Taxes........................................................ $ 80 $ 363
On May 29, 1998, the Company acquired all of the capital stock of Oxford Premium Finance, Inc. ("Oxford") for approximately
$4,178,000. In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired 22,338
Cash paid for capital stock and acquisition expenses (4,178)
Intangibles 1,876
----------
Liabilities assumed $ 20,036
==========
In connection with the acquisition of Oxford, $19.0 million of its finance accounts receivables were sold under the securitization
agreement. The proceeds of the sale were paid directly to Oxford's former line of credit bank to repay the balance outstanding
under the line at the date of acquisition.
<FN>
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
</FN>
</TABLE>
E-5
<PAGE>
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)(Unaudited)
<CAPTION>
Total
Share
Common Paid-In Retained Treasury holders'
Stock Capital Earnings Stock Equity
----- ------- -------- ----- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997.................. $ 75 $ 5,581 $ 79,394 $(12,565) $ 72,485
Net loss...................................... -- -- (2,027) -- (2,027)
Issuance of shares under incentive plans...... 1 509 -- (591) (81)
Purchase of 2,115,422 shares of common stock.. -- -- -- (19,303) (19,303)
------ ------- --------- -------- --------
Balance at December 31, 1998.................. 76 6,090 77,367 (32,459) 51,074
Net loss...................................... -- -- (l,528) -- (1,528)
Issuance of shares under incentive plans...... -- 13 -- (5) 8
Purchase of 683,241 shares of common stock.... -- -- -- (2,603) (2,603)
------ ------- --------- -------- --------
Balance at September 30, 1999................. $ 76 $ 6,103 $ 75,839 $(35,067) $ 46,951
====== ======= ========= ======== ========
<FN>
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
</FN>
</TABLE>
E-6
<PAGE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. PRINCIPLES OF CONSOLIDATION AND SIGNIFICANT ACCOUNTING POLICIES
The unaudited condensed consolidated financial statements include
TransFinancial Holdings, Inc. ("TransFinancial") and all of its subsidiary
companies (the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation. The unaudited condensed
financial statements included herein have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC") and have not
been examined or reviewed by independent public accountants. The year end
condensed balance sheet data was derived from audited financial statements, but
does not include all disclosures required by generally accepted accounting
principles. In the opinion of management, all adjustments necessary to fairly
present the results of operations have been made.
Pursuant to SEC rules and regulations, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
from these statements unless significant changes have taken place since the end
of the most recent fiscal year. TransFinancial believes that the disclosures
contained herein, when read in conjunction with the financial statements and
notes included in TransFinancial's Annual Report on Form 10-K, filed with the
SEC on March 15, 1999, are adequate to make the information presented not
misleading. It is suggested, therefore, that these statements be read in
conjunction with the statements and notes included in the aforementioned report
on Form 10-K.
As of July 1, 1998, the Company prospectively decreased the estimated
remaining useful life of certain purchased software to reflect the Company's
plan to substantially revise and replace the software. This change decreased
amortization expense in the third quarter and nine months of 1999 by $50,000 and
$150,000 and decreased the net loss by approximately $30,000, or $0.01 per
share, and $90,000, or $0.03 per share, for the periods. This change will
decrease amortization expense and increase operating income by approximately
$50,000 for the remainder of 1999 from amounts which would have been recorded
had the change not been made.
2. SEGMENT REPORTING
The Company operates in three business segments: transportation, financial
services, and industrial technology. Other items are shown in the table below
for purposes of reconciling to consolidated amounts.
<TABLE>
<CAPTION>
Third Quarter Nine Months
------------- -----------
Operating Operating Operating Operating Total
($ in thousands) Revenues Income (Loss) Revenues Income (Loss) Assets
-------- ------------- -------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Transportation 1999 $ 37,089 $ (1,502) $ 112,959 $(1,861) $47,863
1998 37,666 (812) 108,440 675 46,564
Financial Services 1999 2,163 333 6,352 1,113 26,685
1998 1,914 (886) 5,107 (826) 25,312
Industrial Technology 1999 -- (33) -- (127) 110
1998 -- (926) -- (1,388) 195
Total Segments 1999 39,252 (1,202) 119,311 (875) 74,658
1998 39,580 (2,624) 113,547 (1,539) 72,071
General Corporate and Other 1999 42 (157) 101 (657) 6,535
1998 34 (1,407) 105 (1,926) 7,237
Consolidated 1999 39,294 (1,359) 119,412 (1,532) 81,193
1998 39,614 (4,031) 113,652 (3,465) 79,308
</TABLE>
E-7
<PAGE>
3. SUBSEQUENT EVENTS
On October 19, 1999, the Company executed a definitive agreement pursuant to
which COLA Acquisitions, Inc. ("COLA"), a company newly formed by three
TransFinancial directors, will acquire all of the Company stock not owned by
such directors for $6.03 in cash. The acquisition will be effected by a merger
of COLA into TransFinancial, and the conversion of TransFinancial shares into
cash.
Consummation of the Merger is subject to several conditions, including
completion of COLA's financing and approval of the transaction by the holders of
a majority of the outstanding Company shares.
4. ACQUISITION OF PREMIUM FINANCE SUBSIDIARY
On May 29, 1998, TransFinancial Holdings, Inc. ("TransFinancial" or "the
Company") through Universal Premium Acceptance Corporation ("UPAC"), its
insurance premium finance subsidiary, completed the acquisition of all of the
issued and outstanding stock of Oxford Premium Finance, Inc. ("Oxford") for
approximately $4.2 million. Oxford offered short-term collateralized financing
of commercial insurance premiums through approved insurance agencies in 17
states throughout the United States. At May 29, 1998, Oxford had outstanding
net finance receivables of approximately $22.5 million. This transaction was
accounted for as a purchase. UPAC sold an additional $4.2 million of its
receivables under its receivable securitization agreement to obtain funds to
consummate the purchase. Concurrently with the closing of the acquisition, UPAC
amended its receivables securitization agreement to increase the maximum
allowable amount of receivables to be sold under the agreement and to permit the
sale of Oxford's receivables under the agreement. Effective on May 29, 1998,
Oxford sold approximately $19 million of its receivables under the
securitization agreement using the proceeds to repay the balance outstanding
under its prior financing arrangement. The terms of the acquisition and the
purchase price resulted from negotiations between UPAC and Oxford Bank & Trust
Company, the former sole shareholder of Oxford. In connection with the purchase
of Oxford, TransFinancial recorded goodwill of $1.9 million which will be
amortized on the straight-line basis over 15 years.
The operating results of Oxford are included in the consolidated operating
results of TransFinancial after May 29, 1998. The pro forma consolidated
results of operations of TransFinancial for the nine months ended September 30,
1998, assuming the acquisition occurred as of the beginning of the period, were
operating revenues of $114.1 million, net loss of $2.1 million and basic and
diluted loss per share of $(0.37). The pro forma results of operations are not
necessarily indicative of the actual results that would have been obtained had
the acquisition been made at the beginning of the period, or of results which
may occur in the future.
5. FINANCING AGREEMENTS
SECURITIZATION OF RECEIVABLES
TransFinancial, UPAC and APR Funding Corporation (a wholly-owned subsidiary)
have entered into a securitization agreement with a financial institution
whereby undivided interests in a designated pool of accounts receivable can be
sold on an ongoing basis. Effective October 8, 1999, the securitization
agreement was amended to decrease the maximum allowable amount of receivables to
be sold under the agreement to $70.0 million and to change the expiration date
of the agreement from December 30, 2001 to January 15, 2000. The purchaser
permits principal collections to be reinvested in new financing agreements. The
Company had securitized receivables of $63.1 million and $64.8 million at
September 30, 1999 and 1998. The cash flows from the sale of receivables are
reported as investing activities in the accompanying consolidated statement of
cash flows. The securitized receivables are reflected as sold in the
accompanying balance sheet.
The terms of the agreement require UPAC to maintain a minimum book net worth
of $20.0 million and contain restrictions on the payment of dividends by UPAC to
TransFinancial without prior consent of the financial institution. The terms of
the agreement also require the Company to maintain a minimum consolidated
tangible net worth of $35 million and a minimum ratio of consolidated EBITDA to
interest and securitization fees of 1.5 to 1.0. The Company was in compliance
with all such provisions at September 30, 1999. The terms of the securitization
agreement also
E-8
<PAGE>
require that UPAC maintain a default reserve at specified levels that serves as
additional collateral. At September 30, 1999, approximately $7.3 million of
owned finance receivables served as collateral under the default reserve
provision.
SECURED LOAN AGREEMENTS
In January 1998, Crouse Cartage Company entered into a three-year secured loan
agreement with a commercial bank which provides for a $4.5 million working
capital line of credit loan ("Working Capital Line"). The following table
summarizes activity under the Working Capital Line in the third quarter and nine
months ended September 30, 1999 and 1998 (in thousands, except percentages):
Third Quarter Nine Months
------------- -----------
1999 1998 1999 1998
---- ---- ---- ----
Balance outstanding at end of period... $2,272 $ -- $2,272 $ --
Average amount outstanding............. $1,703 $ -- $ 915 $ 773
Maximum month end balance outstanding.. $2,272 $ -- $2,414 $ 2,752
Interest rate at end of period......... 8.00% 8.25% 8.00% 8.25%
Weighted average interest rate......... 7.82% 8.50% 7.78% 8.50%
In September 1998, the Company entered into a two-year secured loan agreement
with the same commercial bank which enabled the Company to borrow $10.0 million
(the "Loan"), secured by freight accounts receivable and a second lien on
revenue equipment. In March 1999, the Loan was amended and restated to increase
the borrowing to $15.0 million. The Loan bears interest at 25 basis points
below the bank's prime rate. The interest rate was 8.00% at September 30, 1999.
The terms of the Loan provide for monthly payments of interest only through
September 30, 1999, with monthly principal payments thereafter of $100,000 plus
interest through maturity on September 30, 2000, when the balance outstanding
becomes due.
The terms of the Loan require the Company to maintain a minimum tangible net
worth of $35 million, a ratio of current assets to current liabilities of 1.25
to 1.00, a ratio of total liabilities to tangible net worth of 1.0 to 1.0, and
contain restrictions on the payment of dividends without prior consent of the
Lender. The Company was in compliance with all such provisions at September 30,
1999, except for the current ratio covenant and certain other covenants. The
Company received a waiver from the bank of these covenant violations. The
proceeds of the Loan were used to repurchase shares of the Company's common
stock.
6. STOCK REPURCHASE
In the first quarter of 1999, the Board of Directors authorized the repurchase
of 1,030,000 shares of the Company's common stock. Through September 30, 1999,
a total of 683,241 shares had been repurchased at a cost of approximately $2.6
million.
7. CONTINGENCIES AND COMMITMENTS
The Company and Crouse have been named as defendants in two lawsuits arising
out of a motor vehicle accident. The first suit was instituted on June 16, 1999
in the United States District Court in the Eastern District of Michigan
(Northern Division) by Kimberly Idalski, Personal Representative of the Estate
of Lori Cothran, Deceased against the Company and Crouse. The second suit was
instituted on August 17, 1999 in the United States District Court in the Eastern
District of Michigan (Northern Division) by Jeanne Cothran, as Legal Guardian,
on behalf of Kaleb Cothran, an infant child against the Company and Crouse. The
suits allege that the Company and Crouse negligently caused the death of Lori
Cothran in a motor vehicle accident involving a Crouse driver. The first suit
seeks damages in excess of $50,000,000, plus costs, interest and attorney fees.
The second suit seeks damages in excess of $100,000,000, plus costs, interest
and attorney fees. The Company believes that it has meritorious defenses to the
claims against the Company and is currently investigating the claims against
Crouse. Based on the information presently known to the Company, management
does not believe these suits will have a material adverse effect on the
financial condition, liquidity or results of operations of the Company.*
E-9
<PAGE>
The Company is also party to certain other claims and litigation arising in
the ordinary course of business. In the opinion of management, the outcome of
such claims and litigation will not materially affect the Company's results of
operations, cash flows or financial position.
In 1998 and 1999, Crouse entered into a long-term operating lease for new and
used tractors and new trailers. Lease terms are five years for tractors and
seven years for trailers. Rental expense relating to these leases was
$1,246,000 and $14,000 for the nine months ended September 30, 1999 and 1998.
Minimum future rentals for operating leases are as follows: remaining three
months of 1999 - $475,000; 2000 - $1,899,000; 2001 - $1,899,000; 2002 -
$1,899,000; 2003 - $1,650,000; 2004 - $552,000; and thereafter - $671,000.
Additionally, Crouse has limited contingent rental obligations of $639,000 if
the fair market value of such equipment at the end of the lease term is less
than certain residual values. Such lease also requires Crouse to maintain
tangible net worth of $26.0 million, increasing by $1.0 million per year
beginning in 1999. Crouse was in compliance with this covenant at September 30,
1999. As of September 30, 1999, Crouse was committed to acquire certain revenue
equipment with a total cost of $2.6 million pursuant to long-term operating
leases.*
E-10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Third quarter ended September 30, 1999 compared to the third quarter ended
September 30, 1998 and nine months ended September 30, 1999 compared to the
nine months ended September 30, 1998.
TransFinancial operates primarily in three segments; transportation, through
its subsidiary, Crouse Cartage Company and its affiliates ("Crouse"); financial
services, through its subsidiary, UPAC; and industrial technology, through its
subsidiary, Presis.
TRANSPORTATION
Operating Revenue - The changes in transportation operating revenue are
summarized in the following table (in thousands):
Qtr. 3 1999 Nine Months 1999
vs. vs.
Qtr. 3 1998 Nine Months 1998
----------- ----------------
Increase (decrease) from:
Increase (decrease) in LTL tonnage............. (1,333) 2,443
Increase in LTL revenue per hundredweight..... 1,031 2,401
Increase (decrease) in truckload revenues...... (275) (326)
---- ----
Net increase (decrease).................... (577) 4,518
==== =====
Less-than-truckload ("LTL") revenues declined 0.9% from $33.3 million for the
third quarter of 1998 to $33.0 million for the third quarter of 1999. The
principal cause of the decline was a 4.0% decrease in LTL tons hauled, which
management believes is largely due to a perception of uncertainty about Crouse's
future resulting from the one day work stoppage in May 1999 by union personnel
at a key terminal and the announcements relating to the proposed management
buyout of the Company. The Company's management believes the completion of the
proposed management buyout will provide the continuity and stability necessary
to regain the lost business. The decline in revenue from reduced tons was
offset in part by a 3.1% improvement in LTL revenue yield resulting from the
Crouse's focus on yield improvement, general rate increases in November 1998 and
September 1999 and fuel surcharges imposed in August 1999 to recover the cost of
increased diesel fuel prices.
LTL revenues rose 5.1% from $95.7 million for the first nine months of 1998
to $100.6 million for the same period of 1999. A 2.6% overall increase in tons
hauled and a 2.5% improvement in revenue yield combined to provide the revenue
growth, particularly in the first six months of 1999.
Truckload operating revenues fell 6.3% from $4.3 million for the third
quarter of 1998 to $4.1 million for the third quarter of 1999 and 2.6% from
$12.7 million for the first nine months of 1998 to $12.4 million for the same
period in 1999. The decline in truckload revenues for both periods was the
result of the factors discussed above as well as the temporary closing of a meat
processing plant operated by one of Crouse's customers.
E-11
<PAGE>
Operating Expenses - A comparative summary of transportation operating expenses
as a percent of transportation operating revenue follows:
<TABLE>
<CAPTION>
Percent of Operating Revenue
----------------------------
Third Quarter Nine Months
------------- -----------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Salaries, wages and employee benefits.................... 61.0% 58.5% 60.0% 58.3%
Operating supplies and expenses.......................... 14.3% 13.3% 13.1% 12.6%
Operating taxes and licenses............................. 3.3% 2.6% 2.8% 2.6%
Insurance and claims..................................... 4.3% 3.3% 2.9% 2.4%
Depreciation............................................. 2.9% 2.8% 2.8% 2.8%
Purchased transportation and rents....................... 18.3% 21.6% 20.9% 20.7%
---- ---- ---- ----
Total operating expenses............................. 104.1% 102.1% 101.6% 99.4%
===== ===== ===== ====
</TABLE>
Crouse's operating expenses as a percentage of operating revenue, or
operating ratio, increased in each of the third quarter and the first nine
months of 1999, in relation to the comparable periods of 1998. The
deterioration in operating ratio occurred principally in three cost categories:
salaries, wages and employee benefits; operating supplies and expenses; and
insurance and claims. The above increases were in part offset by decreases in
purchased transportation and rents.
Salaries, wages and employee benefits increased 2.6% from $22.1 million for
the third quarter of 1998 to $22.6 million for the third quarter of 1999, and
7.2% from $63.2 million for the nine months of 1998 to $67.7 million for the
same period of 1999. The increase in the third quarter of 1999 was principally
the result of a scheduled increase in union wages and benefits effective April
1, 1999, pursuant to the Crouse's collective bargaining agreement.
Additionally, in the third quarter of 1999 Crouse increased its utilization of
Company drivers and tractors to provide transportation of freight between
terminals ("linehaul transportation") and decreased its utilization of owner-
operator leased equipment. The increase in salaries, wages and employee
benefits for the first nine months of 1999 was the result of the increase in
business volumes discussed above, the scheduled increase in union wages and
benefits and certain retroactive wage increases paid in connection with the
resolution of certain local union contracts.
Operating supplies and expenses increased 5.8% from $5.0 million for the
third quarter of 1998 to $5.3 million for the third quarter of 1999, and 8.5%
from $13.7 million for the first nine months of 1998 to $14.8 million for the
comparable period of 1999. The increase in the third quarter was primarily the
result of increases in diesel fuel prices, as well as the cost of relocating
certain personnel affected by changes in the Crouse's operations. The increase
for the first nine months of 1999 was result the increased business volumes
discussed previously in addition to the factors discussed above for the third
quarter.
Insurance and claims expenses rose from 3.3% to 4.3% of operating revenue for
the third quarter of 1998 and 1999, respectively, and from 2.4% to 2.9% of
operating revenue for the respective nine month periods of 1998 and 1999. The
increases in insurance and claims expenses were primarily the result of adverse
developments in the 1999 periods with respect to prior period claims.
Purchased transportation and rent, decreased 15.6% from $8.1 million for the
third quarter of 1998 to $6.9 million for the third quarter of 1999 as Crouse
decreased its utilization of owner-operator leased equipment for linehaul
transportation as discussed above.
The Company's transportation net loss for the third quarter of 1999 was
$886,000 as compared to a net loss of $484,000 for the third quarter of 1998, as
a result of the decrease in operating revenues and increases in operating
expenses discussed above. The net loss for the first nine months of 1999 was
$1,131,000 as compared to net income of $336,000 for the same period of 1998, as
a result of increases in operating expenses discussed above.
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<PAGE>
FINANCIAL SERVICES
For the third quarter of 1999, UPAC reported operating income of $333,000 on
net financial services revenue of $2.2 million, as compared to an operating loss
of $886,000 on net revenue of $1.9 million for the comparable period of 1998.
For the first nine months of 1999, UPAC reported operating income of $1,113,000
on net revenue of $6.4 million, as compared to an operating loss of $826,000 on
net revenue of $5.1 million. The increases in net financial services revenue
and operating income in the periods of 1999 were the result of increased average
total receivables outstanding, offset in part by lower average yields on finance
contracts. The growth in average total receivables was due to the acquisition
of Oxford Premium Finance, Inc. on May 29, 1998 and the addition of marketing
representatives in other key markets since the beginning of 1998. A decrease in
consulting fees in the third quarter and nine months of 1999 resulting from the
expiration, effective December 31, 1998, of a consulting agreement with the
former owner of UPAC, also contributed to the increases in operating income.
Increased provisions for credit losses in the first nine months of 1999
partially offset the improvement in revenue in the period. Operating expenses
for the third quarter and nine months of 1998 include $333,000 of additional
depreciation related to the change in estimated useful life for certain
purchased software.
UPAC reported net income of $181,000 for the third quarter of 1999, as
compared to a net loss of $535,000 for the third quarter of 1998, as a result of
increased revenues and decreased operating expenses as discussed above. UPAC's
net income for the first nine months of 1999 was $606,000 as compared to a net
loss of $491,000 for the comparable period of 1998, as a result of the factors
discussed above.
INDUSTRIAL TECHNOLOGY
In the third quarter and nine months of 1999, Presis incurred operating
expenses of $33,000 and $127,000, primarily in salaries, wages and employee
benefits, as compared to operating expenses of $926,000 and $1,388,000 for the
third quarter and nine months of 1998. Since the fourth quarter of 1998, Presis
has limited expenditures to essential activities related to continued research
and testing of its technology. The operating expenses in the periods of 1998
include charges of $244,000 relating to certain management and consulting
contracts and $525,000 resulting from the adjustment of certain equipment and
intangibles to estimated fair value.
Presis' losses, net of tax effects, were $20,000 and $78,000 for the third
quarter and nine months of 1999, as compared to $557,000 and $837,000 for the
comparable periods of 1998.
OTHER
Included in general corporate expenses of the third quarter and nine months
of 1999 are approximately $191,000 of legal, accounting and financial advisor
fees incurred in the evaluation of the proposal by certain members of management
to acquire all of the outstanding shares of the Company.
In connection with a failed takeover attempt in the third quarter of 1998,
the Company incurred $500,000 in transaction costs and expenses that are
included in general corporate expenses. Additionally, general corporate charges
of $700,000 were recorded in the third quarter of 1998, principally to reflect
certain excess costs incurred to remove contaminated soil from a site formerly
owned by the Company. A lawsuit has been filed against the environmental
engineering firm that performed the initial cleanup to recover such excess
costs. The Company has not recorded the benefit of potential recovery pursuant
to this lawsuit and none can be assured.
As a result of the Company's use of funds for the stock repurchases, interest
earnings on invested funds were substantially lower in the third quarter and
nine months of 1999 than in the same periods of 1998. Interest expense increased
in the periods of 1999 due to borrowings on long-term debt incurred to
repurchase stock and increases in interest rates on borrowings in the third
quarter of 1999.
TransFinancial's effective income tax provision (benefit) rates for the third
quarter and nine months of 1999 were (37)% and (34)%, as compared to (36)% and
(31)% for the comparable periods of 1998. The effective income
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<PAGE>
tax rates for each period were a lower percentage than the statutory rate due to
the impact of non-deductible amortization of intangibles and meals and
entertainment expenses.
OUTLOOK
The Company believes the following statements may be forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and, as such, involve risks and uncertainties which are
detailed below under the caption "Forward-Looking Statements".
The Company utilizes a three-year strategic planning process with the goal of
maximizing shareholder value through profitable growth of its business segments.
In the transportation segment the plan calls for the Company to continue to
provide and improve upon its already superior service to its customers in its
primary operating territory, while increasing the density of its operations in
the eastern portion of its service area. The Company also intends to continue
to focus on improving the efficiency and effectiveness of its operations.
The Financial services segment will focus on targeting its marketing efforts
to improve its contribution to the Company's return on equity. Additionally,
the Company intends to focus on utilizing technology to improve its operating
efficiency.
The industrial technology operation will focus on continued research, testing
and commercialization of its technology. The Company expects this operation to
incur operating losses in the remainder of 1999 at or below expenditure levels
of $100,000 per quarter.
FORWARD-LOOKING STATEMENTS
The Company believes certain statements contained in this Quarterly Report on
Form 10-Q which are not statements of historical fact may constitute forward-
looking statements within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended, including, without limitation, the statements
specifically identified as forward-looking statements in this Form 10-Q. These
statements can often be identified by the use in such statements of forward-
looking terminology, such as "believes," "expects," "may," "will," "should,"
"could," "intends," "plans," "estimates," or "anticipates," or the negative
thereof, or comparable terminology. Certain of such statements contained herein
are marked by an asterisk ("*") or otherwise specifically identified herein. In
addition, the Company believes certain statements in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases, and in oral statements made by or with the approval of an authorized
executive officer of the Company which are not statements of historical fact may
constitute forward-looking statements within the meaning of the Act. Examples
of forward-looking statements include, but are not limited to (i) projections of
revenues, income or loss, earnings or loss per share, capital expenditures, the
payment or non-payment of dividends, capital structure and other financial
items, (ii) statements of plans and objectives of the Company or its management
or Board of Directors, including plans or objectives relating to the products or
services of the Company, (iii) statements of future economic performance, and
(iv) statements of assumptions underlying the statements described in (i), (ii)
and (iii). These forward-looking statements involve risks and uncertainties
which may cause actual results to differ materially from those anticipated in
such statements. The following discussion identifies certain important factors
that could affect the Company's actual results and actions and could cause such
results or actions to differ materially from any forward-looking statements made
by or on behalf of the Company that relate to such results or actions. Other
factors, which are not identified herein, could also have such an effect.
TRANSPORTATION
Certain specific factors which may affect the Company's transportation
operation include: competition from other regional and national carriers for
freight in the Company's primary operating territory; price pressure; changes in
fuel prices; labor matters, including changes in labor costs, and other labor
contract issues; and environmental matters.
E-14
<PAGE>
FINANCIAL SERVICES
Certain specific factors which may affect the Company's financial services
operation include: the performance of financial markets and interest rates; the
performance of the insurance industry; competition from other premium finance
companies and insurance carriers for finance business in the Company's key
operating states; adverse changes in statutory interest rates or other
regulations in states in which the Company operates; greater than expected
credit losses; the acquisition and integration of additional premium finance
operations or receivables portfolios; and the inability to obtain continued
financing at a competitive cost of funds.
INDUSTRIAL TECHNOLOGY
Presis is a start-up business formed to develop an industrial technology for
dry particle processing. This technology is subject to risks and uncertainties
in addition to those generally applicable to the Company's operations described
herein. These additional risks and uncertainties include the efficacy and
commercial viability of the technology, the ability of the venture to market the
technology, the acceptance of such technology in the marketplace, the general
tendency of large corporations to be slow to change from known technology, the
ability to protect its proprietary information in the technology and potential
future competition from third parties developing equivalent or superior
technology. As a result of these and other risks and uncertainties, the future
results of operations of the venture are difficult to predict, and such results
may be materially better or worse than expected or projected.
OTHER MATTERS
With respect to statements in this Report which relate to the current
intentions of the Company and its subsidiaries or of management of the Company
and its subsidiaries, such statements are subject to change by management at any
time without notice.
With respect to statements in "Financial Condition" regarding the adequacy of
the Company's capital resources, such statements are subject to a number of
risks and uncertainties including, without limitation: the future economic
performance of the Company (which is dependent in part upon the factors
described above); the ability of the Company and its subsidiaries to comply with
the covenants contained in the financing agreements; future acquisitions of
other businesses not currently anticipated by management of the Company; and
other material expenditures not currently anticipated by management.
The proposed management buyout of the Company is subject to a number of
conditions, including the completion of financing by COLA and approval of the
transaction by the holders of a majority of outstanding shares of Common Stock
of the Company. There can be no assurance that all of the conditions to the
consummation of the transaction will be satisfied.
With respect to statements in "Financial Condition" regarding the Company's
intention to refinance, extend or replace certain financing arrangements, the
Company's ability to do so is subject to a number of risks and uncertainties,
including, without limitation, the future economic performance of the Company,
the ability of the Company to comply with the terms of such financing
arrangements, general conditions in the credit markets and the availability of
credit to the Company on acceptable terms.
GENERAL FACTORS
Certain general factors that could impact any or all of the Company's
operations include: changes in general business and economic conditions; changes
in governmental regulation; and tax changes. Expansion of these businesses into
new states or markets is substantially dependent on obtaining sufficient
business volumes from existing and new customers in these new markets at
compensatory rates.
The cautionary statements made pursuant to Section 21E of the Securities
Exchange Act of 1934, as amended, are made as of the date of this Report and are
subject to change. The cautionary statements set forth in this Report are not
intended to cover all of the factors that may affect the Company's businesses in
the future. Forward-looking
E-15
<PAGE>
information disseminated publicly by the Company following the date of this
Report may be subject to additional factors hereafter published by the Company.
FINANCIAL CONDITION
As of September 30, 1999, the Company's net working capital was $5.5 million
as compared to $19.0 million as of December 31, 1998. The Company's current
ratio was 1.2 and its ratio of total liabilities to tangible net worth was 0.9
as of September 30, 1999, as compared to a current ratio of 2.3 and a ratio of
total liabilities to tangible net worth of 0.7 as of December 31, 1998. The
decrease in working capital and current ratio was the result of the
reclassification of the Company's $15.0 million term loan as current maturities
of long-term debt as discussed below. A substantial amount of the Company's
cash is generated from operating activities. Cash generated from operating
activities decreased in the nine months ended September 30, 1999 as compared to
the nine months ended September 30, 1998, due primarily to an increase in
freight accounts receivable resulting from decreased productivity as Crouse's
relocated its administrative office. The Company expects this administrative
issue to be corrected by December 31, 1999.* The Company believes that cash
generated from operating activities, together with funds available under
financing agreements discussed below, will be sufficient to meet the Company's
short-term and long-term cash requirements.*
A substantial portion of the capital required for UPAC's insurance premium
finance operations has been provided through the sale of undivided interests in
a designated pool of receivables on an ongoing basis under a receivables
securitization agreement. The current securitization agreement provides for the
sale of a maximum of $70.0 million of eligible receivables. As of September 30,
1999, $63.1 million of such receivables had been securitized. The
securitization agreement expires January 15, 2000. The Company intends to
negotiate an extension or replacement of this agreement prior to its expiration,
although there can be no assurance that the Company will be successful. Failure
to extend or replace the current securitization agreement would likely have a
material adverse effect on the Company's business, financial condition and
results of operations.*
Crouse has a three-year secured loan agreement with a commercial bank that
provides for a $4.5 million working capital line of credit loan, ("Working
Capital Line"). Borrowings on the Working Capital Line bear interest at 25
basis points below the bank's prime rate. The interest rate was 8.00% at
September 30, 1999. As of September 30, 1999, borrowings of $2,272,000 were
outstanding under the Working Capital Line. Crouse's banking arrangements with
its primary bank provide for automatic borrowing under the Working Capital Line
to cover checks presented in excess of collected funds. On certain occasions
the timing of cash disbursements and cash collections results in a net cash
overdraft. The outstanding checks representing such overdrafts are generally
funded from the next days cash collections, or if not sufficient, from
borrowings on the Working Capital Line.
In September 1998, the Company entered into a two-year secured loan agreement
with the same commercial bank to borrow $10.0 million (the "Loan"). Freight
accounts receivable and a second lien on revenue equipment are pledged as
collateral for the Loan. In March 1998, the Company amended and restated this
agreement increasing the borrowings to $15 million. The Loan bears interest at
25 basis points below the bank's prime rate. The interest rate was 8.00% at
September 30, 1999. The terms of the Loan provide for monthly payments of
interest only through September 30, 1999, with monthly principal payments
thereafter on $100,000 plus interest through maturity on September 30, 2000. At
September 30, 1999 the entire $15 million term loan was classified as current
maturities of long-term debt. In the event the management buyout transaction is
approved by shareholders and becomes effective, this term loan would be replaced
with a new debt agreement including a new principal maturity schedule. If the
management buyout transaction is not completed, the Company intends to negotiate
a new principal maturity schedule prior to September 30, 2000, although there
can be no assurance that Company would be successful. Failure to replace the
term loan or negotiate a new principal maturity schedule would likely have a
material adverse effect on the Company's business, financial condition and
results of operations.*
In the first quarter of 1999, the Board of Directors authorized the repurchase
of 1,030,000 shares of the Company's common stock. Through September 30, 1999,
a total of 683,241 shares had been repurchased at a cost of $2.6 million. The
repurchase of these shares was funded from the proceeds of the $5.0 million of
additional term loan borrowings described in the preceding paragraph.
E-16
<PAGE>
As announced by the Company in a press release dated June 21, 1999, three
TransFinancial directors, the Company's Chairman, Vice-Chairman and President,
presented a proposal to the Board of Directors of the Company by which they
would agree to acquire all of the outstanding stock of the Company for $5.25 per
share in cash. The Board of Directors appointed a Special Committee of the
independent directors to consider this proposal and other options. The Special
Committee engaged the general counsel of the Company as legal counsel and
engaged a financial advisor to assist it in evaluating the proposal and other
strategic options. On October 19, 1999, the Company executed a definitive
agreement pursuant to which COLA Acquisitions, Inc. ("COLA"), a company newly
formed by the three TransFinancial directors, will acquire all of the Company
stock not owned by such directors for $6.03 in cash. The acquisition will be
effected by a merger of COLA into TransFinancial, and the conversion of
TransFinancial shares into cash.
Consummation of the Merger is subject to several conditions, including
completion of COLA's financing and approval of the transaction by the holders of
a majority of the outstanding Company shares. If the Merger is terminated as a
result of certain actions by the Company or the Special Committee, the Company
has agreed to pay COLA a termination fee of $500,000 and to reimburse certain of
COLA's expenses up to a maximum of $200,000. In such an event, the Company
would intend to fund such fees and expenses from cash reserves, existing
borrowing agreements and cash flows from operating activities.
YEAR 2000 ISSUES
The Year 2000 Issue is the result of computer programs being written using two
digits to represent years rather than four digits, which include the century
designation. Without corrective action, it is possible that the Company's
computer programs, or its major service providers, vendors, suppliers, partners
or customers that have date-sensitive software could recognize a date using "00"
as the year 1900 rather than the year 2000. Additionally, certain other assets
may contain embedded chips that include date functions that could be affected by
the transition to the year 2000. In some systems this could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has developed and is executing a Year 2000 Compliance Strategic
Plan ("Year 2000 Plan") to enable management of TransFinancial Holdings, Inc.
and each of its business operations to ensure that each of its critical business
systems are "Year 2000 Compliant". The Company considers a business system to
be Year 2000 Compliant if it is able to transition into the year 2000 without
significant disruption to the Company's internal operations or those of its key
business partners. The Year 2000 Plan encompasses the Company's information
technology assets, including computer hardware and software ("IT assets") and
non-information technology assets, goods and services, including assets
utilizing embedded chip technology and significant customer and vendor
relationships ("non-IT assets").
The Company's Year 2000 Plan includes three principal sections: (1) mainframe
computer and personal computer hardware and software utilized by the Company's
transportation operations ("Transportation IT assets"); (2) desktop computer
applications, embedded chips, significant business partners of the
transportation operations ("Transportation non-IT assets"); and (3) personal
computer hardware and software, desktop computer applications, embedded chips,
significant business partners of the financial services operations ("Financial
Services IT and non-IT assets"). The general phases common to all sections are:
(1) inventorying, assessing and assigning priorities to Year 2000 items
("Inventory Phase"); (2) taking corrective actions to modify, repair or replace
items that are determined not to be Year 2000 Compliant ("Corrective Action
Phase"); (3) testing material items ("Testing Phase"); and (4) developing and
implementing contingency plans for each organization and location ("Contingency
Planning Phase"). The Company intends to utilize primarily internal personnel
and resources to execute its Year 2000 Plan but may utilize external consultants
as needed in certain phases.
E-17
<PAGE>
TRANSPORTATION IT ASSETS
With regard to the Transportation IT assets section, the Inventory Phase is
completed. The Company has identified its computer applications, programs and
hardware and is in the processing of assessing the Year 2000 risk associated
with each item. The Company executed the Corrective Action Phase by modifying
or upgrading items that were not Year 2000 compliant. This phase was completed
in the third quarter of 1999. The Testing Phase was ongoing as corrective
actions were completed. The Testing Phase was substantially completed in the
third quarter of 1999, although further testing and verification will continue
throughout 1999.*
TRANSPORTATION NON-IT ASSETS
With regard to the Transportation non-IT assets section, the Inventory Phase
is completed. The Company identified assets that may contain embedded chip
technologies and contacted the related vendors to gain assurance of Year 2000
status on each item. The Company also identified its significant business
relationships and contacted key vendors, suppliers and customers to attempt to
reasonably determine their Year 2000 status. The Corrective Action Phase was
substantially completed the third quarter of 1999.* The Testing Phase was
ongoing as corrective actions were completed. This phase was substantially
completed by the end of third quarter of 1999, although further testing and
verification will continue throughout 1999.*
FINANCIAL SERVICES IT AND NON-IT ASSETS
With regard to the Financial Services IT and non-IT assets section, the
Inventory Phase is completed. The Company identified its computer applications,
programs and hardware and non-IT assets and assessed the Year 2000 risk
associated with each item. The Company also identified its significant business
relationships and contacted key vendors, suppliers and customers to attempt to
reasonably determine their Year 2000 status. The Company has completed the
Corrective Action Phase. The Company's financial services database, operating
systems and computer applications have been upgraded or modified to address the
Year 2000. The Testing Phase was ongoing as corrections were made and was
substantially complete in the fourth quarter of 1998. Certain testing of bank
and other interfaces was completed in the first quarter of 1999.
The Company has been contacting business partners whose Year 2000 non-
compliance could adversely affect the Company's operations, employees, or
customers. The Company's transportation and financial services businesses are
dependent on telecommunication, financial and utility services provided by a
number of entities. The Company has received written assurances from
substantially all of its material business partners that they will be compliant.
The Company has developed contingency plans to address potential Year 2000
scenarios that may arise with significant business partners. The Company
believes the most likely worst case scenario would be the failure of a material
business partner to be Year 2000 compliant.* Therefore, the Company will
continue to work with and monitor the progress of its partners and formulate
additional contingency plans when the Company does not believe any business
partner will be compliant.*
COSTS
It is currently estimated that the aggregate cost of the Company's Year 2000
efforts will be approximately $150,000 to $200,000, of which approximately
$145,000 has been spent.* These costs are being expensed as they are incurred
and are being funded out of operating cash flow. These amounts do not include
approximately $25,000 of costs capitalized as the Company replaced certain non-
IT assets, in part to address the Year 2000 issue, as part of the Company's
normal capital replacement and upgrades. These amounts also do not include any
internal costs associated with the development and implementation of contingency
plans, which are not expected to be material.*
RISKS
The failure to correct a material Year 2000 issue could result in an
interruption in, or failure of, certain normal business operations. Such
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 issue, resulting in part from the uncertainty of the
Year 2000 readiness of third-party vendors, suppliers and customers, the Company
is unable to determine at this time whether the consequences of Year 2000
failures will have a material impact on the Company's results of operations,
liquidity and financial condition. The Company's Year 2000 Plan is designed to
gather
E-18
<PAGE>
information concerning Year 2000 issues facing the Company and to address and
resolve such issues to the extent reasonably possible. Even if the Company
successfully implements its Year 2000 Plan, there can be no assurance that the
Company's operations will not be affected by Year 2000 failures or that such
failures will not have a material adverse effect on the Company's results of
operations, liquidity and financial condition.
E-19
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -- The Company and Crouse have been named as
defendants in two lawsuits arising out of a motor vehicle accident. The first
suit was instituted on June 16, 1999 in the United States District Court in the
Eastern District of Michigan (Northern Division) by Kimberly Idalski, Personal
Representative of the Estate of Lori Cothran, Deceased against the Company and
Crouse. The second suit was instituted on August 17, 1999 in the United States
District Court in the Eastern District of Michigan (Northern Division) by Jeanne
Cothran, as Legal Guardian, on behalf of Kaleb Cothran, an infant child against
the Company and Crouse. The suits allege that the Company and Crouse
negligently caused the death of Lori Cothran in a motor vehicle accident
involving a Crouse driver. The first suit seeks damages in excess of
$50,000,000, plus costs, interest and attorney fees. The second suit seeks
damages in excess of $100,000,000, plus costs, interest and attorney fees. The
Company believes that it has meritorious defenses to the claims against the
Company and is currently investigating the claims against Crouse. Based on the
information presently known to the Company, management does not believe these
suits will have a material adverse effect on the financial condition, liquidity
or results of operations of the Company.*
Item 2. Changes in Securities -- None
Item 3. Defaults Upon Senior Securities -- None
Item 4. Submission of Matters to Vote of Security Holders -- None
Item 5. Other Information -- None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2* Agreement and Plan of Merger Between TransFinancial Holdings, Inc.
and COLA Acquisitions, Inc., dated as of October 19, 1999.
10.1* Amendment No. 8 to Receivables Purchase Agreement by and among APR
Funding Corporation, Universal Premium Acceptance Corporation,
TransFinancial Holdings, Inc., EagleFunding Corporation and
BankBoston, N.A., dated October 8, 1999.
10.2* Supplemental Benefit and Collateral Assignment Split-Dollar Agreement
dated January 18, 1997 by and between the Company and Timothy P.
O'Neil.
10.3* Employment Agreement dated July 2, 1998 by and between the Company
and Timothy P. O'Neil.
10.4* Supplemental Benefit Agreement dated September 30, 1995 by and
between the Company and David D. Taggart.
10.5* Employment Agreement dated April 27, 1998 by and among the Company,
Crouse Cartage Company and David D. Taggart.
10.6* Agreement dated September 30, 1995 by and between the Company and
David D. Taggart.
10.7* Amended and Restated Employment Agreement dated October 16, 1998 by
and among the Company, Universal Premium Acceptance Corporation,
Presis, L.L.C. and Kurt W. Huffman.
10.8* Agreement dated April 30, 1998 by and between the Company and Mark A.
Foltz.
10.9* Form of Indemnification Agreement between Company and officers.
10.10* Form of Indemnification Agreement between Company and directors.
27* Financial Data Schedule.
99.1* Press Release of TransFinancial Holdings, Inc. dated October 19,
1999.
* Filed as exhibit to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, filed October 28, 1999.
(b) Reports on Form 8-K - None
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<PAGE>
(SIGNATURE)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TransFinancial Holdings, Inc.
Registrant
By: /s/ Timothy P. O'Neil
Timothy P. O'Neil, President &
Chief Executive Officer
(Principal executive officer)
By: /s/ Mark A. Foltz
Mark A. Foltz
Vice President, Finance and
Secretary
(Principal financial officer)
Date: December 8, 1999
E-21
<PAGE>
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED DECEMBER 10, 1999
PROXY
TRANSFINANCIAL HOLDINGS, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
January ___, 2000
The undersigned hereby appoints Kurt W. Huffman and Mark A. Foltz, and
each of them, as proxies for the undersigned at the Special Meeting of
Stockholders of TransFinancial Holdings, Inc. at the Marriott Hotel, 10800
Metcalf Avenue, Overland Park, Kansas, on Tuesday, January ___, 2000, at 10:00
A.M., and at any adjournment, to vote the shares of stock the undersigned would
be entitled to vote, if personally present, upon the proposal, and any other
matter brought before the meeting, all as set forth in the December ___, 1999,
Proxy Statement.
The Board of Directors unanimously recommends voting for Proposal 1.
1. TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER, DATED AS OF
OCTOBER 19, 1999, BETWEEN THE COMPANY AND COLA ACQUISITIONS, INC., AND
THE TRANSACTIONS CONTEMPLATED THEREBY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. THIS PROXY CONFERS DISCRETIONARY AUTHORITY TO VOTE UPON CERTAIN
MATTERS, AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT.
(continued and to be signed and dated on the reverse side)
<PAGE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER. IF NO DIRECTION IS GIVEN, SUCH SHARES WILL BE VOTED FOR PROPOSAL 1.
Receipt is acknowledged of the Notice of Special Meeting of Stockholders
and accompanying Proxy Statement.
Please sign exactly as name appears hereon. 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 partnership
name by authorized person.
Dated:________________________
______________________________
(Signature)
______________________________
(Signature if held jointly)
PLEASE MARK, SIGN AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
