UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ___________________ to _____________________
Commission file Number 33-29985-NY
THE FREIGHT CONNECTION, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 8980 11-2994672
---------------------- ---------------------------- ----------------
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
12900 DUPONT CIRCLE, TAMPA, FLORIDA 33626
-----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (813) 854-1500
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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, and (2) has been subject to 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. [X])
As of March 25, 1999, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $ 546,975
As of March 25, 1999, the number of shares of Common Stock outstanding was
4,825,630
<PAGE>
THE FREIGHT CONNECTION, INC.
REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
PART I
Item 1. Business.............................................................3
Item 2. Properties..........................................................10
Item 3. Legal Proceedings...................................................10
Item 4. Submission of Matters to a Vote of Security Holders.................10
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters...............................................11
Item 6. Selected Financial Data............................................ 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................13
Item 8. Financial Statements and Supplementary Data.........................16
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..........................................16
PART III
Item 10. Directors and Executive Officers of the Registrant;
Compliance with Section 16(a) of the Exchange Act.................17
Item 11. Executive Compensation..............................................18
Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................................20
Item 13. Certain Relationships and Related Transactions......................21
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..........................................................22
Signatures...................................................................24
2
<PAGE>
Item 1. BUSINESS
THE COMPANY: ORGANIZATION AND CHANGES OF CONTROL
The Company was organized under the laws of the State of Delaware on
December 16, 1987, under the name Taylor Equities, Inc. ("Taylor"). The Company
was formed as a "blank check" company, with its sole purpose being to offer its
stock to the public in a public offering and thereafter use the proceeds to find
an acquisition or merger candidate. On December 23, 1991, Taylor entered into an
Agreement and Plan of Merger (the "Merger Agreement") with The Freight
Connection, Inc., ("FCI") a Florida corporation organized in October 1983
("FCI") by Michael Jackson, former President of the Company, under the name
"Expert Freight of Tampa, Inc." FCI was organized as an intermodal marketing
company and carried on that business until its combination with Taylor, when FCI
was dissolved. The Company's name was changed from Taylor Equities, Inc., to The
Freight Connection, Inc., and the officers and directors of FCI became the
officers and directors of the Company.
On July 14, 1993, Vitran Corporation Inc. ("Vitran"), a corporation
organized under the laws of the Province of Ontario and having a principal place
of business at 70 University Avenue, Suite 350, Toronto, Canada, M5J 2M4,
acquired 3,218,030 shares of the Company's Common Stock. During 1997, Vitran
purchased an additional 700,000 shares of the Company's common stock, changing
its ownership to 3,918,030 shares, or 81.19% of the Company's outstanding common
stock. Vitran is a North American multi-divisional operating company providing
services to the freight and environmental industries with over 2,400 employees
at over one hundred locations in Canada and the United States. Vitran's
Distribution Services Group, of which the Company is a part, provides a complete
range of services for the movement of freight throughout the continent,
utilizing both highway and rail modes. Services include less than truckload,
full load, dedicated contract carriage, warehousing and inventory management.
Vitran solicits business between the United States and Canada as an agent for
the Company through a Vitran sales office in Toronto. Vitran and the Company
have an agreement that all intermodal trans-border rail shipments shall be
written by the Company, with Vitran's receiving an agency commission from the
Company for such business. Trans-border over-the-road shipments may be made by
the Company or other Vitran subsidiaries, depending on the type of service
required by the shipper of such freight. Each shipper has unique requirements
for the movement of its freight, including time, shipment size and volume, and
the shipper's inventory carrying costs. Vitran's common stock is traded on the
Toronto Stock Exchange under the symbol VTN.A and on NASDAQ under the symbol
VTNAF. See Item 13 of this Report.
In May, 1998, Vitran transferred its ownership in The Freight Connection, Inc.
to Vitran Corporation, a U.S. holding company organized in the state of Nevada.
The purpose of this transaction was to have common ownership for Vitran's
various U.S. subsidiaries, all of which are owned by the Nevada corporation.
3
<PAGE>
THE INTERMODAL AND HIGHWAY BROKERAGE INDUSTRY
The Company provides intermodal transportation services and operates as
an intermodal marketing company ("IMC"). Intermodal transportation involves the
movement of freight by more than one mode of transportation, principally by
truck or a combination of truck and rail. The Company also has a highway
brokerage division, which involves the movement of freight by truck.
For freight moving in excess of 500 miles, intermodal shipping
often represents a cost-effective alternative to over-the-road trucking. The
Company includes as its target market freight which is currently being shipped
via intermodal transportation as well as freight moving in excess of 500 miles
via for-hire trucking companies and private trucking fleets. Intermodal freight
is divided equally into shipments generated domestically and those generated by
the import/export market, with international movements slightly exceeding
domestic traffic. Traditionally, the domestic shipments have been long-haul
truck movements, principally truckload. Intermodal has primarily attracted
long-haul freight of 700 miles to 1,000 miles or more; in some corridors,
intermodal can be cost effective for distances as short as 500 miles.
During the 1980's and 1990's, the United States rail industry
experienced substantial consolidation through the merger of several railroads.
This consolidation continued in 1998 with the Norfolk Southern and CSX railroads
splitting the assets of CONRAIL. The larger railroads disposed of less
profitable short lines, allowing the railroads to invest heavily to upgrade
roadbeds, increase tunnel clearances, build larger intermodal terminal
facilities and improve their equipment and technologies. These improvements
helped to reduce transit times and improve service, reduced freight and
equipment damage, and allowed for greater efficiencies through the cross-country
movement on double stack container trains. Intermodal became even more
competitive over this same period due to higher operating costs for the
long-haul for-hire trucking companies, particularly for shipments travelling
long distances.
IMCs have created additional opportunities for intermodal shipping by
providing a full door-to-door service to their clients at a price and service
level that would not be available to the shipper on its own. IMCs assist the
railroads in balancing freight originating in or destined to specific geographic
regions, resulting in improved asset utilization. IMCs provide value to shippers
by passing on certain economies of scale by being volume purchasers of rail and
drayage service, providing access to a large equipment pool, consolidating each
carrier's invoice into one single invoice and handling the logistics of an
intermodal move.
During the latter part of 1997, continuing into 1998, there were
several service issues surrounding the railroads, which made highway brokerage
an increasingly viable alternative in order to ensure on-time delivery to
customers. Due to these service issues, highway brokerage has been gaining
increased market share and the Company has expanded its highway brokerage
division in order to remain competitive and to provide its customers with
various transportation solutions. Highway brokerage represented 18.3% of the
Company's revenues in 1998, compared to 9.8% in the previous year.
4
<PAGE>
Although the transportation industry is continuing to grow, the rate of
growth in 1998 has declined from the previous year. According to statistics
reported by the Intermodal Association of North America, ("IANA") intermodal and
truck revenue for the year ended December 31, 1998, rose by $256 million or 5.4%
over 1997 (2), compared to a growth rate of 14.5% between 1996 and 1997 (1). For
the year ended December 31, 1998, truck revenue increased by 15.5% and
intermodal revenue decreased by 5.5% compared to the prior year (2). Truck
revenue growth was 34.8% and intermodal revenue growth was 5.9% between 1996 and
1997. (1)
Historically, establishing an IMC was easy because of the low capital
cost required to enter the carrier business. However, in the last few years the
railroads have restricted the number of IMCs with which they will enter into
wholesale contracts. They increasingly deal only with those that can deliver
certain volumes, and have in most cases required the posting of financial
guarantees before they will extend credit. In addition, market conditions
require that an IMC be able to demonstrate to carriers and shippers its ability
to interface with customers and carriers electronically. These requirements
limit the ability of start-up IMCs to enter the market and may force small IMCs
out of the market if they are unable to continue to meet these requirements. The
Company believes that this trend will be advantageous to the Company. The
Company believes that its financial resources, staff, and computer hardware and
software are sufficient to offer substantially the same or better services than
any of its competitors, and that the Company is able to compete effectively with
any other company engaged in its business.
OPERATIONS
The Company's services include the tracking of its customers' freight
in-transit, the daily reporting through electronic means of each load's status,
expediting each shipment to ensure it meets its schedule, and the consolidation
of all freight bills within a movement into a single door-to-door invoice,
regardless of how many carriers are utilized. The Company contracts with all
major North American railroads along with drayage carriers and independent stack
train operators. These contracts provide for volume discounts, the ability to
negotiate special commodity pricing and in some instances early payment
incentives in the form of rebates.
The Company believes that a primary component of its business strategy
is the continued improvement of its software and other technology to enhance its
information processing for its intermodal transportation services. The Company
believes that a significant portion of its future growth will depend on its
information technology and accordingly it continues to concentrate in this area.
The Company has several customers online with full electronic data interchange
of information from a shipment's original loading through delivery at
destination.
The Company is primarily a provider of intermodal and highway brokerage
transportation services, yet it continues to expand its service capabilities as
customers increasingly outsource their transportation needs. The Company now
performs logistics functions for a small number of its clients and intends to
expand its logistics capabilities and offer new or additional services to meet
or exceed customer demands. These logistics functions include a more
comprehensive transportation management program, third party warehousing,
arranging for delivery to multiple locations over several states and other
customized logistics services.
- -------------------
(1) IANA IMC Market Activity Report, Intermodal Association of North America,
February 1998.
(2) IANA IMC Market Activity Report, Intermodal Association of North America,
February 1999.
5
<PAGE>
THE COMPANY'S CARRIER VENDORS
An important element of the Company's strategy is to continue to build
and strengthen its close working relationship with each of the major intermodal
railroads in the United States, Canada and Mexico. The Company has contracts
with each of the following Class 1 railroads:
BNSF Illinois Central
Norfolk Southern Union Pacific/Southern Pacific
Conrail APL Stacktrain Service
CSX Transportation Canadian National
Canadian Pacific
These contracts govern the terms of transportation with each railroad,
which include payment terms and the various services to be provided by each
rail. The Company negotiates with each railroad in an effort to provide the best
quality service at a favorable price to its client base. These contracts usually
have staggered renewal dates at which time the Company revisits its volume with
that rail and seeks to establish even more favorable contracts for the
continuing years, including rebates for volume shipments. The Company is also
able to negotiate special commodity pricing which provides price discounts on
certain commodities based on competitive factors. The special pricing quotations
are designed, in part, by the railroads to attract new business that the
railroads have not previously handled. In addition, certain of these railroads
offer rebates for fast payment of their invoices.
The Company also sees its local cartage ("drayage") and over-the-road
carrier base as an integral part of its operations, since the Company's ability
to perform on-time pick up and delivery of product is partially based on the
level of service provided by these carriers. Accordingly, the Company has
programs in place which monitor the performance of each of its carriers. Service
reports are generated monthly and forwarded to each carrier, at which time, if
service failures have occurred, a corrective action is taken by both the Company
and the carrier to improve service levels. The Company's data base of carriers
is maintained and updated regularly to ensure that only approved carriers with
adequate insurance are available for use. The Company continues to seek out
quality carriers throughout North America to enhance its ability to provide
faster service and facilitate the Company's expansion.
THE COMPANY'S CUSTOMERS
The Company significantly diversified and increased its customer base
in 1998. This was accomplished primarily through the opening of new offices (see
"Sales and Marketing," below). The Company performs credit checks on all
potential customers to ensure that they are credit worthy and are able to meet
the payment terms established by the Company.
6
<PAGE>
The Company has transportation agreements with various companies to
perform substantial portions of their transportation needs on agreed-upon
pricing terms for specified routes. Many of these agreements are verbal and
non-binding. Others are binding and in written form, but are cancelable on short
notice. All of the Company's agreements are based upon the Company's price
quotes as accepted by its customers. The quotation document sets forth all of
the terms of the agreement between the parties and includes a liability
disclaimer (see "Liability Issues," below). Quotation documents establish
pricing and delivery terms of freight, and are often used by shippers on a
continuous basis. All agreements based on the Company's written quotations can
be cancelled by either party at any time prior to shipment without penalty.
Many of the Company's customers in the automotive, scrap metal, food
services, retail and spirit industries operate within a multi-divisional
environment. The Company does business with more than one division of several of
its principal customers, and is dependent on the various divisions of such
companies for a substantial portion of its business. As its agreements with
those customers are made on a divisional rather than a corporate basis,
management believes it is not likely that the Company would lose all of the
business of any of its principal customers if it were to lose the business of
any one of their divisions.
During the year ended December 31, 1998, the Company had sales to
various divisions of one major customer, an automobile manufacturer, which
amounted to 43% of total sales, down from 61% in the prior year. The Company
conducts its business with this customer on a multi-divisional basis and the
percentage provided in the preceding sentence is for the aggregate of all
divisions of this customer. The Company has separate agreements with each
division and the percentage of business represented by each division is
substantially less than the corporate aggregate. The maximum percentage of sales
by any one division is approximately 5% of the Company's total sales.
SALES AND MARKETING
The Company believes that developing long-term relationships with its
client base is crucial to its continued growth. By developing these long-term
relationships, the Company is able to better understand its customers' needs and
is then able to customize its services to each client. The Company has an
extensive database of existing and potential new clients to which it continually
markets its services.
The Company undertakes a variety of marketing initiatives, including
the use of direct surveys on a client-by-client basis to determine new or
additional customer needs and meet the demand. An approach to a new client
generally involves the assessment of that customer's transportation
requirements. In making its analysis, the Company reviews the customer's
business patterns and determines if the customer is maximizing its
transportation dollar. The Company also seeks to integrate itself into the
customer's environment to determine if there are additional logistic services
the Company can provide. The objective of the Company's analysis is to market
the Company's services by presenting to the customer a program of reducing the
customer's overall costs while offering the customer a superior level of
transportation service.
The Company regularly surveys its customers in order to continually
receive evaluations of the Company's performance, keep abreast of customer
needs, and develop leads for new business.
7
<PAGE>
In an effort to further the Company's national exposure, the Company
opened sales offices in Atlanta, Georgia, and Los Angeles, California during
1996, and San Francisco, California, Minneapolis, Minnesota and two offices in
Chicago, Illinois during 1998. In addition, the Company utilizes a combination
of outside commissioned sales agents and internal marketing staff to support its
sales efforts. The Company's commissioned agents are located in major geographic
locations across North America. A unit of Vitran based in Concord, Ontario,
Canada represents the Company as its Canadian agent. Each outside sales person
receives a commission based on a percentage of the gross profit generated on
each movement. The Company is striving to develop commission sales agreements in
all major markets within North America.
In November 1996, the Company obtained its ISO-9000 certification,
which the Company believes will assist its national and international sales
efforts. ISO-9000 is a series of international standards for quality management
systems.
COMPUTER SYSTEMS
The Company has invested in the purchase and development of computer
programs that provide pertinent tracking information to its customers on a daily
basis. The Company has also helped develop for its own use a program which
allows for the integration of scheduling, pricing and quotations, routing,
dispatch, tracing, billing and accounting systems for its internal operations.
With the Company's computer systems capability described in the
preceding paragraph, the Company can advise its customers on a regular basis of
the exact location of any shipment. Every customer receives a daily shipment
tracking report, which provides the location of each shipment in transit within
the United States, Mexico and Canada. This technology permits the Company to
solve problems with customers' shipments in many instances before they cause any
delay to the shipper.
All of the Company's offices are networked into the system so that
up-to-date information is always available for the customers of each location.
The Company uses both in-house and external trained computer
technicians who support the system on an on-going basis. They make the necessary
modifications and enhancements to the system to ensure that the Company is
up-to-date on the latest technological advancements. In addition, they are able
to customize programs to meet specific customer reporting requirements.
LIABILITY ISSUES
Brokers such as the Company do not generally assume liability for loss
or damage to freight. Since the Company operates as a transportation broker
(that is, a company that finds a carrier to haul a shipper's freight) of
property and a shipper's agent, it does not take possession of the freight and
is therefore not liable for the carrier's failure to perform or the carrier's
negligent performance. The Company has a liability disclaimer as a part of each
freight agreement signed with its customers. This liability disclaimer sets
forth the Company's legal responsibilities and states that since the Company is
acting as a transportation intermediary and not a carrier, it will not be liable
for loss or damage resulting from the transportation of freight.
8
<PAGE>
Although as a broker it is not responsible for loss of or damage to
freight, the Company will assist the shipper as its agent in the claim
collection process. The Federal Highway Administration does not require a broker
to carry cargo insurance, but it does require a broker's surety bond of $10,000,
the purpose of which is to show financial responsibility and provide surety for
arrangements with carriers and shippers.
COMPETITION
The transportation services industry is highly competitive. The Company
competes against other IMCs, as well as brokers of freight, logistic service
companies and with railroads that attempt to market their own intermodal
services. The Company also competes with over the road carriers who have entered
the intermodal market by converting their long-haul traffic to intermodal.
Competition is based primarily on freight rates, quality of service, reliability
and transit times.
The Company competes with several other IMCs, such as The Hub Group,
Mark VII Transportation, AP Distribution, Alliance Shippers, GST Corporation,
and numerous small regional and local firms. Many of these firms have larger
gross revenues than the Company, however the Company believes that it is an
established IMC able to meet the requirements of railway carriers and shippers
and that it is competitive with the largest IMCs. With the trend towards further
consolidation in the industry, the Company believes that its financial stability
and its continual investment in information systems will uniquely position the
Company for continued growth both through external sales development and the
possible acquisition of other IMCs.
EMPLOYEES
As of the date of this Report, the Company has 35 full-time employees
engaged in performing executive, administrative, marketing and clerical duties.
These employees are located in each of the offices, with the majority of the
administrative duties being performed from the Tampa, Florida headquarters.
Management intends to add employees throughout the coming year, as it deems
necessary, in order to provide continuous quality service.
EXECUTIVE OFFICERS OF THE REGISTRANT
As of the date hereof, there are two executive officers of the Company.
Richard E. Gaetz serves as the Chief Executive Officer of the Company and has
served in that capacity since October 11, 1996. Geoff Duncan serves as the
President of the Company. He has served in that capacity since April 1, 1998,
replacing Richard Gaetz in that position. Prior to that date, Mr. Duncan served
as the Executive Vice President and Chief Operating Officer of the Company. For
information as to Mr. Gaetz and Mr. Duncan's prior business experience, see Item
10 of this Report.
ENVIRONMENTAL MATTERS
The Company does not believe that compliance with federal, state and
local laws and regulations, which have been enacted or adopted regulating the
discharge of materials into the environment, will have any material adverse
impact upon the capital expenditures, earnings, or competitive position of the
Company.
9
<PAGE>
Item 2. PROPERTIES
The Company's corporate headquarters are located in Tampa, Florida. The
Company leases approximately 5,000 square feet at 12900 Dupont Circle, Tampa,
Florida in a lease expiring February 28, 2000. The annual rent for this space
was $43,032 for the year ended December 31, 1998. At the expiration of this
lease, the Company will re-evaluate its space needs and determine whether to
move to a larger facility or renew its existing lease arrangement.
The Company entered into a three-year lease with a Vitran subsidiary
for office space in Atlanta, Georgia on May 10, 1997. Rent expense incurred
under this lease for the year ended December 31, 1998, was $5,000. Due to the
expansion of the highway brokerage division in Atlanta, Georgia, the Company
cancelled this lease in May, 1998 and rented a larger facility under a lease
expiring June 30, 2001. Rent expense under this lease was $13,792 for the year
ended December 31, 1998.
The Company renewed a one-year lease on December 1, 1998, for an
executive suite in Los Angeles, California. This lease will be reviewed at the
end of its term to determine if additional space is required. Rent expense under
this lease for the year ended December 31, 1998, was $32,280.
The Company leased space in three new locations in 1998. In February
1998, the Company signed a two- year lease in San Francisco, California. In June
1998, the Company signed a one-year lease in Chicago, Illinois. The Company
leased on a month to month basis, an office in Minneapolis, Minnesota beginning
in June 1998. Rent expense incurred for these three leases for the year ended
December 31, 1998, was $8,850, $4,400 and $5,600, respectively.
The executive offices and the accounting offices are located in the
Tampa, Florida headquarters. All other offices are sales offices with operations
support.
Item 3. LEGAL PROCEEDINGS
As of the date of this Report, and for the fiscal year covered by this
Report, the Company was not a party to any material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fiscal
year covered by this Report.
10
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is quoted on the NASD electronic bulletin
board and in the "pink sheets" under the symbol FTCN. There has never been an
active trading market for the Company's Common Stock, nor does one now exist.
The National Quotation Bureau, Inc., has advised the Company that the
following bid quotations have been reported
BID PRICES
-------------
PERIOD HIGH LOW
------ ---- ---
January 1 - March 31, 1997. .75 .63
April 1 - June 30, 1997 1.38 .50
July 1 - September 30, 1997 .88 .75
October 1 - December 31, 1997 .75 .63
January 1 - March 31, 1998. .69 .56
April 1 - June 30, 1998 .75 .69
July 1 - September 30, 1998 .75 .63
October 1 - December 31, 1998 .63 .38
Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission. Such quotes are not necessarily representative of
actual transactions, or of the value of the Company's securities, and are in all
likelihood not based upon any recognized criteria of securities valuation as
used in the investment banking community.
The Company has been advised that 8 member firms of the NASD are
currently acting as market makers for the Common Stock. However, there are no
meaningful trading transactions currently for the Company's stock, nor have
there ever been any such transactions. The Company believes that the absence of
such transactions is due in substantial part to its shares of Common Stock being
held by few individuals. There is no assurance that an active trading market
will develop which will provide liquidity for the Company's existing
shareholders.
Neither the Company's certificate of incorporation, its by-laws, nor
any agreement to which it is a party restricts the payment of dividends.
However, a loan agreement established between Republic Bank, St. Petersburg,
Florida, and the Company contains certain covenants concerning the Company's net
worth and ratio of debt to net worth. Payment of dividends could be restricted
if such payment would cause the Company to violate either of these covenants.
The Company has not paid any dividends on its Common Stock.
As of March 24, 1999, there were 28 holders of record of the Company's
Common Stock. Certain of the shares of Common Stock are held in "street" name
and may, therefore, be held by several beneficial owners.
11
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following data illustrates the results of operations for the years
ended December 31, 1996, 1997 and 1998, respectively. The data has been derived
from and should be read in conjunction with, the Company's Financial Statements
and related notes included elsewhere in this Report. All data has been derived
from the Company's audited financial statements.
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER DECEMBER DECEMBER
(000's omitted) 31, 1996 31, 1997 31, 1998
------------------------------------------------------------------
Freight income $22,173 $26,333 $28,094
Freight expense 20,184 23,947 25,480
------- ------- -------
Gross profit 1,989 2,386 2,614
Selling, general and
administrative expenses 1,486 1,673 2,299
Depreciation and
amortization 62 69 73
------- ------- -------
Income (loss) from operations 441 644 242
------- ------- -------
Other income (expenses) 10 21 60
------- ------- -------
Income (loss) before taxes 451 665 302
------- ------- -------
Income tax expense 180 200 125
------- ------- -------
Net income (loss) $ 271 $ 465 $ 177
======= ======= =======
Net income (loss)
per share $ .06 $ .10 $ .04
======= ======= =======
FINANCIAL POSITION
------------------
Working capital $ 1,405 $ 1,899 $ 2,059
Total assets $ 3,759 $ 4,657 $ 5,128
Stockholders' Equity $ 1,698 $ 2,163 $ 2,340
12
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Financial Statements appearing elsewhere in this Report. The
information which follows includes results of the years ended December 31, 1996,
1997 and 1998, respectively.
FORWARD-LOOKING STATEMENTS
Except for the historical statements and discussions contained herein,
statements contained in this report constitute "forward-looking statements" as
defined in the Securities Act of 1933 and the Securities Exchange Act of 1934,
as amended. These forward-looking statements rely on a number of assumptions
concerning future events, and are subject to a number of risks and uncertainties
and other factors, many of which are outside the control of the Company, that
could cause actual results to differ materially from such statements.
Readers are cautioned not to put undue reliance on such forward-looking
statements, each of which speaks only as of the date hereof. Factors and
uncertainties that could affect the outcome of such forward-looking statements
include, among others, market and industry conditions, increased competition,
changes in governmental regulations, general economic conditions, pricing
pressures, and the Company's ability to continue its growth and expand
successfully into new markets and services. The Company disclaims any intention
or obligation to update publicly or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
LIQUIDITY AND CAPITAL RESOURCES
The Company has increased its working capital from $1,899,316 at
December 31, 1997, to $2,059,341 at December 31, 1998, an increase of 8.4%.
During 1998, the Company used working capital to expand its operations by
opening sales offices in San Francisco, California, Minneapolis, Minnesota and
two offices in Chicago, Illinois. One of the offices in Chicago was established
as a Midwest Highway Brokerage office.
The cash position of the Company at December 31, 1998, was $515,125
compared to $1,285,929 at December 31, 1997. During the latter part of 1998, the
Company's cash was severely impacted by untimely customer payments. The Company
added a significant number of new accounts during 1998, primarily due to the
opening of the new sales offices. Many of these customers have specific
documentation requirements, which must be met in order for the customer to
release payment for a load. There was a delay in receiving payment from these
customers mainly due to the difficulty the Company faced in obtaining the
necessary information from the Company's vendors. As of the date of this Report,
the Company has fulfilled all the requests and is continuing to collect these
payments. Procedures have since been established to obtain the required
paperwork on a timelier basis, which should improve cash collection
significantly.
The accounts receivable balance at December 31, 1998, was $4,248,718,
an increase of $1,222,780, or 40.4% from December 31, 1997. The accounts payable
balance at December 31, 1998, was $2,788,222, an increase of $362,705 or 15.0%,
from the prior year. Generally, as revenues increase, accounts receivable and
accounts payable will also increase. The large increase in the accounts
receivable balance in comparison to the accounts payable balance was due to the
untimely customer payments mentioned above.
13
<PAGE>
The Company had a net reduction in cash from operations of $710,376 and
$600,179, for the years ended December 31, 1998 and 1996, respectively. For the
year ended December 31, 1997, the Company had a net increase in cash from
operations of $1,163,423. The net reduction in cash from operations at December
31, 1998, was primarily due to the significant increase in the accounts
receivable balance from the prior year, as well as the start-up costs associated
with the opening of the four sales offices. The net increase in cash from
operations for the year ended December 31, 1997, was primarily due to the net
income of $464,671 for the year, combined with the decrease in the accounts
receivable balance and the increase in the accounts payable balance. The net
reduction in cash from operations for the year ended December 31, 1996, was due
to the significant increase in the accounts receivable balance from the prior
year, partially offset by the rise in accounts payable and the net income
produced during the year.
The Company continues to purchase fixed assets as it deems necessary.
For the years ended December 31, 1998 and 1997, the Company purchased fixed
assets in the amounts of $60,428 and $51,405, respectively, the majority of
which was computer software and equipment. For the year ended December 31, 1996,
the Company expended $165,712 on fixed assets, including $81,995 for the
purchase of an IBM AS400 Model 200.
Stockholders' equity was $2,339,616 at December 31, 1998, up $176,669,
or 8.2% from December 31, 1997. Earnings per share at December 31, 1998, were
$.04, compared to $.10 and $.06, at December 31, 1997 and 1996, respectively.
In compliance with provisions in the Company's contracts with certain
railroads, the Company has obtained an unsecured surety bond in the amount of
$150,000. In addition the Federal Highway Administration requires the Company to
maintain a surety bond in the amount of $10,000, which is secured by a
certificate of deposit. In March 1999, the Company has obtained an unsecured
surety bond in the amount of $500,000 as a requirement of one of its major
customers.
On September 1, 1998, the Company renewed its revolving line of credit
with Republic Bank, St. Petersburg, Florida, in the amount of $2,000,000. This
line is secured by the Company's accounts receivable. The Company intends to use
the line to provide cash required by the Company's acceptance of new business
and for the possible opening of new sales offices. The Company does not have any
outstanding bank debt as of the date of this Report, nor did it have any bank
debt at December 31, 1998.
At December 31, 1998 and 1997, the Company did not have any capital
lease obligations, nor did it have any long-term debt.
14
<PAGE>
RESULTS OF OPERATIONS
Revenues for the year ended December 31, 1998, were $28,094,511, up
6.7%, or $1,761,167, from the year ended December 31, 1997, and up $5,921,572 or
26.7% from the year ended December 31, 1996. The Company is increasing revenues
by (i) obtaining additional business from existing customers (ii) targeting new
customers through marketing efforts and (iii) opening additional sales offices
as opportunities arise. The new offices opened during 1998 contributed
$4,335,059, or 15.4% to total revenues. Revenues during 1998 were adversely
impacted by continued poor rail service and equipment shortages. Additionally,
one of the Company's major customers generated $3,835,714, or 23.9% less in
revenues during 1998 compared to 1997. Despite these obstacles, revenues
increased by a larger percentage than the industry. The Company is continuing to
expand its highway brokerage division and revenues from this division
represented 18.3% of revenues for 1998, compared to 9.8% in the prior year.
Revenues for the year ended December 31, 1998, 1997 and 1996, included accounts
receivable credit balances in excess of 12 months less certain allowances
resulting in a net increase to revenues ("additional income") of $124,349,
$113,356, and $ 78,000, respectively.
The gross profit margin was 8.9%, 8.7%, and 8.6%, (before additional
income), for the years ended December 31, 1998, 1997 and 1996, respectively. The
industry is extremely competitive, resulting in only marginal growth in the
gross profit margin. The Company is continuing to expand its highway brokerage
division, which should improve the gross profit margin as these moves generally
offer higher profit margins.
The Company's selling, general and administrative expenses ("SG&A")
were $2,299,108, or 8.2% of revenues for the year ended December 31, 1998,
compared to $1,672,807, or 6.4% of revenues for the year ended December 31,
1997, and $1,486,167 or 6.7% of revenues for the year ended December 31, 1996.
The Company's SG&A as a percentage of revenue for 1998 rose significantly due to
the start-up costs incurred in opening the new sales offices. Additionally, the
new offices did not generate the volume necessary to absorb their overhead
costs. It is management's goal to increase the volume generated by the new
offices and to continue to improve administrative efficiencies within its
various offices.
The pre-tax income of the Company was $301,669, or 1.1% of revenues for
the year ended December 31, 1998, compared to $664,415, or 2.5% of revenues, and
$450,962, or 2.0% of revenues, for the years ended December 31, 1997 and 1996,
respectively. The pre-tax income in 1998 was affected by the large increase in
SG&A resulting from the opening of the new offices.
Income tax expense for the years ended December 31, 1998, 1997, and
1996, was $125,000, $199,744, and $180,000, respectively. The tax expense for
the year ended December 31, 1997, was reduced by the Company's booking of a
deferred tax asset in the amount of $58,256.
Net income for the years ended December 31, 1998, 1997, and 1996, was
$176,669, $464,671, and $270,962, respectively. The Company continued to
increase its revenues and margins each year, however the SG&A in 1998 rose
significantly which affected the Company's profitability. The Company's goal is
to better manage the SG&A and to continue to increase the volume generated by
the new offices throughout 1999 in order to ensure that each office makes a
positive contribution to income. To this end, the Company merged its two Chicago
offices in February 1999 to achieve better efficiency.
The Company will continue to market its services and promote its ISO
9002 registration. In addition, it will strive to open sales offices and obtain
sales representation in the major geographic areas of North America.
15
<PAGE>
YEAR 2000 READINESS
The Year 2000 computer issue creates certain risks for the Company. If
internal systems do not correctly recognize and process date information beyond
the year 1999, the Company's operations could be adversely impacted as the
result of system failures.
In 1998, the Company implemented a plan for addressing the Year 2000
issues and has named a Year 2000 Coordinator. The plan involves the testing of
(i) information technology ("IT"), which includes computer and network hardware,
operating systems, third-party and internally developed software, files and
databases, end-use extracts and electronic interfaces, and (ii) external
dependencies, which includes relationships with suppliers and customers.
As of the date of this Report, the area of IT has been tested to ensure
Year 2000 compliance and the Company is implementing corrective actions for
systems that were determined to be non-compliant. This process is substantially
complete and IT is expected to be fully compliant and tested by mid-1999. Where
appropriate, the Company is developing a contingency plan to be in effect by
mid-1999. The Company is currently working with suppliers of products and
services to determine and monitor their level of compliance and compliance
testing. Year 2000 readiness of significant customers is also being assessed.
The Company's evaluation of Year 2000 compliance as it relates to the Company's
external dependencies is expected to be complete by mid-1999.
The Company is using internal resources in order to meet the targeted
completion dates. The costs to ensure that the Company is Year 2000 compliant
are expected to fall within budget and are not expected to have a material
impact on the Company.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See accompanying Table of Contents to Financial Statements on F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no changes in or Disagreements with Accountants on
Accounting and Financial Disclosure to be reported for the year ended December
31, 1998.
16
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
SECTION 16 (A) OF THE EXCHANGE ACT.
The Directors and Executive Officers of the Company are as follows:
NAME AGE POSITION
- ---- --- --------
Richard E. Gaetz 41 Officer, Director
Geoff Duncan 50 Officer
Albert Gnat 60 Director
Richard D. McGraw 55 Director
Kevin A. Glass 41 Director
Richard E. Gaetz has been the President of Vitran Distribution System
and Chief Operating Officer of Vitran since August 1989. From October 1987 to
August 1989, he was Vice-President, Clarke Transport Canada. Effective October
11, 1996, Mr.Gaetz began serving as the Company's President and Chief Executive
Officer. He continues in his role as Chief Executive Officer as of the date of
this Report.
Geoff Duncan was appointed President on April 1, 1998. From November
1996 through this date, he was Executive Vice President and Chief Operating
Officer of the Company. From May 1996 through November 1996, he was Vice
President of Sales and Marketing. Prior to joining the Company, he was
Vice-President of Sales and Marketing at APL.
Albert Gnat has been Vice-Chairman of the Board and a director of
Vitran since 1983. He is a partner in the law firm of Lang Michener, Toronto,
Ontario, Canada.
Richard D. McGraw has been the President, Chief Executive Officer and a
director of Vitran since 1983.
Kevin A.Glass has been the Vice President of Finance and Chief
Financial Officer of Vitran since October 1998. Prior to this he was the Chief
Financial Officer of Livingston Group Inc.
Messrs. Gaetz, Gnat and McGraw were elected directors of the Company on
December 1, 1993. Kevin Glass was appointed a director on November 16, 1998.
Vitran may be deemed a "parent" of the Company under Securities Act Rule 405.
See Item 13 of this Report.
Directors are elected to serve for one (1) year or until the next
annual meeting of shareholders and until their successors have been elected and
have qualified. Executive officers are elected to serve at the discretion of the
directors for one (1) year or until the first meeting of the Board of Directors
following the next annual meeting of shareholders and until their successors
have been elected and have qualified.
17
<PAGE>
No compensation is paid to any director, as such, for his or her
services, but, by resolution of the Board of Directors, a fixed sum or expense
for actual attendance at each regular or special meeting by the Board may be
authorized.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company does not have a class of equity security that is registered
pursuant to Section 12 of the Securities Exchange Act of 1934. Accordingly, no
compliance with Section 16(a) of the Exchange Act is required of any officer,
director, or principal shareholder.
Item 11. EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended December 31,
1996, 1997 and 1998, all compensation of the Company's President and its Chief
Executive Officer. No other executive officer or director of the Company
received total annual salary and bonus exceeding $100,000 in any of such fiscal
years. The information provided should be read in conjunction with the Company's
Financial Statements and related notes thereto.
SUMMARY COMPENSATION TABLE
NAME AND FISCAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
------------------ ----- -------- -------- ------------
Michael Jackson, former
President and Chief
Executive Officer 1996 $124,038(1) $ 12,870(2)
Geoff Duncan, President 1998 $123,120 $ 11,400 $ 8,640(4)
1997 $114,400 $ 11,000 $ 8,400(4)
1996 $ 67,692(3) $ 5,600(4)
(1) Mr. Jackson was employed at an annual salary of $150,000 until
his termination on October 11, 1996.
(2) Automobile expense of $1200 monthly, and life insurance payment
of $870 annually.
(3) Mr. Duncan began employment with the Company in May 1996 at an
annual salary of $110,000.
(4) Automobile allowance of $720 per month for 1998, $700 per month
prior to 1998.
18
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS
The purpose of the following table is to report grants of stock options
to the named officers during the years ended December 31, 1996, 1997 and 1998.
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
- ------------------------------------------------------------------------------------------------------
% OF TOTAL
OPTIONS OPTIONS GRANTED EXERCISE EXPIRATION
NAME GRANTED TO EMPLOYEES PRICE DATE 5%($) 10%($)
- ---- ------- --------------- -------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Michael Jackson 50,000 17.18% $ .75 8/22/99(1) $2,004 $10,083
Michael Jackson 30,000 10.31% $1.25 8/22/99(1) $ 0(3) $ 0(3)
Geoff Duncan 50,000 17.18% $1.00(4) 4/29/02-06 (2) $5,537 $31,117
Geoff Duncan 25,000 8.59% $1.00(4) 11/15/02-06(2) $2,768 $15,558
Geoff Duncan 10,000 3.44% $1.00(4) 1/01/04-08 (2) $1,107 $ 6,223
</TABLE>
- ---------------------------
(1) As part of a settlement agreement entered into with Mr. Jackson in 1997, his
options did not expire upon his termination from the Company and will remain
exercisable until August 22, 1999.
(2) Mr. Duncan's options vest over a five-year period (20% per year) and expire
five years from the date that the options are vested. At December 31, 1998, Mr.
Duncan had 30,000 vested options.
(3) The potential realizable value, assuming annual stock appreciation rates of
5 and 10%, is less than the price of the stock upon exercise of the options.
(4) On May 14, 1998, the Board of Directors approved an option repricing program
to which essentially all current employee stock options with an exercise price
of $1.25 were reduced to $1.00.
- ----------------------------
During May 1996, the Company adopted a Stock Option Plan (the "Plan")
whereby employees of the Company may be granted incentive or non-qualified
options to purchase shares of the Company's common stock. The Board of Directors
has direct responsibility for the administration of the Plan. The exercise price
of the incentive options to employees must be equal to at least 100% of the fair
market value of the common stock at the date of grant. The exercise price of
incentive options to officers or affiliated persons must be at least 110% of the
fair market value as of the date of the grant. The fair market value of options
granted was determined using the exercise price of the Vitran stock purchase
warrant ($.650631 per share; the warrant expired July 31, 1997) as well as other
criteria that the Board deemed relevant. This value may not relate to the
trading value on the NASD Bulletin Board as there is not an active market for
the Company's stock and trades are sporadic. Upon termination of employment, all
options held by the grantee shall immediately terminate. The Board may waive any
conditions or rights under, or amend, alter, suspend, discontinue, or terminate,
any Option theretofore granted and any Stock Option Agreements relating thereto;
provided, however, that without the consent of an affected grantee, no such
action may materially impair the rights of such grantee under such option.
19
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to (i) any
person or "group" known to the Company to be the beneficial owner, as of March
24, 1999, of more than five percent of the Common Stock, and (ii) all Directors
and executive officers of the Company, individually and as a group. Each
beneficial owner has advised the Company that he, she or it has sole voting and
investment power as to the shares of the Common Stock.
AMOUNT AND PERCENTAGE OF
NATURE OF CLASS
BENEFICIAL (1)
NAME OF BENEFICIAL OWNER OWNERSHIP
- --------------------------------------------------------------------------------
Michael J. Jackson 643,400 13.33%
Clearwater, FL 34615
Vitran Corporation Inc. 3,918,030 81.19%
70 University Avenue Suite 350
Toronto, Canada M5J2M4
Richard E. Gaetz None --
70 University Avenue, Suite 350
Toronto, Canada M5J2M4 (2)
Geoff Duncan
12900 Dupont Circle 10,000 .21%
Tampa, FL 33626 (2)
Albert Gnat None --
70 University Avenue, Suite 350
Toronto, Canada M5J2M4 (2)
Richard M. McGraw None --
70 University Avenue, Suite 350
Toronto, Canada M5J2M4 (2)
Kevin A. Glass None --
70 University Avenue, Suite 350
Toronto, Canada M5J2M4 (2)
All Directors and Executive Officers as 10,000 .21%
a Group (5 persons) (2)
- --------------------
(1) The percentages in this column are computed on the basis of 4,825,630 shares
of Common Stock outstanding, as of the date of this Report.
(2) Four persons who are officers or directors of Vitran are directors of the
Company. See Item 10 of this Report.
20
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information as to changes in control of the Company see Item 1 of
this Report.
Vitran is a North American multi-divisional operating company
headquartered in Toronto, Ontario, Canada. Vitran provides services to the
freight and environmental industries and has over 2400 employees at over one
hundred locations across Canada and the United States. Vitran's Distribution
Services Group, of which the Company is a part, provides a complete range of
services for the movement of freight throughout the continent, utilizing both
highway and rail modes. Services include less than truckload, full load,
intermodal, dedicated contract carriage, warehousing and inventory management.
The members of the Vitran Distribution Services Group are Transwestern Express,
a less than truckload ("LTL") company concentrating on central and western
markets of Canada, as well as the Northwest United States; G & W Freightways,
which has six facilities in Quebec and Ontario, Canada, and specializes in
next-day delivery in all of its service corridors; CAN-AM LTL, which offers
cross-border LTL service between the United States and Canada and has facilities
in Toronto and Chicago; CAN-AM Logistics, which provides logistic services to
its customers; the Overland Group, which consists of various companies
performing full load, short haul and customized truckload services;
Overland/Quast, which performs LTL services, and the Company.
Vitran solicits business between the United States and Canada as an
agent for the Company through a Vitran sales office in Toronto. Vitran and the
Company have an agreement that all intermodal trans-border rail shipments shall
be written by the Company, with Vitran's receiving an agency commission from the
Company for such business. Trans-border over-the-road shipments may be made by
the Company or other Vitran subsidiaries, including the Overland Group,
depending on the type of service required by the shipper of such freight. The
Company does not believe that, given the different businesses of the Company and
the other Vitran subsidiaries, the Company will compete for any freight business
with another Vitran subsidiary, nor does the Company anticipate that the Company
and any other Vitran subsidiary will bid the same trans-border over-the-road
business. However, in the event that any such unanticipated conflict does occur,
the Company and Vitran intend to resolve any such conflict on a case-by-case
basis, with resolution depending solely on which entity can best serve the needs
of potential customers. For information concerning the Company's relationship
with Vitran and the other members of Vitran's Distribution Services Group, see
Item 1 of this Report.
For information with respect to the relationship between the Company's
directors and Vitran, see Item 10 of this Report.
21
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
NUMBER DESCRIPTION
2.1 Agreement and Plan of Merger dated December 1, 1991 (2)
3.1 Certificate of Incorporation (1)
3.2 By-Laws (1)
3.2.1 Amended and Restated By-Laws (1)
3.3 Articles of Merger - Florida (1)
3.4 Certificate of Merger - Delaware (1)
4.1 Specimen Certificate of Common Stock (1)
4.2 Specimen Certificate of Class A Warrant (1)
4.2(a) Specimen Certificate of Class B Warrant (1)
4.3 Form of Four Year Common Stock Purchase Warrant (1)
4.4 (Intentionally left blank)
4.5 Form of Warrant Agency Agreement (1)
4.5(a) Amendment dated June 1, 1994, to Warrant Agency Agreement (1)
4.5(b) Amendment dated September 1, 1994, to Warrant Agency Agreement (1)
4.5(c) Amendment dated December 7, 1995, to Warrant Agency Agreement (1)
4.6 Warrant for the purchase of Common Stock issued to Vitran
Corporation Inc. and dated July 14, 1993 (3)
10.1 Subscription Agreement between Vitran Corporation Inc. and The
Freight Connection, Inc., dated July 14, 1993 (3)
22
<PAGE>
10.2 Employment Agreement between The Freight Connection, Inc., and
Michael J. Jackson dated July 14, 1993 (1)
10.3 Form of Lockup Agreement (1)
10.4 Agreement with Robert and Patricia Johnston dated June 14, 1993 (1)
10.5 Shareholders' Agreement between Vitran Corporation Inc. and Michael
J. Jackson (1)
10.6 Extended Lease Agreement dated February 4, 1997. (4)
10.7 Loan Agreement between Republic Bank, St. Petersburg, Florida, and
The Freight Connection, Inc., dated August 19, 1995 (1)
10.8 Renewed Loan Agreement between Republic Bank, St. Petersburg,
Florida and The Freight Connection, Inc. dated August 18, 1997 (6)
10.9 Sweeney and Company. P.A. 's letter to the Securities and Exchange
Commission regarding change in certifying public accountant. (5)
10.10 Renewed Loan Agreement between Republic Bank, St. Petersburg,
Florida and The Freight Connection, Inc. dated September 1, 1998 (7)
(1) Incorporated by reference to post-effective amendments to the
Company's Registration Statement on Form SB-2.
(2) Incorporated by reference to Report on Form 8-K filed January
27, 1992.
(3) Incorporated by reference to Report on Form 8-K filed July 21,
1993.
(4) Incorporated by reference to Report on Form 10-K filed March 26,
1997.
(5) Incorporated by reference to Report on Form 8-K filed December
1, 1997.
(6) Incorporated by reference to Report on Form 10-K filed March 27,
1998.
(7) Included herewith.
b) REPORTS ON FORM 8-K
During the year ended December 31, 1998, no reports were filed on Form 8-K.
23
<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 Annual Report and any
subsequent amendments thereto to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE FREIGHT CONNECTION, INC.
a Delaware corporation
Dated: MARCH 29, 1999 By: /s/ RICHARD E. GAETZ
-------------------------
Richard E. Gaetz,.
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons in their respective
capacities with the Registrant and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ RICHARD E. GAETZ Chief Executive Officer MARCH 29, 1999
- ----------------------- and Director
Richard E. Gaetz
/s/ GEOFF DUNCAN President MARCH 29, 1999
- -----------------------
Geoff Duncan
/s/ ALBERT GNAT Director MARCH 29, 1999
- -----------------------
Albert Gnat
/s/ RICHARD D. MCGRAW Director MARCH 29, 1999
- ----------------------
Richard D. McGraw
/s/ KEVIN A. GLASS Director MARCH 29, 1999
- ------------------
Kevin A. Glass
<PAGE>
THE FREIGHT CONNECTION, INC.
INDEX TO AUDITED FINANCIAL STATEMENTS
PAGE
----
THE FREIGHT CONNECTION, INC.
Report of Independent Auditors - Margolies, Fink and Wichrowski F-2
Balance Sheets - December 31, 1998, and December 31, 1997 F-3
Statements of Income
Years Ended December 31, 1998, 1997 and 1996 F-4
Statements of Stockholders' Equity F-5
Statements of Cash Flows
Year Ended December 31, 1998, 1997, and 1996 F-6
Notes to Financial Statements F-7
Schedule II - Amounts receivable from related parties and underwriters,
promoters, and employees other than
related parties S-1
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors
The Freight Connection, Inc.
We have audited the accompanying balance sheets of The Freight Connection, Inc.
as of December 31, 1998 and 1997, the related statements of income,
stockholders' equity and cash flows for the years ended December 31, 1998, 1997
and 1996. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of The Freight Connection, Inc. as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years ended December 31, 1998, 1997 and 1996 in conformity with
generally accepted accounting principles.
/s/ Margolies, Fink and Wichrowski
February 4, 1999
Page F-2
<PAGE>
THE FREIGHT CONNECTION, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
---------- ----------
Current assets:
Cash and cash equivalents (Note 1) $ 515,125 $1,285,929
Accounts receivable - trade, net of allowance
for uncollectible accounts of $115,474 and $201,053,
respectively (Note 8, 10) 4,248,718 3,025,938
Accounts receivable - income taxes 50,005
Deferred tax asset (Note 7) 20,456 58,256
Prepaid expenses and other receivables 13,259 23,556
---------- ----------
Total current assets 4,847,563 4,393,679
Property and equipment (net of accumulated
depreciation) (Notes 1 and 2) 193,192 207,448
Deposits and other assets 87,083 56,183
---------- ----------
$5,127,838 $4,657,310
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses (Note 3) $2,788,222 $2,425,517
Income taxes payable -- 68,846
---------- ----------
Total current liabilities 2,788,222 2,494,363
---------- ----------
Stockholders' equity (Note 5)
Common stock, $.001 par value;
authorized 20,000,000 shares; 4,825,630,
shares issued and outstanding 4,826 4,826
Additional paid-in capital 918,982 918,982
Retained earnings 1,415,808 1,239,139
---------- ----------
Total stockholders' equity 2,339,616 2,162,947
---------- ----------
$5,127,838 $4,657,310
========== ==========
The accompanying notes are an
integral part of these financial statements
Page F-3
<PAGE>
<TABLE>
<CAPTION>
THE FREIGHT CONNECTION, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C> <C>
Freight income (Note 6) $ 28,094,511 $ 26,333,344 $ 22,172,939
Freight expense 25,480,324 23,947,680 20,184,096
------------ ------------ ------------
Gross profit 2,614,187 2,385,664 1,988,843
Selling, general and administrative expenses 2,299,108 1,672,807 1,486,167
Depreciation and amortization 73,144 68,691 61,809
------------ ------------ ------------
Income from operations 241,935 644,166 440,867
------------ ------------ ------------
Other income (expenses):
Interest and dividend income 59,734 28,598 21,227
Interest expense -- (8,349) (11,607)
Other -- -- 475
------------ ------------- ------------
Total other income (expenses) 59,734 20,249 10,095
------------ ------------ ------------
Income before income taxes 301,669 664,415 450,962
Income tax expense (Notes 1 & 7) 125,000 199,744 180,000
------------ ------------ ------------
Net income $ 176,669 $ 464,671 $ 270,962
============ ============ ============
Net income per common share:
Basic
Net income per common share $ .04 $ .10 $ .06
============ ============ ============
Weighted average number of common shares 4,825,630 4,825,630 4,825,630
============ ============ ============
Net income per common share:
Diluted:
Net income per common share $ .04 $ .10 $ .06
============ ============ ============
Weighted average number of common shares 4,825,630 4,825,630 4,825,630
============ ============ ============
</TABLE>
The accompanying notes are an
integral part of these financial statements
Page F-4
<PAGE>
<TABLE>
<CAPTION>
THE FREIGHT CONNECTION, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
COMMON STOCK ADDITIONAL
NUMBER OF PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS TOTAL
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 4,825,630 $ 4,826 $ 935,932 $ 503,506 $ 1,444,264
Refund of a portion of the
proceeds from the issuance-
of common stock (16,950) (16,950)
Net income year ended,
December 31, 1996 -- -- -- 270,962 270,962
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 4,825,630 4,826 918,982 774,468 1,698,276
Net income year ended,
December 31, 1997 -- -- -- 464,671 464,671
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 4,825,630 4,826 918,982 1,239,139 2,162,947
Net income year ended,
December 31, 1998 -- -- -- 176,669 176,669
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 4,825,630 $ 4,826 $ 918,982 $ 1,415,808 $ 2,339,616
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements
Page F-5
<PAGE>
<TABLE>
<CAPTION>
THE FREIGHT CONNECTION, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 176,669 $ 464,671 $ 270,962
----------- ----------- -----------
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 73,144 68,691 61,809
Deferred tax asset (net) 37,800 (58,256)
Loss on disposal of fixed assets 1,540 6,064
Changes in assets and liabilities:
Accounts receivable (1,222,780) 207,923 (1,218,672)
Accounts receivable - income taxes (50,005)
Prepaid expenses and other receivables 10,297 33,929 34,955
Deposits and other assets (30,900) 6,520 21,853
Accounts payable and accrued expenses 362,705 407,458 323,578
Income taxes payable (68,846) 26,423 (94,664)
----------- ----------- -----------
Total adjustments (887,045) 698,752 (871,141)
----------- ----------- -----------
Net cash provided by (used in) operations (710,376) 1,163,423 (600,179)
----------- ----------- -----------
Net cash used in investing activities:
Purchase of fixed assets (net) (60,428) (51,405) (165,712)
Cash flows (used in) provided by
financing activities:
Return of capital to warrant holders (16,950)
Long-term capital lease obligations -- -- (18,797)
----------- ----------- -----------
Net cash (used in) financing activities -- -- (35,747)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents (770,804) 1,112,018 (801,638)
Cash and cash equivalents, beginning of period 1,285,929 173,911 975,549
----------- ----------- -----------
Cash and cash equivalents, end of period $ 515,125 $ 1,285,929 $ 173,911
=========== =========== ===========
Supplemental disclosure:
Cash paid for interest $ -- 8,349 9,814
=========== =========== ===========
Cash paid for income taxes $ 206,051 $ 229,800 $ 274,664
=========== =========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements
Page F-6
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
The Company operates as a transportation freight broker and coordinates both
truck and rail shipments from point of origin to delivery at destination for its
clients' freight shipments. The Company is responsible for paying carriers for
hauling the freight and extends credit to its clients for the shipment. The
Company's primary office facilities are located in Tampa, Florida with
additional sales offices located in Atlanta, Ga., Los Angeles, Ca., San
Francisco Ca., Chicago, Ill., Niles, Ill., Minneapolis, Mn., and Toronto,
Ontario.
CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid investments readily convertible
to known amounts of cash and so near their maturity that they present
insignificant risk of changes in value because of changes in interest rates.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. The Company provides depreciation
for financial purposes over the estimated useful lives of fixed assets using the
straight-line method. Upon retirement or sale of fixed assets, their net book
value is removed from the accounts and the difference between such net book
value and proceeds received is recorded in income. Expenditures for maintenance
repairs are charged to expense; renewals and improvements are capitalized.
REVENUE RECOGNITION
The Company recognizes freight income, freight charges and expenses when the
shipment leaves its point of origin. Quick-pay rebates are recognized in the
month earned, and volume rebates are recorded annually per contract agreements.
Accounts receivable credit balances are taken into income after twelve months.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments such as accounts
receivable and accounts payable, approximate their carrying value.
ACCOUNTING ESTIMATES
The Management of the Company occasionally uses accounting estimates in
determining certain revenues and expenses. Estimates are based on subjective as
well as objective factors and, as a result, judgment is required to estimate
certain amounts at the date of the financial statements.
Page F-7
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company has adopted Statement of Financial Accounting Standard No. 109
"Accounting for Income Taxes" which requires an asset and liability approach to
financial accounting for income taxes. Deferred income tax assets and
liabilities are computed annually for the difference between the financial
statement and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future, based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period, plus or minus the change during the period
in deferred tax assets and liabilities. On May 29, 1998 the Company entered into
a tax allocation agreement with its parent company Vitran Corporation, and has
elected to file its December 31, 1998 federal income tax return on a
consolidated basis.
NET INCOME PER SHARE
In 1998, the Company adopted SFAS No. 128, ("Earnings Per Share") which requires
the reporting of both basic and diluted earnings per share. Basic net income per
share is determined by dividing net income available to common shareholders by
the weighted average number of common shares outstanding for the period. Diluted
income per share reflects the potential dilution that could occur if options or
other contracts to issue common stock were exercised or converted into common
stock, as long as the effect of their inclusion is not anti dilutive. For the
years ended December 31, 1998, 1997, and 1996 outstanding options and warrants
have not been reflected in the computation of diluted earnings per share because
the market price of common stock outstanding has not been in excess of the
option or warrant exercise price. At December 31, 1997 all outstanding warrants
have expired.
Page F-8
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1997 consist of the following:
1998 1997
---------- ----------
Computer software $ 71,659 $ 67,050
Leasehold improvements 2,650
Office furniture and equipment 336,432 286,599
---------- ----------
410,741 353,649
Less accumulated depreciation 217,549 146,201
---------- ----------
$ 193,192 $ 207,448
========== ==========
Depreciation and amortization expense for the years ended December 31, 1998,
1997 and 1996, were $73,144, $ 68,691, and $61,809, respectively.
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 1998 and 1997 consist of
the following:
1998 1997
---------- ----------
Accounts payable - trade $2,621,634 $2,130,646
Accounts receivable credit balances 65,990 221,098
Accrued expenses 100,598 73,773
---------- ----------
$2,788,222 $2,425,517
========== ==========
4. LEASES
The Company leases various office facilities under non-cancelable operating
leases which expire between years 1999 and 2002. The Company also leases office
equipment under non-cancelable operating leases which expire over the next four
years. Rent expense incurred under these leases was $130,881, $89,081, and
$57,768, for the years ended December 31, 1998, 1997 and 1996 respectively.
Future minimum lease payments for operating leases with initial terms in excess
of one year as of December 31, 1998 are as follows; 1999 - $132,554, 2000 -
$43,381, 2001 - $17,445, 2002 - $195.
Page F-9
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. STOCKHOLDERS' EQUITY, WARRANTS AND OPTIONS
The Company issued 400,000 Class A, and 400,000 Class B warrants with an
exercise price of $2.50 and $5.00, respectively in conjunction with its initial
public offering.
During December 1994, 12,400 Class A warrants were exercised at $2.50 per share
and converted into 12,400 shares of common stock. During the year ended December
31, 1995 an additional 10,200 Class A warrants were exercised at $2.50 per share
and converted into 10,200 shares of common stock.
On December 7, 1995, the Board of Directors voted to extend the exercise date of
both the Class A and Class B warrants until February 12, 1997. At the same time,
the exercise price of the Class A warrants was reduced to $1.75 and the exercise
price of the Class B warrants was reduced to $2.50 per share of common stock.
In April 1996, the Company refunded $16,950 of the proceeds received from the
exercise of these warrants due to the reduction in exercise price.
6. FREIGHT INCOME
Freight income includes rebate income, late charge income, and accounts
receivable credit balances in excess of twelve months. These items totaled
$327,398, $504,513, and $197,757, for the years ended December 31, 1998, 1997,
and 1996, respectively.
7. INCOME TAXES
The provision for income taxes consisted of the following:
DECEMBER 31,
------------------------------------
1998 1997 1996
--------- --------- ---------
Current:
Federal $ 70,800 $ 219,800 $ 153,300
State 16,400 38,200 26,700
Deferred:
Federal 32,300 (49,600)
State 5,500 (8,656) --
--------- --------- ---------
$ 125,000 $ 199,744 $ 180,000
========= ========= =========
Page F-10
<PAGE>
<TABLE>
<CAPTION>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Reconciliation of the Company's provision for income taxes to the federal
statutory rate is as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Statutory rate applied to income
before income taxes $102,600 34.0% $ 225,900 34.0% $153,300 34.0%
State income tax net of federal benefit 22,000 7.3% 35,300 5.3% 16,200 3.6%
Recognition of deferred tax asset (58,256) (8.8)%
Other 400 0.1% (3,200) 0.5% 10,500 2.3%
-------- ---- --------- ---- -------- ----
$125,000 41.4% $ 199,744 31.0% $180,000 39.9%
======== ==== ========= ==== ======== ====
</TABLE>
The components of deferred tax assets and liabilities were as follows:
DECEMBER 31,
---------------------
1998 1997
-------- --------
Deferred tax assets:
Accounts receivable reserve $ 46,074 $ 80,220
Deferred tax liability:
Depreciation (25,618) (21,964)
-------- --------
20,456 58,256
Valuation allowance -- --
-------- --------
Total deferred tax asset $ 20,456 $ 58,256
======== ========
SFAS No. 109 requires a valuation allowance to be recorded when it is more
likely than not that some or all of the deferred tax asset will not be realized.
As a result of the Company's likelihood for future continuing profitability,
management has determined that more likely than not, future taxable income will
be sufficient to enable the Company to realize all of its deferred tax assets.
Accordingly, no valuation allowance has been recorded at December 31, 1998 and
1997.
Page F-11
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS
The Company transacts business with various subsidiaries of its parent company,
Vitran Corporation Inc. Billings to these companies approximated $176,000,
$123,000, and $52,000 for the year ended December 31, 1998, 1997, and 1996,
respectively. Billings from these companies approximated $93,000, $75,000, and
$52,000, respectively. At December 31, 1998 and 1997 accounts receivable from
these companies approximated $62,700, and $15,000, respectively, and accounts
payable to these companies approximated $5,400 and $9,200, respectively
9. ECONOMIC DEPENDENCY
During the years ended December 31, 1998, 1997 and 1996, sales to two major
customers exceeded 10% of the Company's total sales. One of the customers, an
automobile manufacturer, accounted for 43%, 61%, and 72% of total sales, and the
other, a distributor of wines and spirits, accounted for 2%, 4%, and 11% of the
total sales for the year ended December 31, 1998, 1997 and 1996, respectively.
In addition, the Company is dependent upon its continuing business relationship
with its freight carriers, particularly the railroads.
10. CONCENTRATION OF CREDIT RISK
The Company's financial instruments subject to credit risk are primarily trade
accounts receivable. The Company does not require collateral or other security
to support customer receivables. The Company's clients generally pay in thirty
days or less; however, occasionally payments are not received until invoices age
to 60 days. Other concentrations of credit risk with respect to trade
receivables are limited due to the dispersion of the majority of the Company's
customers across different industries throughout North America. The rail
carriers generally draft the Company's bank accounts for payment. The carrier is
responsible to the client for lost or damaged merchandise, therefore, the
Company does not assume liability for such loss, if any. During the year, the
Company has maintained cash balances in excess of the Federally insured limits.
The funds are with a major money center bank. Consequently, the Company does not
believe that there is a significant risk in having these balances in one
financial institution.
Page F-12
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTIONS
During May 1996, the Company adopted a Stock Option Plan (the "Plan) whereby
employees of the Company may be granted incentive or non-qualified options to
purchase shares of the Company's common stock. The Board of Directors has direct
responsibility for the administration of the plan. The exercise price of the
incentive options to employees must be equal to at least 100% of the fair market
value of the common stock at the date of grant. The exercise price of incentive
options to officers, or affiliated persons, must be at least 110% of the fair
market value as of the date of the grant. Options are granted subject to terms
and conditions determined by the Board of Directors, and generally are
exercisable in increments of 20% for each year of employment beginning one year
from the date of grant and generally expire five years from date of grant.
On May 14, 1998 the Board of Directors approved an option repricing program to
which essentially all current employee stock options with an exercise price of
$1.25 were reduced to $1.00.
At December 31, 1998, the Company has granted 291,000 incentive stock options at
an exercise price ranging from $.75 to $1.25; of this total, 207,600 incentive
stock options were vested but not exercised. To date the Company has issued no
non-qualified stock options.
Transactions and other information relating to the plans are summarized as
follows:
INCENTIVE STOCK OPTIONS
-----------------------
WEIGHTED
SHARES AVE. PRICE
-------- ----------
Outstanding at December 31, 1995 --
Granted during 1996 260,000 $ .95
-------
Outstanding at December 31, 1996 260,000 .95
Granted during 1997 1,000 1.00
-------
Outstanding at December 31, 1997 261,000 .95
Granted during 1998 31,000 1.00
Canceled during 1998 (1,000) .95
-------
Outstanding at December 31, 1998 291,000 .95
=======
Page F-13
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTIONS (CONTINUED)
The following table summarizes information about all of the stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
------------------- -------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISED PRICES SHARES LIFE (YEARS) PRICE SHARES PRICE
---------------- -------- ------------------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$ .75 100,000 1.5 years $ .75 100,000 $ .75
$ 1.00 146,000 5.6 years 1.00 62,600 1.00
$ 1.25 45,000 2.7 years 1.25 45,000 1.25
</TABLE>
PRO FORMA DISCLOSURE
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" issued
in October 1995. Accordingly, no compensation cost has been recognized for its
fixed stock option plans with respect to its employees. Had compensation cost
for the Company's fixed-based compensation plan been determined based on the
fair value at the grant dates for awards under this plan consistent with the
method of SFAS 123, the Company's proforma net income, and proforma net income
per share would have been as indicated below:
1998 1997 1996
--------- --------- ---------
Net income, as reported $ 176,669 $ 464,671 $ 270,962
========= ========= =========
Net income, proforma $ 179,199 $ 493,441 $ 218,902
========= ========= =========
Net income per common share:
Basic and dilutive
Net income, as reported $ .04 $ .10 $ .06
========= ========= =========
Net income, proforma $ .04 $ .10 $ .05
========= ========= =========
For purposes of the preceding proforma disclosures, the weighed average fair
value of each option has been estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1998, 1997, and 1996, respectively: no dividend
yield, volatility approximating 50%, risk free interest rate of 6.0%, and an
expected term approximating 3.6 years.
Page F-14
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES
On September 1, 1998, the Company renewed a line of credit agreement with a
commercial bank for $2,000,000 which expires on September 1, 1999. Interest is
at the lower of the London Interbank Offer Rate plus 250 basis points or the
bank's base rate. Any outstanding principal balance plus unpaid interest is due
on demand. The line is secured by the Company's accounts receivable, and fixed
assets. As of December 31, 1998, no amounts are outstanding on this credit line.
Page F-15
<PAGE>
THE FREIGHT CONNECTION, INC.
SCHEDULE II - Amounts receivable from related parties and underwriters,
promoters and Employees other than related parties
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
BALANCE AT DEDUCTIONS BALANCE AT
BEGINNING AMOUNTS AMOUNTS END OF PERIOD
NAME OF DEBTOR OF YEAR ADDITIONS COLLECTED WRITTEN OFF NONCURRENT
- -------------- ---------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1996
James Ingram $45,936 -- -- -- $45,936
Year Ended
December 31, 1997
James Ingram $45,936 -- -- $45,936 $ 0
Year Ended
December 31, 1998
James Ingram $ 0 -- -- -- $ 0
======= ===== ==== ======= =======
</TABLE>
S-1
<PAGE>
RENEWAL REVOLVING
LINE OF CREDIT PROMISSORY NOTE
$2,000,000.00
St. Petersburg, Florida
Effective Date: September 1, 1998
Loan No. 4000010415
FOR VALUE RECEIVED, the undersigned borrower, THE FREIGHT CONNECTION,INC.,
a Delaware corporation (hereinafter called "Borrower") promises to pay to the
order of REPUBLIC BANK, a Florida banking corporation (hereinafter and together
with any holder hereof called "Bank"), at 111 2nd Avenue N.E., Suite 703, St.
Petersburg, Florida 33701, or at such other place as Bank may from time to time
designate in writing, without grace, the principal sum not to exceed TWO MILLION
DOLLARS($2,000,000.00), or so much thereof as has been advanced hereunder,
together with interest on the unpaid balance of the principal (the "Loan") from
time to time outstanding from the date of each advance of principal at the rate
for each day equal to the lesser of: (1) the "Base Rate" of Citibank, N.A., New
York, N.Y. ("Citibank"), adjusted daily; or, (2) the 90 day LIBOR (London
InterBank Offer Rate) as published in the Wall Street Journal, plus 250 basis
points, (the "Current Rate"). This Current Rate shall be fixed for 90 day
periods commencing on the Effective Date and will be applied to the daily
outstanding balance on the Loan, and will be adjusted on the first day of each
subsequent 90 day period to the then Current Rate as of such date. In no event,
however, shall the interest rate be greater than the maximum rate of interest
allowed to be contracted for by applicable law. This Note renews in its entirety
that certain Revolving Line of Credit Promissory Note dated August 18, 1995, as
previously renewed effective August 19, 1997.
Principal and interest shall be due and payable as follows:
(a) To the extent accrued, interest only, as stated above, shall be
payable monthly commencing October 1, 1998, and continuing on the same day of
each month thereafter until September 1, 1999 (the "Maturity Date"), at which
time all outstanding indebtedness, whether principal, accrued interest or
otherwise, shall be due and payable in full.
(b) The principal amount evidenced hereby may be borrowed (and to the
extent any principal amount advanced hereunder is repaid by Borrower, such sum
may be borrowed again) until the Maturity Date. At no time, however, shall the
principal balance outstanding hereunder exceed TWO MILLION DOLLARS
($2,000,000.00).
Interest owing under this Note shall be computed on the basis of a 360-day
year for actual days lapsed.
As used herein, "Base Rate" shall refer to the rate of interest per annum
which is announced by Citibank as being its base rate as such rate changes from
time to time. Changes in the Base Rate shall be effective on the effective date
announced by Citibank. The Base Rate is a reference rate for the information and
use of the Bank in establishing the actual rates to be charged its borrowers.
<PAGE>
Borrower may repay all or part of the principal balance at any time
without penalty. Such prepayment shall be accompanied by payment of any unpaid
interest accrued to the time of such prepayment. All payments made hereunder
shall at Bank's option first be applied to late charges, then to accrued
interest, then to principal. Permitted partial prepayments shall not affect or
vary the duty of Borrower to pay all obligations when due, and they shall not
affect or impair the right of Bank to pursue all remedies available to it
hereunder, under the security instruments securing this indebtedness, or under
any other loan documents or guaranty executed in connection herewith.
In the event Bank has made a demand for repayment of the indebtedness
evidenced by this Note, due to any default by Borrower, Bank, at its option, may
notify Borrower that its commitment to lend under this line of credit is
terminated and Bank shall be relieved of all obligations to lend any further
sums thereafter to Borrower.
This Note has been executed and delivered in the State of Florida, and its
terms and provisions are to be governed by and construed under the laws of the
State of Florida and of the United States of America, and the rules and
regulations promulgated under the authority thereof. It is the intent of this
Note that such laws shall be interpreted in such a manner that in the event of
default the maximum rate of interest (hereinafter called the "Maximum Rate")
allowed to be contracted for by applicable law as changed from time to time
shall be applied to this Note.
In the event that any payment of principal or interest is not made within
ten (10) days of when due hereunder, it is hereby agreed that Bank shall have
the option of collecting a late charge equivalent to five percent (5%) of the
amount of each such delinquent payment. Said late charge and/or interest shall
be immediately due and payable in full on demand by the Bank.
In no event shall Bank have the right to charge or collect, nor shall
Borrower be required or obligated to pay, interest or payments in the nature of
interest, which would result in interest being charged or collected at a rate in
excess of the Maximum Rate. In the event that any payment which is interest or
in the nature of interest is made by Borrower or received by Bank which would
result in the rate of interest being charged or collected by Bank being in
excess of the Maximum Rate, then the portion of any such payment which causes
the rate of interest being charged or collected by Bank exceed the Maximum Rate
(hereinafter called the "excess sum") shall be credited as a payment of
principal. If Borrower notifies Bank in writing that Borrower elects to have
such excess sum returned to Borrower, such excess sum shall be returned to
Borrower. In the event that any such overcharge is discovered after this Note
has been paid in full, then the amount of such excess sum shall be returned to
Borrower together with interest therein from the date such excess sum was paid
or collected at the same rate as was due Bank during such period under the terms
of this Note. All excess sums credited to principal shall be credited as of the
date paid to Bank.
The "Default Interest Rate" shall be five percent (5%) per annum above the
contract interest rate set forth above, but in no event at a rate which is
higher than the Maximum Rate permitted by law.
<PAGE>
In the event any payment of principal or interest is not made within
fifteen (15) days of when due hereunder, the entire unpaid principal balance
shall bear interest at the "Default Interest Rate". In addition to the rights
described in this paragraph, Bank shall have the right to exercise all other
rights or remedies provided by law or at equity and shall specifically have the
right to recover all damages resulting from such default including, without
limitation, the right to recover the payment of all amounts owing to Bank.
Exercise of any of these options shall be without notice to Borrower, notice of
such exercise being hereby expressly waived.
Time is of the essence hereunder. In the event that this Note is collected
by law or through attorneys at law, or under advice therefrom, Borrower agrees
to pay all costs of collection, including reasonable attorneys' fees and
costs(including charges for paralegals and others working under the direction or
supervision of Bank's attorneys) and all sales or use taxes thereon, whether or
not suit is brought, and whether incurred in connection with collection, trial,
appeal, bankruptcy or other creditor's proceedings or otherwise, and, if Bank's
attorneys shall include employees of Bank or of any person controlling,
controlled by or under common control with Bank, such reasonable attorney's fees
shall include costs allocated by Bank's or such person's internal legal
department.
Borrower authorizes Bank, from time to time, to debit any account that
Borrower may have with Bank, for any payment of principal or interest past due
hereunder for the amount of such payment of principal or interest. Exercise of
this right shall be optional with Bank and the provisions of this paragraph
shall not be construed as releasing Borrower from the obligation to make
payments of principal or interest according to the terms hereof.
The remedies of Bank as provided herein shall be cumulative and
concurrent, and may be pursued singularly, successively, or together, at the
sole discretion of Bank. No act of omission or commission of Bank, including
specifically any failure to exercise any right, remedy or recourse, shall be
deemed to be a waiver or release of the same, such waiver or release to be
effected only through a written document executed by Bank and then only to the
extent specifically recited therein. A waiver or release with reference to any
one event shall not be construed as continuing, as a bar to, or as a waiver or
release of, any subsequent right, remedy or recourse as to a subsequent event.
All persons (including corporations) now or at any time liable, whether
primarily or secondarily, for the payment of the indebtedness hereby evidenced,
for themselves, their heirs, legal representatives, successors and assigns,
respectively, hereby: (a) expressly waive any presentment, demand for payment,
notice of dishonor, protest, notice of nonpayment or protest, all other forms of
notice whatsoever, and diligence in collection; (b) consent that Bank may, from
time to time, and without notice to them or demand: (i) extend, rearrange, renew
or postpone any or all payments and/or (ii) release, exchange, add to or
substitute all or any part of the collateral for this Note, without in any way
modifying, altering, releasing, affecting or limiting their respective liability
or the lien of any security instrument; (c) agree that Bank, in order to enforce
payment of this Note against them shall not be required first to institute any
suit or to exhaust any of its remedies against any Borrower or any other person
or party or to attempt to realize on the collateral for this Note.
<PAGE>
BORROWER AND ANY OTHER PERSON LIABLE FOR PAYMENT HEREOF, BY EXECUTING THIS
NOTE OR ANY OTHER DOCUMENT CREATING SUCH LIABILITY, WAIVE THEIR RIGHTS TO A
TRIAL BY JURY IN ANY ACTION WHETHER ARISING IN CONTRACT OR TORT, BY STATUTE OR
OTHERWISE, IN ANY WAY RELATED TO THIS NOTE. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR BANK'S EXTENDING CREDIT TO BORROWER AND NO WAIVER OR LIMITATION
OF BANK'S RIGHTS HEREUNDER SHALL BE EFFECTIVE UNLESS IN WRITING AND MANUALLY
SIGNED ON BANK'S BEHALF.
Borrower acknowledges that the above paragraph has been expressly
bargained for by Bank as part of the loan evidenced hereby and that, but for
Borrower's agreement and the agreement of any other person liable for payment
hereof thereto, Bank would not have extended the loan for the term and with the
interest rate provided herein.
If more than one party shall execute this Note, the term "Borrower", as
used herein, shall mean all parties signing this Note and each of them, who
shall be jointly and severally obligated hereunder. In this Note, whenever the
context so requires, the neuter gender includes the feminine and/or masculine,
as the case may be, and the singular number includes the plural.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed in its
name on the day and year first above written.
THE UNDERSIGNED ACKNOWLEDGES THAT THE LOAN EVIDENCED HEREBY IS FOR
COMMERCIAL PURPOSES ONLY AND NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES.
THE FREIGHT CONNECTION, INC.,
a Delaware corporation
By: /s/ GEOFF DUNCAN
Geoff Duncan, as its President
(CORPORATE SEAL)
Documentary stamps in the amount of $7,000.00 were paid on the original Note
dated August 18, 1995, and are not payable on this Renewal Note under Florida
law.
<PAGE>
THIRD
ADDENDUM TO LOAN AGREEMENT
This Third Addendum to Loan Agreement (the "Addendum") dated this 16th day
of September 1998, effective as of the 18th day of August, 1998, amends and
modifies that certain Loan Agreement dated August 18, 1995 as previously amended
by Addendum to Loan Agreement dated effective August 18, 1996, as further
amended by Second Addendum to Loan Agreement dated effective August 18, 1997
(collectively the "Loan Agreement") by and among REPUBLIC BANK, a Florida
banking corporation (the "Bank"), and THE FREIGHT CONNECTION, INC., a Delaware
corporation (the"Borrower"). All of the capitalized terms used herein shall have
the same identification and defined meanings as set forth in the Loan Agreement
unless otherwise specifically indicated or defined herein.
RECITALS:
A. Borrower has requested the Bank to extend and renew a Revolving Credit
Line Loan (the "Loan") in the amount of $2,000,000.00 under the terms of the
Loan Agreement and this Addendum.
B. The Bank has agreed to the renewal of the Loan pursuant to the terms of
this Addendum and the other loan documents herein referred.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties agree as follows:
1. Recitals. The above Recitals are true and correct and by this reference
are incorporated herein.
2. Renewal of Credit Line Loan. The Bank hereby renews the Loan effective
as of September 1, 1998 pursuant to the terms of a Renewal Revolving Line of
Credit Promissory Note of even date herewith (the "Renewal Note") which provides
for an extended maturity date of September 1, 1999.
3. Security. The Renewal Note shall continue to be secured by the Security
Interests as set forth in the Loan Agreement.
4. Representations and Warranties. Paragraph 5 of the Loan Agreement is
modified to add subparagraph 5.08 as follows:
5.08 Year 2000 Compliance. Borrower has: (a)undertaken a
detailed inventory, review, and assessment of all areas within its business and
operations that could be adversely affected by the failure of Borrower to be
Year 2000 compliant on a timely basis; (b) developed a detailed plan and
timeline for becoming Year 2000 compliant on a timely basis; (c)to date,
implemented that plan in accordance with that timetable in all material
respects; and (d)made written inquiry of each of its key suppliers, vendors, and
customers as to whether such persons will, on a timely basis, be Year 2000
compliant in all respects and on the basis of such inquiry believes that all
such persons will be so compliant. Borrower shall provide satisfactory proof of
compliance to the Bank at the Bank's request. For purposes hereof, "key
suppliers, vendors, and customers" and "persons" refers to those suppliers,
vendors, and customers of Borrower whose business failure would, with reasonable
probability result in a material adverse change in the business properties,
condition (financial or otherwise, or prospects of Borrower. For purposes
<PAGE>
hereof, "Year 2000 compliant" means, with regard to any entity, that all
software, embedded microchips, and other processing capabilities utilized by,
and material to the business operations or financial condition of, such entity
are able to interpret and; manipulate data on and involving all calendar dates
correctly and without causing any abnormal ending scenario, including in
relation to dates prior to and after December 31, 1999.
5. Covenants. Paragraph 7.01(a) is deleted in its entirety and the
following paragraph 7.01(a) is substituted therefor:
7.01(a) Financial Statement. Within 30 days after each month
end the Borrower shall provide the Bank with internally prepared corporate
financial statements. Within 120 days of each fiscal year end, the Borrower
shall provide the Bank with "audited" corporate financial statements, prepared
by a CPA acceptable to the Bank. The Borrower shall also provide the Bank with
an accounts receivable aging report and compliance certification signed by an
authorized officer on a monthly basis, within 30 days after each month end.
Borrower shall also provide the 10Q and 10K reports within thirty (30) days of
their availability, and such other financial information as may be requested by
the Bank from time to time.
6. Events of Default. Paragraph 6.01 of the Loan Agreement is amended to
provide that upon the occurrence of an event of default, the Bank has the option
of requiring all accounts receivable to be lock-boxed on such terms and
conditions as the Bank may determine.
7. Warranties. Borrower hereby affirms and warrants that all of the
warranties made in the Loan Documents, and any other documents or instruments
recited herein or executed with respect thereto directly or indirectly, are true
and correct as of the date hereof and that Borrower is not in default of any of
the foregoing nor aware of any default with respect thereto, and that Borrower
has no defenses or rights of offset with respect to any indebtedness to the
Bank. Borrower hereby releases the Bank from any cause of action against it
existing as of the date of execution hereof. The rights and defenses being
waived and released hereunder include without limitation any claim or defense
based on the Bank having charged or collected interest at a rate greater than
that allowed to be contracted for by applicable law as changed from time to
time, provided, however, in no event shall such waiver and release be deemed to
change or modify the terms of the Loan Documents which provide that sums paid or
received in excess of the maximum rate of interest allowed to be contracted for
by applicable law, as changed from time to time, reduce the principal sum due,
said provision to be in full force and effect.
8. State taxes. Borrower is liable for the full amount of any documentary
stamps. intangible tax, interest and penalties, if any, levied by the State of
Florida incident to the loan transactions and modifications described in this
Third Addendum. If the same be not promptly paid by Borrower when levied by the
State of Florida, the Bank may (without obligation to do so) pay the same.
9. Consent and waiver. Borrower hereby consents to the foregoing and
agrees that the execution of this Third Addendum shall in no manner or way
whatsoever impair or otherwise adversely affect Borrower's liability to the Bank
under the Loan Documents or any other instrument set forth in the Recitals or
herein, all as modified by this Second Addendum.
<PAGE>
10. Cross Document Default. Any default under the terms and conditions of
this Third Addendum or of any instrument set forth herein or contemplated by
this Third Addendum shall be and is a default under every other instrument set
forth herein or contemplated by this Third Addendum.
11. Ratification. Except as modified by this Third Addendum, Borrower
hereby ratifies and confirms the continued validity and viability of all terms,
conditions and obligations set forth in the Loan Documents and all other
instruments executed in connection with this Second Addendum.
12. Severability. Whenever possible, each provision of this Third Addendum
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision hereof shall be prohibited or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity only, without invalidating the remainder of such
provision or of the remaining provisions of this Third Addendum.
13. Florida Contract. This Third Addendum shall be deemed a Florida
contract and shall be construed according to the laws of the State of Florida,
regardless of whether this Second Addendum is executed by certain of the parties
hereto in other states.
14. Binding effect. This Third Addendum shall bind the successors and
assigns to the parties hereto and constitutes the entire understanding of the
parties, which may not be modified except in writing.
15. Waiver of Jury Trial. The parties to this Third Addendum hereby
irrevocably waive their respective rights to trial by jury in any and all
actions arising out of the terms of this Third Addendum.
16. Conflict. As to any conflict between the terms of the Loan Agreement or
this Third Addendum, then the terms of this Third Addendum shall supersede and
control over such other terms.
17. Other Terms. Except as specifically amended, modified and supplemented
by this Third Addendum, all of the other terms, covenants and conditions of the
Loan Agreement remain in full force and effect.
WITNESSES:
As to Borrower
"BORROWER"
THE FREIGHT CONNECTION, INC.,
/s/ THOMAS J. HAUSER a Delaware corporation
By: /s/ GEOFF DUNCAN
/s/ JERILYN SELKOW Geoff Duncan, as its President
(CORPORATE SEAL)
<PAGE>
WITNESSES:
As to Lender
"LENDER"
REPUBLIC BANK, a Florida
/s/ THOMAS J. HAUSER banking corporation
By: /s/ WILLIAM S. NYE
/s/ JERILYN SELKOW William S. Nye, as its Vice President
(CORPORATE SEAL)
STATE OF FLORIDA
COUNTY OF HILLSBOROUGH
The foregoing instrument was acknowledged before me this 16th day of
September, 1998 by GEOFF DUNCAN, as President of THE FREIGHT CONNECTION, INC., a
Delaware corporation, on behalf of the corporation.
X Georgia Driver's License /s/ SHERRI L. MENDIZZA
Notary Public
"Official Seal"
Sherri L. Mendizza
My commission expires
February 3, 2002
Commission #CC 713405
Bonded thru Troy Fain Insurance, Inc.
STATE OF FLORIDA
COUNTY OF PINELLAS
The foregoing instrument was acknowledged before me this 16th day of
September, 1998 by WILLIAM S. NYE, as Vice President of REPUBLIC BANK, a Florida
banking corporation, on behalf of the Bank.
X Florida Driver's License /s/ SHERRI L. MENDIZZA
Notary Public
"Official Seal"
Sherri L. Mendizza
My commission expires
February 3, 2002
Commission #CC 713405
Bonded thru Troy Fain Insurance, Inc.
<PAGE>
JOINDER
Vitran Corporation Inc., as majority shareholder of The Freight
Connection, Inc. hereby joins in this Addendum to acknowledge the modification
of financial covenants of Paragraph 7.02(j) and hereby covenants and agrees not
to take or cause any action that would adversely impact the ability of The
Freight Connection, Inc. to comply with the covenants under Paragraph 7.02(j) of
the foregoing Third Addendum or the Loan Agreement.
The undersigned corporate officer hereby confirms his corporate authority
and capacity in execution of this Joinder.
Witnesses: Vitran Corporation Inc., a
corporation formed under the
laws of the Province of Ontario
/s/ WILLIAM F. CLARK By: /s/ RICHARD D. MCGRAW
as its President
/s/ SHARON B. YOUNKER
(CORPORATE SEAL)
DOMINION OF CANADA
PROVINCE OF ONTARIO
The foregoing instrument was acknowledged before me this 26th day of
January, 1999, by RICHARD D. MCGRAW, President of Vitran Corporation Inc.,on
behalf of the Corporation.
Personally known /s/ WILLIAM F. CLARK
Notary
ATTACHMENTS:
Exhibit "A": Revised Compliance Certificate
<PAGE>
AGREEMENT WAIVING RIGHT TO JURY TRIAL
THIS AGREEMENT WAIVING RIGHT TO JURY TRIAL (this "Agreement") is dated
this 16th day of September, 1998, effective as of the 1st day of September,
1998, by and among REPUBLIC BANK, a Florida banking corporation (the "Bank") and
THE FREIGHT CONNECTION, INC., a Delaware corporation ("Borrower").
RECITALS:
A. On or about of even date herewith, the Bank and Borrower have entered
into a renewal of those certain Loan Documents (herein called, together with any
and all amendments and modifications thereof, the "Loan Documents"), pursuant to
which the Bank has agreed to renew to the Borrower a revolving line of credit
loan in a principal amount not to exceed $2,000,000.00 (the "Loan"), subject to
the terms and conditions set forth in the Loan Documents.
B. In connection with renewal of the Loan, Borrower has executed and
delivered to the Bank that certain Renewal Line of Credit Note (the "Note") and
has executed and delivered and/or accepted certain other Loan Documents. The
capitalized terms set forth in the preceding sentence, and such other
capitalized terms in this Agreement, to the extent not otherwise expressly
defined herein, shall have the respective meanings ascribed thereto in the Loan
Documents.
C. The Bank and Borrower recognize that the Loan is a relatively complex
business transaction, that the Loan Documents are relatively lengthy and
technical in nature and may be susceptible to misinterpretation if isolated
provisions are the subject of review, and that in the event of any dispute as to
the rights and obligations of the parties under the Loan Documents and otherwise
with respect to the Loan, a judge, rather than a jury, would be the most
efficient and best qualified trier of fact. Accordingly, the Bank and Borrower
desire to waive their respective rights to jury trial with respect to any
litigation or other legal proceeding based on any Loan Document, or arising out
of, under or in connection with any Loan Document or the Loan.
AGREEMENTS:
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises of the parties hereto, and in further consideration of the sum of Ten
Dollars ($10) and other good and valuable consideration in hand paid by each
party hereto to the other, the receipt and sufficiency of such consideration
being hereby mutually acknowledged, the Bank and Borrower hereby agree as
follows:
1. The foregoing recitals are true and correct and are hereby incorporated
into this Agreement.
2. The Bank and Borrower each knowingly, voluntarily, and intentionally
waives any right it may have to a trial by jury, with respect to any litigation
or legal proceedings based on, or arising out of the Note or other Loan
Documents, including any course of conduct, course of dealings, verbal or
written statements, or actions or omissions of any party which in any way
relates to the Loan. The parties hereto have specifically discussed and
negotiated this waiver and understand the legal consequences of signing this
Agreement.
<PAGE>
3. This waiver by Borrower is a material inducement for the Bank's renewal
of the Loan, and the Bank's waiver is a material inducement for Borrower's
acceptance of the Loan and for Borrower's renewing the Note.
4. At a party's request, the other parties will join in asking the court
in which suit is pending to try the case and decide all issues, including issues
of fact, without a jury.
5. Notwithstanding the narrower definition ascribed to the term "Loan"
above, the term "Loan" as used in this Agreement will include, without
limitation, any future advances, modifications, renewals, extensions, and
refinancings of the Loan described in the recitals.
6. If for any reason the waivers set forth in paragraph 2 are declared or
found by a court of competent jurisdiction to be invalid, illegal or
unenforceable, and any litigation or other legal proceeding relating to or
arising in connection with the Loan is in fact conducted before an impaneled
jury, each party hereto agrees that it will not seek to have this Agreement or
the existence thereof admitted into evidence with respect to such litigation or
other legal proceeding. The parties hereto acknowledge that damages are an
inadequate remedy for any breach of the covenant set forth in the preceding
sentence, and therefore, such covenant shall be subject to enforcement by
injunctive relief without the need to demonstrate the inadequacy of monetary
damages.
7. If any one or more of the provisions contained in this Agreement is
declared or found by a court of competent jurisdiction to be invalid, illegal or
unenforceable, such provision or portion thereof shall be deemed stricken and
severed and the remaining provisions thereof shall continue in full force and
effect.
8. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, legal and personal
representatives, successors and assigns.
9. The validity, meaning and effect of this Agreement shall be determined
as provided by the law of the State of Florida applicable to agreements made and
to be performed in the State of Florida.
The parties hereto have executed this Agreement on or as of the date first
above written.
BANK BORROWER
REPUBLIC BANK, a Florida THE FREIGHT CONNECTION, INC.,
banking corporation a Delaware corporation
/s/ WILLIAM S. NYE /s/ GEOFF DUNCAN
William S. Nye, as its Vice President Geoff Duncan, as its President
(CORPORATE SEAL) (CORPORATE SEAL)
<PAGE>
CERTIFICATE OF INCUMBENCY AND CORPORATE RESOLUTION
OF
THE FREIGHT CONNECTION, INC.
I HEREBY CERTIFY that I am the duly elected and qualified Secretary of THE
FREIGHT CONNECTION, INC., a Delaware corporation authorized to do business in
the State of Florida (the"Corporation") and the keeper of the records and
corporate seal of the Corporation.
I DO HEREBY FURTHER CERTIFY:
1. That the following is a list and specimen signatures of active officers
of the Corporation, all of whom are incumbent and have not resigned or been
removed from their duties:
President Geoff Duncan /s/GEOFF DUNCAN
Secretary Milissa Sibson /s/ MILISSA SIBSON
2. Copies of the Articles of Incorporation and the Bylaws (and any and all
amendments thereto, if any) are attached hereto and incorporated herein as
Exhibit "A" and Exhibit "B", respectively, and are true and correct copies of
the documents they represent. The Articles of Incorporation and the Bylaws and
any amendments attached hereto are in full force and effect and have not been
further modified or amended in any manner.
3. THE FREIGHT CONNECTION, INC. is in good standing under its current
legal name, and has been continuously qualified to do business in the State of
Florida since May 25, 1993.
4. That the following is a true and correct copy of a resolution duly
adopted, ratified and confirmed at a meeting of the Board of Directors of the
Corporation, held in accordance with the Articles and Bylaws of the Corporation,
at the offices of the Corporation at Tampa, Florida, on the 16th day of
September, 1998.
BE IT RESOLVED, that the Board of Directors of the Corporation deems it
advisable and hereby approves renewal of a line of credit loan (the "Loan")
effective as of September 1, 1998, in the amount not to exceed $2,000,000.00 by
the Corporation from REPUBLIC BANK (the "Bank") as evidenced by a Renewal Note
(the "Note") and a Third Addendum to Loan Agreement (the "Addendum"), and
secured by security interest in accounts receivable, inventory, equipment and
other business assets owned by the Corporation.
BE IT FURTHER RESOLVED, Geoff Duncan, as President of the Corporation, is
hereby authorized, empowered and directed, on behalf of the Corporation, to
execute any and all documents in connection with the Loan, including but without
limitation, the Note and the Addendum, and is further authorized, empowered and
directed, on behalf of the Corporation, to execute any and all other documents
in connection with the Loan.
BE IT FURTHER RESOLVED, that the aforesaid officer of the Corporation is
hereby authorized, empowered and directed to execute all other documents and to
take whatever other action is deemed necessary to carry out the intent of the
foregoing.
<PAGE>
BE IT FURTHER RESOLVED, that the foregoing resolutions shall continue in
full force and effect, and the signature of the designated person of the
Corporation shall be conclusive evidence of his authority to act on behalf of
and in the name of the Corporation as provided herein, until express written
notice to the contrary is duly served upon and received by the Bank.
BE IT FURTHER RESOLVED, that the Bank shall be entitled to rely upon these
resolutions and all reliance by the Bank upon the actions of the Corporation and
the actions of its authorized signatories, shall be justified.
IN WITNESS WHEREOF, I have hereunto affixed my name as Secretary and have caused
the corporate seal of the Corporation hereunto affixed, this 16th day of
September, 1998.
/s/ MILISSA SIBSON
Milissa Sibson, as Secretary
(CORPORATE SEAL)
ATTACHMENTS:
EXHIBIT "A" - Articles of Incorporation
EXHIBIT "B" - By-Laws
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 515,125 1,285,929
<SECURITIES> 0 0
<RECEIVABLES> 4,248,718 3,025,938
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,847,563 4,393,679
<PP&E> 410,741 353,649
<DEPRECIATION> 217,549 146,201
<TOTAL-ASSETS> 5,127,838 4,657,310
<CURRENT-LIABILITIES> 2,788,222 2,494,363
<BONDS> 0 0
0 0
0 0
<COMMON> 4,826 4,826
<OTHER-SE> 2,334,790 2,158,121
<TOTAL-LIABILITY-AND-EQUITY> 5,127,838 4,657,310
<SALES> 28,094,511 26,333,344
<TOTAL-REVENUES> 28,094,511 26,333,344
<CGS> 25,480,324 23,947,680
<TOTAL-COSTS> 25,480,324 23,947,680
<OTHER-EXPENSES> 2,372,252 1,741,498
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 8,349
<INCOME-PRETAX> 301,669 664,415
<INCOME-TAX> 125,000 199,744
<INCOME-CONTINUING> 176,669 464,671
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 176,669 464,671
<EPS-PRIMARY> 0.04 0.10
<EPS-DILUTED> 0.04 0.10
</TABLE>
