UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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. 0-12321
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 May 14, 1999
Common stock, $0.01 par value 3,251,195 Shares
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
1999 1998
<S> <C> <C>
Operating Revenues.......................................................... $ 39,857 $ 37,003
Operating Expenses.......................................................... 39,854 36,703
Operating Income............................................................ 3 300
Nonoperating Income
Interest income.......................................................... 20 67
Interest expense......................................................... (256) (51)
Other.................................................................... 25 35
Total nonoperating income............................................ (211) 51
Income (Loss) Before Income Taxes........................................... (208) 351
Income Tax Provision (Benefit).............................................. (36) 190
Net Income (Loss)........................................................... $ (172) $ 161
Basic and Diluted Earnings (Loss) Per Share................................. $ (0.04) $ 0.03
Basic Average Shares Outstanding............................................ 3,837 6,053
Diluted Average Shares Outstanding.......................................... 3,839 6,124
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................................ $ 1,604 $ 3,256
Freight accounts receivable, less allowance
for credit losses of $421 and $387................................... 13,931 13,351
Finance accounts receivable, less allowance
for credit losses of $561 and $566................................... 13,924 12,584
Current deferred income taxes............................................ 2,713 2,548
Other current assets..................................................... 3,707 2,401
Total current assets................................................. 35,879 34,140
Operating Property, at Cost:
Revenue equipment........................................................ 31,901 31,969
Land..................................................................... 3,681 3,681
Structures and improvements.............................................. 11,153 11,130
Other operating property................................................. 11,017 10,500
57,752 57,280
Less accumulated depreciation........................................ (25,092) (24,122)
Net operating property........................................... 32,660 33,158
Intangibles, net of accumulated amortization................................ 9,621 9,777
Other Assets................................................................ 713 688
$ 78,873 $ 77,763
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Cash overdrafts.......................................................... $ -- $ 1,976
Accounts payable......................................................... 3,524 3,093
Current maturities of long-term debt..................................... 600 300
Accrued payroll and fringes.............................................. 7,042 6,068
Other accrued expenses................................................... 2,813 3,685
Total current liabilities............................................ 13,979 15,122
Deferred Income Taxes....................................................... 1,979 1,867
Long-Term Debt (Note 4)..................................................... 14,400 9,700
Shareholders' Equity (Note 5)
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 7,593,592 shares.............................................. 76 76
Paid-in capital.......................................................... 6,090 6,090
Retained earnings........................................................ 77,195 77,367
Treasury stock, 4,291,961 and 3,661,220 shares, at cost.................. (34,846) (32,459)
Total shareholders' equity........................................... 48,515 51,074
$ 78,873 $ 77,763
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(In thousands)
(Unaudited)
<CAPTION>
1999 1998
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss)................................................... $ (172) $ 161
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities
Depreciation and amortization..................................... 1,285 1,292
Provision for credit losses....................................... 256 210
Deferred income tax benefit....................................... (53) (1,468)
Other............................................................. (23) (15)
Net increase (decrease) from change in other
working capital items affecting operating activities........... (1,409) 756
(116) 936
Cash Flows From Investing Activities
Purchase of operating property, net................................. (623) (3,875)
Origination of finance accounts receivable.......................... (48,388) (32,295)
Sale of finance accounts receivable................................. 36,682 20,085
Collection of owned finance accounts receivable..................... 10,171 10,473
Maturities of short-term investments................................ -- 3,018
Other............................................................... (10) (379)
(2,168) (2,973)
Cash Flows From Financing Activities
Cash overdrafts..................................................... (1,976) 1,682
Borrowings on Long-Term Note Payable................................ 5,000 --
Payments to acquire treasury stock.................................. (2,387) --
Borrowing (repayments) on line of credit agreements, net............ -- (1,101)
Other............................................................... (5) (31)
632 550
Net Decrease in Cash and Cash Equivalents............................. (1,652) (1,487)
Cash and Cash Equivalents at beginning of period...................... 3,256 4,778
Cash and Cash Equivalents at end of period............................ $ 1,604 $ 3,291
Cash Paid During the Period for
Interest............................................................ $ 253 $ 48
Income Tax.......................................................... $ 28 $ --
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
<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 Stock Plan. 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...................................... -- -- (172) -- (172)
Purchase of 630,741 shares of common stock.... -- -- -- (2,387) (2,387)
Balance at March 31, 1999 (unaudited)......... $ 76 $ 6,090 $ 77,195 $(34,846) $ 48,515
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION AND SIGNIFICANT ACCOUNTING POLICIES
The 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 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 first quarter of 1999 by $50,000 and decreased net
loss by approximately $30,000 or $0.01 per share. This change will decrease
amortization expense and increase operating income by approximately $150,000 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>
Operating
First Operating Income Total
Quarter Revenues (Loss) Assets
(unaudited, in thousands)
<S> <C> <C> <C> <C>
Transportation 1999 $ 37,857 $ (10) $ 48,208
1998 35,547 829 51,304
Financial Services 1999 1,969 290 24,964
1998 1,420 (55) 24,114
Industrial Technology 1999 -- (43) 141
1998 -- (193) 691
Total Segments 1999 39,826 237 73,313
1998 36,967 581 76,109
General Corporate and Other 1999 31 (234) 5,560
1998 36 (281) 15,514
Consolidated 1999 39,857 3 78,873
1998 37,003 300 91,623
</TABLE>
3. 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 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,
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 following reflects the
consolidated operating results of TransFinancial for the first quarter ended
March 31, 1998, assuming the acquisition occurred as of the beginning of the
period:
PRO FORMA OPERATING RESULTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
First
Quarter
1998
Operating Revenues............... $37,277
Net Income....................... $ 185
Basic and Diluted Earnings Per Share$ 0.03
The pro forma results of operations are not necessarily indicative of the
actual results that would have been obtained had the acquisitions been made at
the beginning of the respective periods, or of results which may occur in the
future.
4. FINANCING AGREEMENTS
SECURITIZATION OF RECEIVABLES
TransFinancial, UPAC and APR Funding Corporation (a wholly-owned subsidiary)
have 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. Effective September 11, 1998, the securitization agreement
was amended to modify the definition of eligible receivables under the
securitization agreement and to increase the maximum allowable amount of
receivables to be sold under the agreement to $85.0 million. The purchaser
permits principal collections to be reinvested in new financing agreements. The
Company had securitized receivables of $61.3 million and $34.1 million at March
31, 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 tangible net
worth of $5.0 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 $40 million. The Company was in compliance
with all such provisions at March 31, 1999, except for the consolidated tangible
net worth covenant. The Company has received a waiver of this default through
June 30, 1999 while the Company negotiates an amendment to this covenant as well
as certain other provisions of the agreement. The terms of the securitization
agreement also require that UPAC maintain a default reserve at specified levels
which serves as collateral. At March 31, 1999, approximately $7.0 million of
owned finance receivables served as collateral under the default reserve
provision.
SECURED LOAN AGREEMENTS
In January 1998, Crouse 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 first quarter ended March 31, 1999 and
1998 (in thousands, except percentages):
First Quarter
1999 1998
Balance outstanding at end of period.................. $ -- $ 1,851
Average amount outstanding ........................... 603 1,977
Maximum month end balance outstanding................. 2,414 1,977
Interest rate at end of period........................ 7.5% 8.5%
Weighted average interest rate........................ 7.5% 8.5%
In September 1998, the Company entered into a two-year secured loan agreement
with a 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 million. The Loan bears interest at 25 basis points under the
bank's prime rate, 7.50% at March 31, 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.
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 March 31,
1999. The proceeds of the Loan were used to repurchase shares of the Company's
common stock (See Note 5 of Notes to Consolidated Financial Statements).
7. 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 March 31, 1999, a
total of 630,741 shares had been repurchased at a cost of approximately $2.4
million.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
First quarter ended March 31, 1999 compared to the first quarter ended March 31,
1998.
TransFinancial operates primarily in three distinct segments; transportation,
through its subsidiary, 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. 1 1999
vs.
Qtr. 1 1998
Increase (decrease) from:
Increase in LTL tonnage........................ $1,529
Increase in LTL revenue per hundredweight..... 873
Decrease in truckload revenues................. (92)
Net increase............................... $2,310
Less-than-truckload ("LTL") operating revenues rose by 7.7% for the first
quarter of 1999, as compared to the same period in 1998. Crouse achieved an
increase of 4.9% in LTL tons of the first quarter of 1999, compared to 1998.
Crouse's LTL revenue yield improved 2.7% due to general rate increases effective
November 1998 and the Company's focus on yield improvement. The severe winter
weather experienced in the Company's operating territory significantly affected
the Company's operations in the first quarter of 1999 by limiting the Company's
revenue growth relative to increased operating expenses.
Truckload operating revenues were 2.2% lower in the first quarter of 1999, on
approximately 0.9% fewer shipments. The decline in truckload operating revenues
was due primarily to the temporary closing of a meat processing plant operated
by one of the Company's customers and general softness in pork prices which has
reduced the volume of meat transported by truck.
Operating Expenses - A comparative summary of transportation operating expenses
as a percent of transportation operating revenue follows:
<TABLE>
<CAPTION>
Percent of Operating Revenue
First Quarter
1999 1998
<S> <C> <C>
Salaries, wages and employee benefits.................... 60.0% 58.7%
Operating supplies and expenses.......................... 12.0% 11.7%
Operating taxes and licenses............................. 2.4% 2.4%
Insurance and claims..................................... 2.0% 2.0%
Depreciation............................................. 2.8% 2.9%
Purchased transportation and rents....................... 20.8% 20.0%
Total operating expenses............................. 100.0% 97.7%
</TABLE>
Crouse's operating expenses as a percentage of operating revenue, or operating
ratio, was 100.0% for the first quarter March 31, 1999, which was higher than
the same period of 1998. The increase in salaries, wages and employee benefits
as a percent of operating revenue in the first quarter of 1999 as compared to
the first quarter of 1998 was due to two factors. First, the Company was
required to make payments for retroactive pay increases totaling approximately
$180,000 in connection with the resolution of certain local union contracts
which expired March 31, 1998. Additionally, the adverse impacts of the severe
winter weather and the closing of a customer's meat processing plant on first
quarter revenues contributed to certain inefficiencies in the utilization of
productive labor relative to revenues. Purchased transportation and rents
expense as a percent of operating revenue increased from the first quarter of
1998 due to the addition of certain tractors and trailers pursuant to long-term
operating leases in 1998.
FINANCIAL SERVICES
For the first quarter of 1999, UPAC reported operating income, of $290,000 on
net financial services revenue of $2.0 million, as compared to an operating loss
of $55,000 on net financial services revenue of $1.4 million, for the comparable
period of 1998. The increase in net financial services revenue and operating
income was the result of increased average total receivables outstanding offset,
in part by an increase in the percentage of finance contracts originated which
were sold under the securitization agreement and a lower average yield on
finance contracts. The growth in average total receivables outstanding was due
to the acquisition on May 29, 1998 of Oxford Premium Finance, Inc., an insurance
premium finance business serving the Chicago area and the industrial Midwest,
and the addition of marketing representatives in other key markets. A decrease
in consulting fees in the first quarter of 1999 resulting from the expiration,
effective December 31, 1998, of a consulting agreement with the former owner of
UPAC also contributed to the increase in operating income.
INDUSTRIAL TECHNOLOGY
In the first quarter of 1999, Presis, incurred operating expenses of $43,000,
primarily in salaries, wages and employee benefits as compared to operating
expenses of $193,000 for the first quarter 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 Company expects this
operation to incur operating losses in the remainder of 1999, at or below
expenditure levels of $100,000 per quarter as it continues to pursue the
research, testing and commercialization of its technology.*
OTHER
As a result of the Company's use of funds for the stock repurchases, interest
earnings on invested funds were substantially lower in the first quarter of 1999
than in the same period of 1998. Interest expense increased in the current
quarter of 1999 due to borrowings on long-term debt incurred to repurchase
stock.
TransFinancial's effective income tax provision (benefit) rates for the first
quarter of 1999 and 1998 were (17%) and 54%. The effective income tax rate for
1999 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 1999, as compared to the impact of these items on pre-tax
income in 1998.
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 the remainder of 1999 at or below expenditure levels
of $100,000 per quarter.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q 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-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 the forward-looking statements contained herein are
marked by an asterisk ("*") or otherwise specifically identified herein. 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 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 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.
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 March 31, 1999 with more
than $1.6 million in cash and investments. The Company's current ratio was 2.6
to 1.0 and its ratio of total liabilities to tangible net worth was 0.8 to 1.0.
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. The current securitization agreement, which matures
December 31, 2001, currently provides for the sale of a maximum of $85.0 million
of eligible receivables. As of March 31, 1999, $61.3 million of such
receivables had been securitized. At March 31, 1999, the Company was not in
compliance with a covenant under this agreement requiring the Company to
maintain consolidated tangible net worth of $40 million. The Company has
received a waiver of this technical default through June 30, 1999 while the
Company negotiates an amendment to this covenant as well as certain other
provisions of the agreement.
Crouse has 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"). As of March 31, 1999, no borrowings were outstanding under the
Working Capital Line.
Crouse has achieved ratification of new five year pacts with the
International Brotherhood of Teamsters covering substantially all of its union
employees. The new contracts, which became effective October 4, 1998, 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 one union local representing seven employees. Additionally, the
current collective bargaining agreement covering approximately 250 linehaul
drivers will expire June 30, 1999. The Company has held preliminary
negotiations with these union locals; however, no agreements have been reached.
There can be, however, no assurance that Crouse's remaining union employees will
ratify new contracts 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.
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. 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, 7.50% at March 31, 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 March 31, 1999 current maturities of long-
term debt were $600,000, with the remaining $14,400,000 due in 2000.
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 March 31, 1999, a
total of 630,741 shares had been repurchased at a cost of $2.4 million.
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.
TRANSPORTATION IT ASSETS
With regard to the Transportation IT assets section, the Inventory Phase is
substantially 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 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 early in the third quarter of 1999.* The
Contingency Planning Phase was begun in the first quarter of 1999 and will be
completed in the second quarter of 1999.*
TRANSPORTATION NON-IT ASSETS
With regard to the Transportation non-IT assets section, the Inventory Phase
is substantially 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 second quarter of 1999. The
Testing Phase is ongoing as corrective actions are completed. This phase is
anticipated to be complete early in the third quarter of 1999. The Contingency
Planning Phase was begun in the first quarter of 1999 and will 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 was completed in
the first quarter of 1999. The Contingency Planning Phase was begun in the first
quarter of 1999 and will 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
$100,000 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 $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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings Reference is made to Item 3 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1998.
Item 2. Changes in Securities -- None
Item 3. Defaults Upon Senior Securities -- None
Item 4. Submission of Matters to Vote of Security Holders
(a) Annual Meeting of Shareholders was held on April 27, 1999.
(b) The nominees for the board of directors previously reported to the
Commission in the Company's Proxy Statement were elected.
(c) The matters voted upon at the Annual Meeting were as follows:
(1) All seven nominees for director were elected as follows:
Shares Voted
Nominees For Withheld
William D. Cox 2,456,756 70,990
J. Richard Devlin 2,473,829 53,917
Harold C. Hill, Jr. 2,469,665 58,081
Roy R. Laborde 2,447,965 79,781
Timothy P. O'Neil 2,451,871 75,875
Clark D. Stewart 2,473,329 54,417
David D. Taggart 2,468,875 58,871
(3) The selection of PricewaterhouseCoopers, LLP as independent public
accountants was ratified with 2,370,200 shares voting for, 154,002
shares voting against, and 3,544 shares abstaining.
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
10.1* Secured Loan Agreement by and between Bankers Trust Company of Des
Moines, Iowa, TransFinancial Holdings, Inc., and Crouse Cartage
Company, dated March 25, 1999.
27* Financial Data Schedule.
* Filed herewith.
(b) Reports on Form 8-K -
(1) A Current Report on Form 8-K, dated March 4, 1999, filed March 5,
1999, to report the amendment of the Company's Rights Agreement.
(2) A Current Report on Form 8-K, dated March 17, 1999, filed March
17, 1999, to report the expansion of a share repurchase program and
the repurchase of stock.
(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
By: /s/ Mark A. Foltz
Mark A. Foltz
Vice President, Finance and Secretary
Date: May 14, 1999
EXHIBIT INDEX
Assigned
Exhibit
Number Description of Exhibit
10.1 Secured Loan Agreement by and between Bankers Trust Company of Des
Moines, Iowa, TransFinancial Holdings, Inc., and Crouse Cartage
Company, dated March 25, 1999.
27 Financial Data Schedule.
<TABLE> <S> <C>
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<LEGEND>
This schedule contains summary financial information extracted from
TransFinancial Holdings, Inc.'s consolidated statement of income for the three
months ended March 31, 1999 and consolidated balance sheet as of March 31, 1999,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000719271
<NAME> TRANSFINANCIAL HOLDINGS, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1604
<SECURITIES> 0
<RECEIVABLES> 28837
<ALLOWANCES> 982
<INVENTORY> 0
<CURRENT-ASSETS> 35879
<PP&E> 57752
<DEPRECIATION> 25092
<TOTAL-ASSETS> 78873
<CURRENT-LIABILITIES> 13979
<BONDS> 14400
0
0
<COMMON> 76
<OTHER-SE> 48439
<TOTAL-LIABILITY-AND-EQUITY> 78873
<SALES> 0
<TOTAL-REVENUES> 39857
<CGS> 0
<TOTAL-COSTS> 39854
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 256
<INCOME-PRETAX> (208)
<INCOME-TAX> (36)
<INCOME-CONTINUING> (172)
<DISCONTINUED> 0
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<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
SECURED LOAN AGREEMENT
This Secured Loan Agreement is made and entered into this 25th day of
March, 1999, by and between Bankers Trust Company of Des Moines, Iowa,
(hereinafter referred to as the "Bank"), TransFinancial Holdings, Inc.
(hereinafter referred to as "TransFinancial") and Crouse Cartage Company
(hereinafter referred to as "Crouse"), (TransFinancial and Crouse hereinafter
collectively referred to as the "Borrowers" and individually as a "Borrower").
WITNESSETH
WHEREAS, Borrowers desire to borrow monies from Bank in the amounts
described below; and
WHEREAS, Bank is willing to loan monies to Borrowers subject to the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties agree as follows:
1. DEFINITIONS
For purpose of this Agreement, the following terms shall have the following
meanings:
"AFFILIATE" shall mean: (i) any natural person who is a controlling
shareholder of either Borrower, or who is an officer, director or managing agent
of either Borrower; (ii) any corporation, partnership or entity that is a
controlling shareholder of either Borrower; and (iii) any person who directly or
indirectly controls, is controlled by or is under common control or ownership
with either Borrower or any controlling shareholder of either Borrower. For
this the purposes of this definition, the term "Control" shall mean the
ownership of ten percent (10%) or more of the beneficial interest in the entity
being referred to.
"AGREEMENT" shall mean this Secured Loan Agreement, as amended or modified
from time to time, together with all exhibits or schedules attached hereto or
hereafter.
"BANK'S PRIME RATE" shall mean the fluctuating interest rate per annum from
time to time designated by Bank as its prime rate. The Bank's Prime Rate shall
Page 1
not be deemed the lowest rate or most favored rate charged by Bank to its
customers. Changes in the Bank's Prime Rate shall be effective without notice
to Borrowers on the date of each change.
"BORROWING BASE" shall mean an amount equal to eighty-five percent (85%) of
Crouse's Eligible Accounts Receivable owned by Crouse as of the date of each
Borrowing Base Certificate.
"BORROWING BASE CERTIFICATE" shall mean a document duly certified by an
authorized officer of Crouse in the form attached hereto as Exhibit A.
"COLLATERAL" shall mean without limitation Crouse's assets pledged to Bank
as security for the Note, now or in the future, as more particularly described
in Section 4 of this Agreement.
"CURRENT ASSETS" shall mean TransFinancial's current assets which shall be
determined in accordance with GAAP.
"CURRENT LIABILITIES" shall mean TransFinancial's current liabilities which
shall be determined in accordance with GAAP.
"CURRENT RATIO" shall be calculated by dividing TransFinancial's Current
Assets by its Current Liabilities.
"DEBT TO TANGIBLE NET WORTH RATIO" shall mean that number calculated by
dividing TransFinancial's total liabilities in accordance with GAAP by its
Tangible Net Worth.
"DEFAULT" OR "EVENT OF DEFAULT" shall have the meaning delineated in
Section 9 of this Agreement.
"ELIGIBLE ACCOUNTS RECEIVABLE" shall mean those accounts receivable owing
to Crouse which are free and clear of any security interest, lien or encumbrance
except that granted to Bank herein, and which are not more than ninety (90) days
past due from date of original invoice or with respect to which there exists no
dispute with Crouse. Further, to be an Eligible Accounts Receivable, the
receivable must not be subject to any dispute, counterclaim or defense asserted
by the account debtor thereunder and the account debtor must not be insolvent or
be the subject of any bankruptcy or reorganization proceedings or other
Page 2
proceedings for relief of debtors. An account receivable shall be deemed to
exist when the invoice giving rise to such account receivable is mailed or when
debt to Crouse from its customers arises, whichever shall first occur.
Receivables due Crouse from any Affiliate shall not be included in calculating
Eligible Accounts Receivable.
"GAAP" shall mean those Generally Accepted Accounting Principles and
Practices that are recognized as such by the American Institute of Certified
Public Accountants and by the Financial Accounting Standards Board.
"HAZARDOUS SUBSTANCES." The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. section
9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of
1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act,
49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 49
U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules
or regulations adopted pursuant to any of the foregoing.
"INDEBTEDNESS" shall mean and include without limitation all Loans,
together with all other obligations, debts and liabilities of Borrowers to Bank
as well as all claims by Bank against Borrowers, whether now or hereafter
existing, voluntary or involuntary, due or not due, absolute or contingent,
liquidated or unliquidated; whether Borrowers may be liable individually or
jointly with others; whether Borrowers may be obligated as a guarantor, surety,
or otherwise; whether recovery upon such indebtedness may be or hereafter may
become barred by any statute of limitations; and whether such indebtedness may
be or hereafter may become otherwise unenforceable.
"LOAN" OR "LOANS" means and includes any and all extensions of credit and
financial accommodations from Bank to Borrowers, whether now or hereafter
existing, and however evidenced, including without limitation those loans and
financial accommodations described herein or described on any exhibit or
schedule attached to this Agreement from time to time.
Page 3
"LOAN DOCUMENTS" shall mean this Agreement, the Note, the Security
Agreement and any other instrument executed in connection with or evidencing the
Indebtedness.
"MAXIMUM CREDIT" shall mean the lesser of Fifteen Million Dollars
($15,000,000.00) or the Borrowing Base.
"NOTE" shall refer to the promissory note more particularly described in
Section 2 of this Agreement executed by Borrowers in favor of Bank, together
with any and all extensions, modifications, substitutions or renewals thereof.
"REVENUE EQUIPMENT" shall mean and include all of Crouse's (i) commercial
and highway trucks, (ii) commercial and highway tractors and trailers, (iii)
automobiles and (iv) pickup and delivery vehicles, all for which titles have
been issued in the name of Crouse and which titles are in the possession of
Bank, or in possession of another party acting as agent for Bank; and (v) all
mechanical refrigeration units attached to, or held for use upon, such trucks,
tractors and trailers.
"SECURITY AGREEMENT" shall mean the Commercial Security Agreement executed
by Crouse in favor of Bank of even date herewith granting Bank a first lien on
Crouse's Eligible Accounts Receivable and a Second Lien on Crouse's Revenue
Equipment.
"TANGIBLE NET WORTH" shall be determined in accordance with GAAP and shall
mean that number calculated by subtracting from the sum of TransFinancial's
equity, all sums relating to goodwill, patents, copyrights, trademarks,
licenses, franchises, or other assets normally considered an intangible asset
under GAAP.
2. LOAN
Subject to the terms and conditions of this Agreement and the other Loan
Documents, the Bank agrees to lend to Borrowers the amount as provided in the
following described Loan:
Page 4
A. Loan. A term loan in the principal amount not to exceed the lesser
of Fifteen Million Dollars ($15,000,000.00) or the Borrowing Base, and
Borrowers shall execute and deliver to Bank a promissory note ("Note")
for $15,000,000.00 dated as of the date of this Agreement. Such funds
shall be used to purchase certain outstanding stock of TransFinancial.
Interest and principal payments shall be payable on the dates and in
the manner set forth in the Note. Interest shall accrue at a floating
rate which shall at all times equal the Bank's Prime Rate, as adjusted
to the date of change. In the event at any time the Borrowing Base is
less than the unpaid principal balance of the Note, Borrowers will
immediately pay that amount necessary to reduce the unpaid principal
balance to an amount equal to the Borrowing Base. The Note shall
mature and be due and payable in full on September 30, 2000. Bank's
determination as to the outstanding principal balance owed by
Borrowers shall be presumed to be correct and binding on all parties
whomsoever and Bank's documentation to support said outstanding
balance will be sufficient to establish and sustain Borrowers'
obligations under the Note, unless Borrowers are able to provide
documentation to the contrary satisfactory to Bank which is sufficient
to rebut the aforesaid presumption.
3. ADVANCES
A. Any checks or other charges presented against the regular checking
account of Borrowers in excess of the balance of said regular checking
account may be treated by the Bank as a request for an advance under
the Note, and payment by the Bank of any check may at its option
constitute a loan to the Borrowers pursuant to this Agreement of the
amounts so paid. However, the amounts debited to the Note and
credited to the checking account shall at no time exceed the unused
portion of the Maximum Credit available under the Note.
B. In the event Borrowers shall fail to provide adequate insurance, pay
taxes, or pay any other charges which may affect the assets
Page 5
collateralized to Bank, Bank may, at its option, without notice, but
without any obligation or liability to do so, procure insurance, pay
taxes or pay any other charges and add said sum to the balance of the
Note.
C. Although it is contemplated that at no time during the term of this
Agreement shall the outstanding principal amount of the Note exceed
the Maximum Credit thereunder, it is understood and agreed that the
contemplated Maximum Credit may be exceeded at any time, in Bank's
sole discretion, and Borrowers shall nevertheless remain liable for
the repayment in full of all sums advanced by or to Borrowers by Bank,
together with interest, late charges, attorneys' fees and costs, if
any, as more fully set forth herein.
4. COLLATERAL
A. Eligible Accounts Receivable and Revenue Equipment. As security for
the Note and all advances made pursuant to this Agreement, and any
renewals, modifications, substitutions or extensions thereof, Crouse
herein grants to Bank a first lien on all of its Eligible Accounts
Receivable and a second lien (behind the first lien previously granted
by Crouse to Bank) on its Revenue Equipment, together with all
proceeds therefrom. The titles to the vehicles included within the
Revenue Equipment shall be physically delivered by Crouse to the
Commercial Savings Bank in Carroll, Iowa as agent for Bank, or such
other party as designated by Bank, and Bank (and/or its designated
agent) is herein granted a power of attorney to affix Bank's lien on
all such titles and file such liens of record in the event Borrowers
commit an Event of Default hereunder. Bank acknowledges that Crouse
will, in the ordinary course of its business, buy, sell or trade items
of Revenue Equipment and thus will be allowed access to such titles.
B. Bank Deposits, Bank shall at all times have a perfected first
security interest in and right of setoff against any and all deposit
Page 6
balances of Borrowers whether now existing or hereafter established,
and may at any time, after an Event of Default hereunder, without
notice, apply the same against payment of any obligations of Borrowers
to Bank, whether or not due regardless of the existence or amount of
any other security held by the Bank.
5. BORROWERS' REPRESENTATIONS AND WARRANTIES
To induce Bank to make Loans and advances hereunder, Borrowers represent
and warrant to Bank from the date of this Agreement and thereafter until all
Indebtedness of the Borrowers to Bank is paid in full that:
A. Borrowers' Authority. (1) Borrowers have full power, right, and
authority to make and execute this Agreement, and to borrow the funds
provided for in this Agreement; (2) the execution of this Agreement,
the Note, the Security Agreement and all other Loan Documents will not
conflict with any provision of law of Borrowers' articles of
incorporation or bylaws or any other organizational requirement, or
under any agreement or instrument to which Borrowers are a party or by
which Borrowers or any of their property may be bound or affected; (3)
the individual who, on behalf of each Borrower, executes and delivers
this Agreement, Note, Security Agreement and other Loan Documents is
authorized to do so and has provided to the Bank the appropriate
authorization evidencing same.
B. No Litigation. No material litigation or governmental proceedings are
pending or threatened against Borrowers and Borrowers have no material
liabilities, actual or contingent, not previously disclosed to Bank.
C. Lien For Bank. The lien of the Bank on the Eligible Accounts
Receivable shall be a first lien at all times during the term of this
Agreement and the lien of the Bank on the Revenue Equipment shall be a
second lien at all times during the term of this Agreement.
Page 7
D. No Other Liens. None of Borrowers' assets are subject to any
mortgage, pledge, encumbrance, or other lien, except as otherwise
disclosed to the Bank in writing.
E. Tax Returns. Borrowers have filed all federal and state income tax
returns which are required to be filed and has paid all taxes and
assessments which are due.
F. Financial Statements. All financial statements previously
delivered to Bank by Borrowers fairly present in all material respects
and accurately represent the financial condition of Borrowers as of
the respective dates thereof.
G. Year 2000 Compliance. Borrowers represent and warrant that they
will take all measures reasonably necessary to make their computer
hardware and software compliant with the year 2000. Borrowers
acknowledge that the failure to take such measures may seriously
impair or damage Borrowers' businesses.
H. Ownership of Collateral. Borrowers warrant that they own the entire
legal and beneficial ownership in all assets set forth in their
financial statements and in all Collateral Borrowers are furnishing to
Bank as security for the Loans hereunder, except as otherwise
disclosed to the Bank.
I. No Violation of Occupational Safety and Environmental Protection.
Borrowers are not in violation in any material manner of any federal,
state, county or city statutes, orders, rules or regulations
pertaining to occupational safety or environmental protection, nor do
Borrowers presently anticipate that future expenditures needed to meet
the provisions of existing federal, state, county or city statutes,
orders, rules or regulations will be so burdensome as to affect or
impair in a materially adverse manner Borrowers' financial conditions.
Page 8
J. Indemnification and Hold Harmless Obligation. Borrowers represent and
warrant that neither the Collateral given to Bank as security for the
Note, nor any other assets owned by Borrowers have been, or ever will
be, so long as the Note remains unpaid, used for the generation,
manufacture, storage, treatment, disposal, release or threatened
release of any Hazardous Substances, provided however, it is
understood that Crouse, in the ordinary course of its business, does
transport items which may be deemed Hazardous Substances. The
representations and warranties contained herein are based on
Borrowers' due diligence in investigating the collateralized
properties for Hazardous Substances. Borrowers hereby (i) releases
and waives any future claims against Bank for indemnity or
contribution in the event Borrowers become liable for cleanup or other
costs under any such laws; (ii) agrees that Bank may recover against
Borrowers to the full extent of any damages, claims or other
liabilities suffered by Bank as a result of the violation of any such
environmental laws, whether or not such violation occurred while the
Collateral was owned by a predecessor or successor in interest to
Crouse; and (iii) agrees to indemnify and hold Bank harmless against
any and all claims and losses resulting from a breach of this
provision of this Agreement, including reasonable attorney's fees and
expenses. This obligation to indemnify and hold Bank harmless shall
survive the payment of the Note.
K. Address of Borrowers. The addresses appearing on the signatory page
of this Agreement represent the chief executive offices of the
Borrowers.
L. No Material Damage To Collateral. The Collateral is not now
materially damaged or injured as a result of any uninsured fire,
explosion, accident, flood or other casualty.
Page 9
M. Collateral Not In Flood Zone. None of the Collateral is situated in
any federal or state designated flood zone.
6. AFFIRMATIVE COVENANTS
From the date of this Agreement and thereafter until all Indebtedness is
paid in full, Borrowers, will:
A. Accounting. Maintain a modern system of accounting in accordance with
GAAP.
B. Financial Statements. Furnish to Bank (i) within one hundred-twenty
(120) days of each fiscal year end, consolidated and unqualified
financial statements of Borrowers audited by an independent certified
public accountant acceptable to Bank in reasonable detail and dated as
of the immediately preceding fiscal year end, and prepared in
accordance with GAAP; (ii) within forty-five (45) days following the
end of each calendar quarter, a consolidated unaudited financial
statement of Borrowers which shall contain a balance sheet, statement
of income and retained earnings, and cash flow, each as of the end of
such calendar quarter; (iii) within forty-five (45) days following the
end of each calendar quarter, the 10-Q Report filed by TransFinancial
with the Securities and Exchange Commission; (iv) within thirty (30)
days following the end of each calendar quarter, a duly completed
Borrowing Base Certificate as of the end of such calendar quarter; and
(v) at such times as requested by Bank, a list of Crouse's inventory
and equipment, cash flow projections and such other information as the
Bank may reasonably request .
C. Access To Books and Collateral. At all times, keep proper books of
account in a manner satisfactory to Bank, and permit the Bank and its
agents access to the books, records, premises, assets and operations
of the Borrowers at all reasonable times.
D. Notification of Legal Proceedings. Notify the Bank promptly of any
Page 10
material litigation or legal proceedings involving the Collateral.
E. Insurance. Obtain such insurance or evidence of insurance as Bank may
reasonably require, including but not limited to, an all-risk policy
of casualty insurance, and such other hazard insurance in such amount,
form and substance as Bank may require with Bank named as loss payee
thereunder as it pertains to the Collateral and with standard waiver
of subrogation clauses, it being understood by Bank that Crouse self-
insures the first $100,000.00 of casualty damages. This insurance
shall be issued by such companies as shall be approved by Bank, and
the originals of such policies (together with appropriate endorsements
thereto, evidence of payment of premiums thereon and written agreement
by the insurers therein to give Bank 30 days prior written notice of
intention to cancel) shall be promptly delivered to Bank. This
insurance shall be kept in full force and effect at all times
hereafter until the Note has been paid in full.
F. Maintenance and Preservation of Collateral. At all times maintain,
preserve and protect the Collateral and keep the same in good repair,
working order and condition.
G. Payment of Obligations. Except as otherwise disclosed to and approved
by the Bank, Borrowers will at times during the term hereof pay all
obligations relating to the Collateral as they come due in the
ordinary course of business.
H. Collected Funds. At all times maintain in Borrowers' accounts at the
Bank collected funds sufficient to pay all items presented for payment
from such accounts and sufficient to pay service charges imposed by
the Bank. Borrowers agree to pay to Bank interest on any overdraft or
deficit balance in any such account at the rate set forth in the Note.
I. Submission of Environmental Reports. Promptly upon receipt thereof,
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Borrowers shall submit to Bank copies of any reports, inspections or
examinations conducted by the Iowa Department of Natural Resources or
the Federal Environmental Protection Agency, or any similar agency,
with respect to the assets of Borrowers.
J. Operating Accounts at Bank. Crouse shall maintain its primary cash
concentration accounts with Bank.
K. Tangible Net Worth. TransFinancial shall maintain at all times a
Tangible Net Worth of no less than $35,000,000.00.
L. Debt To Tangible Net Worth Ratio. TransFinancial shall maintain at
all times a Debt to Tangible Net Worth Ratio no greater than
1.00:1.00.
M. Current Ratio. TransFinancial shall maintain at all times a Current
Ratio of not less than 1.25:1.00.
N. New Entities. Borrowers shall not make any material sales or
transfers of their assets to any new or existing entities without
prior written approval from the Bank.
O. ERISA Compliance. Borrowers shall meet their minimum funding
requirements under the Employee Retirement Income Security Act of 1974
(ERISA), as amended, with respect to any employee benefit plan or
other class of benefit plan, which the Pension Benefit Guaranty
Corporation, established under ERISA (PBGC) has elected to insure, in
either case, whether now in existence or hereafter instituted by
Borrowers.
7. NEGATIVE COVENANTS
From the date of this Agreement and thereafter until all Indebtedness is
paid in full, Borrowers will not, without the prior written consent of the Bank:
A. Grant Liens. Pledge, mortgage, lease or otherwise encumber, or permit
any lien to exist on the Collateral, except as may exist and be
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reflected on the financial statements provided at the time of this
Agreement.
B. Sell Assets Out of Ordinary Course. Sell, lease or otherwise dispose
of any part of Borrowers' real or personal property other than in the
ordinary course of Borrowers' business.
C. Dividends. Declare and/or distribute in cash or other assets any
dividends on Crouse's outstanding stock, or redeem any of Crouse's
outstanding stock, without Bank's prior approval.
D. Sale, Change In Control, Merger, Etc. Suffer or permit majority
control of Borrowers to be sold, assigned or otherwise transferred, or
allow a material change in the executive officers of Borrowers, or
merge or consolidate with any entity or enterprise.
E. No Other Guaranties. Grant guarantees to any other financial
institutions or entities without the Bank's prior approval, which
shall not be unreasonably withheld, except that those guarantees which
TransFinancial is required to make on behalf of its subsidiary,
Universal Premium Acceptance Corporation, to Bank Boston, and except
for any other guarantees which collectively do not exceed
$1,000,000.00, shall not require the Bank's prior approval.
8. CONDITIONS OF BANK'S OBLIGATIONS
Bank's obligations to perform hereunder shall be subject to satisfaction of
the following conditions on or before closing:
A. No Breach of Covenants. Borrowers shall have substantially performed
all agreements required to be performed, and shall not be in any
material breach of any covenant, agreement, representation or warranty
made herein or in any other Loan Document.
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B. No Default. No Event of Default and no event or condition which, with
notice or the lapse of time, or both, would constitute an Event of
Default, shall exist.
C. No Material Change in Financial Condition. Borrowers shall not have
incurred any material liabilities, direct or contingent, other than in
the ordinary course of business, since the date of the last financial
statement given to Bank by Borrowers.
D. Insurance. Crouse shall have obtained hazard or fire and extended
coverage insurance (and flood insurance if the Collateral is located
in a flood zone) on the Collateral, issued by a company or companies
approved by Bank and in amounts acceptable to Bank which policy or
policies shall name Bank as loss payee as it pertains to the
Collateral under a standard loss payee clause, and Bank shall also
have been provided with such additional policies of insurance as Bank
may reasonably require insuring against such risks and in such amounts
as are customarily carried by like businesses operating in the same
vicinity.
E. Reimbursement of Bank's Expense. The payment by Borrowers of all out-
of-pocket expenses incurred by Bank and any participants in making and
administering this Loan, including, without limitation, all costs of
appraisals, attorneys' fees and expenses, filings and recordings.
F. Authorized Action. Receipt by Bank of a duly executed certificate
from Borrowers authorizing the borrowings and the execution of the
various Loan Documents contemplated by this Agreement.
G. Legal Opinion. Receipt by Bank of an opinion from Borrowers' legal
counsel to the effect that (i) Borrowers each are corporations duly
organized, validly existing and in good standing under the laws of the
state of their incorporation and to the best of such counsel's
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knowledge and belief, are duly qualified and in good standing as a
foreign corporation authorized to do business in Iowa (if not
incorporated in Iowa) and in each state where, because of the nature
of its activities or properties, such qualification is required; (ii)
Borrowers have full power to execute and deliver the Note and other
Loan Documents, and to perform their obligations under this Agreement
and such Loan Documents; (iii) such actions have been duly authorized
by all necessary corporate action, and are not in conflict with any
provision of the law or of the articles of incorporation or bylaws of
Borrowers, nor in conflict with any agreement binding upon Borrowers
of which such counsel has knowledge; and (iv) this Agreement and the
other Loan Documents are the legal and binding obligations of
Borrowers, enforceable in accordance with their terms.
H. Loan Documents. Receipt by Bank of the Note, Security Agreement and
other Loan Documents duly executed by an authorized officer of
Borrowers.
I. Borrowing Base Certificate. Crouse shall have delivered to Bank a
duly completed Borrowing Base Certificate.
9. EVENTS OF DEFAULT
If any of the following events occur, the Bank may, at its option, without
notice or demand, except as otherwise specifically provided, declare the entire
Indebtedness of Borrowers to Bank immediately due and payable.
A. Late Payment. Any payment of principal or interest due under the
terms of any Note is not made on the due date and such default
continues unremedied for five (5) days after written notice thereof
shall have been given to Borrowers by Bank.
B. Misrepresentation. Any representation or warranty made by Borrowers
in this Agreement shall prove to be materially incorrect or untrue, or
any statement, report or writing furnished by Borrowers to the Bank is
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untrue in any material aspect.
C. Breach of Covenants. Borrowers materially fail to perform or observe
any term, covenant or condition of this Agreement and such failure is
not remedied or corrected within ten (10) days after written notice
thereof shall have been given to Borrowers by Bank.
D. Breach Under Other Loan Documents. Any breach of any provisions
contained in the Note or any other Loan Documents and such breach is
not remedied within ten (10) days after written notice thereof shall
have been sent to Borrowers by Bank.
E. Bankruptcy, Etc. If either Borrower becomes insolvent or bankrupt or
makes an assignment for the benefit of creditors, or is petitioned
into bankruptcy, either voluntarily or involuntarily.
F. Adverse Impairment in Collateral. Bank's interest in the Collateral
is adversely impaired in any manner, and Crouse is unable to remedy,
to the Bank's satisfaction, such adverse impairment within 30 days
after written notice from the Bank.
10. REMEDIES
Upon the occurrence of a Default (it being understood that a Default under
any Note shall constitute a Default under all Notes), the Bank may, after
expiration of any notice period referenced above (it being understood that in
regard to the Events of Default described in Paragraphs 9 (C), 9 (D) or 9 (F),
if any such default cannot reasonably be cured within such grace period, as
solely determined by Bank, the period of time within which to cure such default
shall be extended for such reasonable time as is necessary to cure such default,
as long as Borrowers promptly, diligently and continuously act to cure such
default), (it being further understood that Borrowers shall not be entitled to
any grace period or notice prior to acceleration if the Bank reasonably and in
good faith believes that the granting of such grace period or notice would
jeopardize Bank's lien position) declare the unpaid principal balance and
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interest on the Note(s) immediately due and payable, together with any other
debt owed by Borrowers to Bank, and all such principal, interest and other debt
shall thereupon be immediately due and payable in full. The Bank shall
thereupon have all remedies set forth herein and in the Note and any other Loan
Documents, and all remedies otherwise available to a secured creditor under the
Uniform Commercial Code of Iowa.
11. MISCELLANEOUS
A. The Bank As Attorney-In-Fact. In the event of a Default, Borrowers
hereby appoint Bank to be Borrowers' attorney-in-fact, without
requiring the Bank to act as such, for the purpose of carrying out the
provisions hereof and taking any action and executing any document or
instrument which the Bank may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-fact
is irrevocable and coupled with an interest. Without limiting the
generality of the foregoing, Bank shall, as attorney-in-fact of
Crouse, have the right to receive, collect and endorse all vehicle
titles, checks, drafts or other remittance made payable to Course, or
Crouse's order, representing any payment on account of any of the
Collateral and to give full discharge therefor.
B. Waiver Not Binding. Any waiver of any default by Bank is not a waiver
of any subsequent default. Further, no delay on the part of the Bank
in the exercise of any power or right shall constitute a waiver
thereof, nor shall any single or partial exercise of any power or
right preclude other or further exercise thereof.
C. Notice. Any notice hereunder to Borrowers shall be in writing, and
shall be deemed to be given on the date delivered, personally, or on
the date when mailed by ordinary mail, postage prepaid, or by
facsimile and addressed to the Borrowers as appearing on the signature
page of this Agreement, or at such other address as the Borrowers may,
by written notice received by the Bank, designate as the Borrowers'
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addresses for purposes of notice hereunder.
D. Governing Law. This Agreement, the Note, the Security Agreement and
all other Loan Documents shall be covered in all respects by the laws
of the State of Iowa. A determination that any provision of this
Agreement is unenforceable or invalid shall not affect the validity or
enforceability of any other provision.
E. Enforcement in Iowa. Borrowers acknowledges that this Agreement is
being entered into by the Bank in partial consideration of Bank's
right to enforce in Iowa the terms and provisions of this Agreement
and the Loan Documents. Borrowers consents to jurisdiction in Iowa
and construction of this Agreement under the laws of the State of
Iowa. Borrowers waives any right to commence any action against the
Bank except in Iowa.
F. Term of Agreement. The term of this Agreement shall coincide with the
terms of the Note executed by Borrowers in favor of the Bank, as
modified, extended, substituted, renewed or until all Indebtedness is
paid in full and any commitment to extend credit has terminated.
G. Incorporation of Commitment Letter. The terms and conditions of the
Commitment Letter are incorporated herein. If any inconsistency
exists between the Commitment Letter and this Agreement, this
Agreement shall control.
H. Assignment. This Agreement shall not be assigned by Borrowers without
the written consent of the Bank.
I. Participation. The Bank may enter into participation agreements with
other financial institutions with regard to any Indebtedness of
Borrowers, provided, however, Bank shall remain the lead bank in any
such participations.
J. Successors and Assigns. This Agreement shall be binding upon
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Borrowers' successors and assigns.
K. Additional Documents. Borrowers agrees to execute and cause to be
executed such additional documents as the Bank may require in order to
effectuate the terms of this Agreement. All documents shall be on the
Bank's standard forms for the same or forms otherwise acceptable to
Bank.
L. Conflict in Documents. In the event of a conflict between the terms
and conditions of this Agreement and those of any other documents
pertaining to Borrowers' Indebtedness to Bank, the terms of this
Agreement shall be controlling.
M. Survival of Representations and Warranties. All representations,
warranties, covenants, and agreements of Borrowers herein shall
survive the execution and delivery of this Agreement and shall be
deemed continuing until the Indebtedness is paid in full to the Bank
and any commitment to extend credit has terminated.
N. Release of Bank. Borrowers hereby release and forever discharge Bank
and any participants, their officers, directors, employees,
shareholders, agents and representatives from all claims or causes of
actions of every kind or character, known or unknown, without limit,
which Borrowers allegedly may have as of the date of this Agreement.
O. Collection Costs. If Bank hires an attorney to assist in
collecting any amount due or enforcing any right or remedy under this
Agreement, the Note, the Security Agreement or any other Loan
Document, Borrowers agree to pay the reasonable attorney fees and
expenses incurred by Bank.
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IMPORTANT - READ BEFORE SIGNING, THE TERMS OF THIS AGREEMENT SHOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS
OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED.
YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.
Borrowers warrant that they have received a copy of this Agreement and
further state that they understand fully the terms and conditions described
herein.
BANKERS TRUST COMPANY
Steven D. Simon, Vice President
P.O. Box 897
665 Locust Street
Des Moines, Iowa 50304-9987
"BANK"
TRANSFINANCIAL HOLDINGS, INC.
Timothy P. O'Neil, Chief Executive Officer
"TRANSFINANCIAL"
CROUSE CARTAGE COMPANY
By:
Mark A. Foltz, Secretary
"CROUSE"
"BORROWERS"
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