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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-3
Rule 13E-3 Transaction Statement
Pursuant to Section 13(e) of the Securities Exchange
Act of 1934 and Rule 13e-3
((S) 240.13e-3) thereunder)
Celadon Group, Inc.
(Name of the Issuer)
Celadon Group, Inc.
Laredo Acquisition Corp.
Odyssey Investment Partners Fund, L.P.
(Name of Person(s) Filing Statement)
Common Stock, par value $0.033 per share
150838 10 0
(Title of Class of Securities)
150838 10 0
(CUSIP Number of Class of Securities)
Stephen Russell
President, Chairman, and Chief Brian Kwait
Executive Officer Laredo Acquisition Corp.
Celadon Group, Inc. c/o Odyssey Investment Partners, LLC
One Celadon Drive 280 Park Avenue, 38th Floor
Indianapolis, IN 46235 New York, New York 10017
(317) 972-7000 (212) 351-7900
Copies to: Richard Trobman
Arnold Jacobs Latham & Watkins
Proskauer Rose LLP 885 Third Avenue
1585 Broadway New York, NY 10022
New York, New York 10036 (212) 906-1200
(212) 969-3000
(Name, Addresses And Telephone Numbers Of Persons Authorized To
Receive Notices And Communications On Behalf Of Person(s) Filing
Statement)
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This statement is filed in connection with (check the appropriate
box):
(a) [x] The filing of solicitation materials or an
information statement subject to Regulation 14A,
Regulation 14C, or Rule 13e-3(c) under the Securities
Exchange Act of 1934.
(b) [ ] The filing of a registration statement under the
Securities Act of 1933.
(c) [ ] A tender offer.
(d) [ ] None of the above.
Check the following box if soliciting materials or information
statement referred to in checking box (a)are preliminary copies: [X]
Calculation of Filing Fee
Transaction Valuation* Amount Of Filing Fee**
$151,548,368 $30,310
* For purposes of calculation of fee only. This amount is based on (i)
the conversion of 7,401,989 shares of common stock, par value $0.033
per share, of Celadon Group, Inc. (the "Celadon Common Stock") into
the right to receive $20.00 in cash per share, (ii) the payment of an
amount, with respect to options to purchase 444,675 shares of Celadon
Common Stock, equal to the difference between the applicable exercise
prices and $20.00 per share of Celadon Common Stock, and (iii) the
payment of an amount, with respect to warrants to purchase 12,121
shares of Celadon Common Stock, equal to the difference between the
exercise price and $20.00 per share of Celadon Common Stock.
** The amount of the filing fee, calculated in accordance with Rule
0-11, equals 1/50 of one percent of the transaction value.
[X] Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filings.
Amount Previously Paid: $30,310
Form or Registration No.: Preliminary Proxy Statement
Filing Party: Celadon Group, Inc.
Date Filed: July 27, 1998
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This Rule 13e-3 Transaction Statement (the "Statement") relates to the Agreement
and Plan of Merger dated as of June 23, 1998 (the "Merger Agreement") by and
between Laredo Acquisition Corp., a Delaware Corporation, ("Merger Sub") and
Celadon Group, Inc., a Delaware Corporation ("Celadon" or the "Company"). Merger
Sub is a newly formed corporation, controlled by Odyssey Investment Partners
Fund, LP ("Odyssey"). Odyssey Capital Partners, LLC, a Delaware limited
liability company, is the general partner of Odyssey and Odyssey Investment
Partners, LLC, a Delaware limited liability company, serves as the manager of
Odyssey. Merger Sub was formed for the purpose of consummating the Merger (as
defined below). A copy of the Merger Agreement is attached as Annex A to the
preliminary proxy statement filed by the Company with the Securities and
Exchange Commission contemporaneously herewith (including all annexes thereto,
the "Preliminary Proxy Statement"). The Preliminary Proxy Statement is attached
hereto as Exhibit (d).
Upon the terms and subject to the conditions of the Merger Agreement,
at the Effective Time (as defined below) (i) Merger Sub will be merged into
Celadon (the "Merger"), with Celadon continuing as the surviving corporation
(the "Surviving Corporation"); (ii) the current directors of Celadon will be
replaced by the directors of Merger Sub (and the majority of the directors of
the Surviving Corporation will be designees of Odyssey); (iii) the shares of
common stock of Merger Sub held by Odyssey will be converted into shares of
common stock, par value $0.033 per share, of the Surviving Corporation (the
"Surviving Corporation Common Stock"), representing approximately 90% of the
outstanding shares of the Surviving Corporation Common Stock; (iv) an officer
and director of Celadon, and an entity which is an affiliate of a director of
Celadon, will retain certain of their existing shares (the "Rollover Shares") of
Celadon Common Stock, which Rollover Shares will represent approximately 10% of
the outstanding shares of the Surviving Corporation Common Stock; (v) certain
officers and directors of Celadon will retain certain of their existing options
to purchase Celadon Common Stock (the "Rollover Options"; and (vi) each share of
Celadon Common Stock outstanding immediately prior to the Effective Time (except
for the Rollover Shares and treasury shares held by Celadon) will be converted
into the right to receive $20.00 per share in cash. Shares of Celadon Common
Stock held in the Company's treasury will be canceled and retired. Except for
the Rollover Options, all outstanding options and warrants exercisable to
purchase shares of Celadon Common Stock will be canceled. The effective time of
the Merger will be the date and time of the filing of the Certificate of Merger
with the Delaware Secretary of State in accordance with the Delaware General
Corporation Law (the "Effective Time"), which is scheduled to occur as soon as
practicable after the satisfaction of certain closing conditions.
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The following Cross Reference Sheet is supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Preliminary Proxy
Statement of the information required to be included in response to the items of
this Statement. The information in the Preliminary Proxy Statement, a copy of
which is attached hereto as Exhibit (d), is hereby expressly incorporated herein
by reference and the responses to each item in this Statement are qualified in
their entirety by the information contained in the Preliminary Proxy Statement.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to such terms in the Preliminary Proxy Statement. The Preliminary Proxy
Statement will be completed and, if appropriate, amended, prior to the time the
definitive Proxy Statement is first sent or given to stockholders of the
Company. This Statement will be amended to reflect such completion or amendment
of the Preliminary Proxy Statement.
The filing of this Statement shall not be construed as an admission by
the Company, or by Merger Sub or Odyssey or any of their affiliates (together,
the "Odyssey Entities"), that the Company is "controlled" by the Odyssey
Entities or that any of the Odyssey Entities is an "affiliate" of the Company
within the meaning of Rule 13e-3 under Section 13(e) of the Securities Exchange
Act of 1934, as amended.
CROSS REFERENCE SHEET
Item in Schedule 13E-3 Location in Proxy Statement
Item l(a) and (b)............... Outside Front Cover Page, "SUMMARY--
The Parties to the Merger", "--The
Special Meeting" and "THE SPECIAL
MEETING--Record Date, Solicitation and
Revocability of Proxies".
Item l(c) and (d)............... "SUMMARY--Market Prices; Dividends"
and "MARKET PRICES AND DIVIDENDS."
Item l(e)....................... Not applicable.
Item l(f)....................... Not applicable.
Item 2(a)-(d).................. Outside Front Cover Page, SUMMARY--
The Parties to the Merger" - Merger
Sub and Odyssey"; "MERGER SUB AND
ODYSSEY"; and "DIRECTORS AND EXECUTIVE
OFFICERS OF THE SURVIVING
CORPORATION".
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Item 2(e) and (f) .............. Negative.
Item 2(g)....................... Not applicable.
Item 3(a) and (b)............... Not Applicable.
Item 4(a) and (b)............... Outside Front Cover Page, "SUMMARY --
Terms of the Merger", "--Effective
Time", "--Conditions to Consummation
of the Merger", "--Interests of
Certain Persons in the Merger","--
Certain Related Agreements", "--No
Solicitation; Fiduciary Duties", "--
Termination; Fees and Expenses";
"SPECIAL FACTORS--Interests of Certain
Persons in the Merger", "--Certain
Related Agreements"; "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT"
and ANNEX A to the Preliminary Proxy
Statement.
Item 5(a)....................... Not applicable.
Item 5(b)....................... Not applicable.
Item 5(c)....................... "SUMMARY--Certain Effects of the
Merger"; "CERTAIN PROVISIONS OF
THE MERGER AGREEMENT--Board of
Directors and Officers of the
Surviving Corporation"; and
"DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION".
Item 5(d) - (g)................. "SUMMARY--Terms of the Merger", "--
Certain Effects of the Merger", "--
Market Prices; Dividends"; "SPECIAL
FACTORS--Certain Effects of the
Merger"; "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT--Treatment of
Securities in the Merger" and "MARKET
PRICES AND DIVIDENDS".
Item 6(a) - (d)................. "SUMMARY--Financing Arrangements" and
"FINANCING OF THE MERGER".
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Item 7(a) - (d)................. Outside Front Cover Page, "SUMMARY--
Reasons for the Merger", "--
Recommendation of the Board", "--
Opinion of Financial Advisor", "--
Interests of Certain Persons in the
Merger", "--Certain Related
Agreements", "--Certain Effects of the
Merger", "--Certain Federal Income Tax
Consequences of the Merger", "--
Appraisal Rights"; "SPECIAL FACTORS--
Background of the Transaction", "--
Reasons for the Merger; Recommendation
of the Board of Directors", "--
Purposes and Reasons of Odyssey and
Merger Sub for the Merger", "--Opinion
of Wasserstein Perella, Financial
Advisor to Celadon", "--Interests of
Certain Persons in the Merger", "--
Certain Effects of the Merger", "--
Certain Federal Income Tax
Consequences of the Merger", "--
Appraisal Rights", "--Certain Related
Agreements"; "CERTAIN PROVISIONS OF
THE MERGER AGREEMENT--General", "--
Treatment of Securities in the Merger"
and "--Payment for Shares".
Item 8(a) and (b)............... "SUMMARY--Reasons for the Merger", "--
Recommendation of the Board", "SPECIAL
FACTORS--Reasons for the Merger;
Recommendation of the Board of
Directors", and "--Position of Odyssey
and Merger Sub as to Fairness of the
Merger".
Item 8(c)....................... "SUMMARY--The Special Meeting", "--
Conditions to the Consummation of the
Merger", "THE SPECIAL MEETING--Quorum;
Required Vote" and "CERTAIN PROVISIONS
OF THE MERGER AGREEMENT--Conditions to
the Consummation of the Merger".
Item 8(d)....................... "SPECIAL FACTORS--Reasons for the
Merger; Recommendation of the
Board of Directors", and
"--Position of Odyssey and
Merger Sub as to Fairness of the
Merger".
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Item 8(e)....................... "SUMMARY--Recommendation of the
Board"; "SPECIAL FACTORS--Background
of the Transaction"; and "--Reasons for
the Merger; Recommendation of
the Board of Directors".
Item 8(f)....................... Not applicable.
Item 9(a) - (c)................. "SUMMARY--Reasons for the Merger", "--
Opinion of Financial Advisor",
"SPECIAL FACTORS--Background of the
Transaction", "--Reasons for the
Merger; Recommendation of the Board of
Directors", "--Opinion of Wasserstein
Perella, Financial Advisor to Celadon"
and ANNEX C to the Preliminary Proxy
Statement.
Item 10(a)...................... "SUMMARY--Interests of Certain Persons
in the Merger","SPECIAL FACTORS--
Interests of Certain Persons in the
Merger", "CERTAIN EFFECTS OF THE
MERGER--Certain Related Agreements";
and "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT".
Item 10(b)...................... Not applicable.
Item 11......................... "SUMMARY--The Special Meeting",
"--Certain Related Agreements";
"SPECIAL MEETING -- Quorum;
Required Vote"; "SPECIAL
FACTORS--Interests of Certain
Persons in the Merger", "CERTAIN
EFFECTS OF THE MERGER--Certain
Related Agreements" and Exhibits
(c)(1)and (c)(2), separately
included herewith.
Item 12(a) and (b).............. "SUMMARY--The Special Meeting", "--
Recommendation of the Board"; "THE
SPECIAL MEETING--Quorum; Required
Vote"; "SPECIAL FACTORS--Reasons for
the Merger; Recommendation of the
Board of Directors", "--Position of
Odyssey and Merger Sub as to Fairness
of the Merger", and "--Interests of
Certain Persons in the Merger--Voting
Agreement".
Item 13(a)...................... "SUMMARY--Appraisal Rights" and
"CERTAIN EFFECTS OF THE MERGER--
Appraisal Rights".
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Item 13(b)...................... Not applicable.
Item 13(c)...................... Not applicable.
Item 14(a)...................... "SUMMARY--Selected Historical
Consolidated Financial Information", and
"SELECTED CONSOLIDATED HISTORICAL
FINANCIAL INFORMATION" and
Exhibit (g) separately included
herewith.
Item 14(b)...................... "Summary--Unaudited Proforma Condensed
Consolidated Financial Information"
and "UNAUDITED PROFORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION".
Item 15(a) - (b)................ "THE SPECIAL MEETING--Record Date;
Solicitation and Revocability of
Proxies".
Item 16......................... Copies of each of the Preliminary
Proxy Statement, Letter to
Stockholders and Notice of Special
Meeting of Stockholders separately
included herewith as Exhibit (d).
Item 17......................... Separately included herewith as
Exhibits.
ITEM 1. ISSUER AND CLASS OF SECURITIES SUBJECT TO THE TRANSACTION.
(a) and (b) The information set forth on the Outside Front Cover Page
and in "SUMMARY--The Parties to the Merger" and "THE SPECIAL MEETING--Record
Date, Solicitation and Revocability of Proxies" of the Preliminary Proxy
Statement is incorporated herein by reference.
(c) and (d) The information set forth in "SUMMARY--Market Prices;
Dividends" and "MARKET PRICES AND DIVIDENDS" of the Preliminary Proxy Statement
is incorporated herein by reference.
(e) Not applicable.
(f) Not applicable.
ITEM 2. IDENTITY AND BACKGROUND.
(a) - (d) This Statement is being filed by Merger Sub, Odyssey and the
Company, which is the issuer of the Celadon Common Stock, the class of equity
securities to which this Statement relates (collectively the "Filing Persons").
The
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information set forth on the Outside Front Cover Page and in "SUMMARY--The
Parties to the Merger", "MERGER SUB AND ODYSSEY" and "DIRECTORS AND EXECUTIVE
OFFICERS OF THE SURVIVING CORPORATION" of the Preliminary Proxy Statement is
incorporated herein by reference.
(e) and (f) During the last five years, none of the Filing Persons,
nor to the best of their knowledge any of the officers, directors, control
persons or general partners of the Filing Persons, (i) has been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) or
(ii) was a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining further violations of, or prohibiting
activities subject to, federal or state securities laws or finding any violation
of such laws.
(g) Not applicable.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a) and (b) Not applicable.
ITEM 4. Terms of the Transaction.
(a) and (b) The information set forth on the Outside Front Cover Page
and in "SUMMARY--Terms of the Merger", "--Effective Time", "--Conditions to
Consummation of the Merger", "--Interests of Certain Persons in the Merger",
"--Certain Related Agreements", "--No Solicitation; Fiduciary Duties", "--
Termination; Fees and Expenses","-- Appraisal Rights"; "SPECIAL
FACTORS-Interests of Certain Persons in the Merger", "--Certain Related
Agreements", "CERTAIN PROVISIONS OF THE MERGER AGREEMENT" and ANNEX A of the
Preliminary Proxy Statement is incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a) Not applicable.
(b) Not applicable.
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(c) The information set forth in "SUMMARY--Certain Effects of the
Merger"; "CERTAIN PROVISIONS OF THE MERGER AGREEMENT-- Board of Directors and
Officers of the Surviving Corporation"; and "DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION" of the Preliminary Proxy Statement is incorporated herein
by reference.
(d) - (g) The information set forth in "SUMMARY--Terms of the Merger",
"-- Certain Effects of the Merger", "--Market Prices; Dividends"; "SPECIAL
FACTORS -- Certain Effects of the Merger"; "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Treatment of Securities in the Merger"; and "MARKET PRICES AND
DIVIDENDS" of the Preliminary Proxy Statement is incorporated herein by
reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) - (d) The information set forth in "SUMMARY--Financing
Arrangements" and "FINANCING OF THE MERGER" of the Preliminary Proxy Statement
is incorporated herein by reference.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) - (d) The information set forth on the Outside Front Cover Page
and in "SUMMARY--Reasons for the Merger", "-- Recommendation of the Board",
"--Opinion of Financial Advisor", "--Interests of Certain Persons in the
Merger", "--Certain Related Agreements", "--Certain Effects of the Merger",
"--Certain Federal Income Tax Consequences of the Merger", "--Appraisal Rights";
"SPECIAL FACTORS--Background of the Transaction", "--Reasons for the Merger;
Recommendation of the Board of Directors", "--Purposes and Reasons of Odyssey
and Merger Sub for the Merger", "--Opinion of Wasserstein Perella, Financial
Advisor to Celadon", "-- Interests of Certain Persons in the Merger", "--Certain
Effects of the Merger", "--Certain Federal Income Tax Consequences of the
Merger", "--Appraisal Rights", "--Certain Related Agreements"; "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT--General", "-- Treatment of Securities in the
Merger" and "- - Payment for Shares" of the Preliminary Proxy Statement is
incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a) - (b) The information set forth in "SUMMARY--Reasons for the
Merger", "--Recommendation of the Board", "SPECIAL FACTORS-- Reasons for the
Merger; Recommendation of the Board of Directors" and "--Position of Odyssey and
Merger Sub as to Fairness of the Merger" of the Proxy Statement is incorporated
herein by reference.
(c) The information set forth in "SUMMARY--The Special Meeting",
"--Conditions to Consummation of the Merger"; "THE SPECIAL MEETING--Quorum;
Required Vote"; and "CERTAIN PROVISIONS
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OF THE MERGER AGREEMENT--Conditions to the Consummation of the Merger" of the
Preliminary Proxy Statement is incorporated herein by reference.
(d) The information set forth in "SPECIAL FACTORS--Reasons for the
Merger; Recommendation of the Board of Directors", and "--Position of Odyssey
and Merger Sub as to Fairness of the Merger" is incorporated herein by
reference.
(e) The information set forth in "SPECIAL FACTORS-- Background of the
Transaction" and "--Reasons for the Merger; Recommendation of the Board of
Directors" of the Preliminary Proxy Statement is incorporated herein by
reference.
(f) Not applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) - (c) The information set forth in "SUMMARY--Reasons for the
Merger", "--Opinion of Financial Advisor", "SPECIAL FACTORS-- Background of the
Transaction", "--Reasons for the Merger; Recommendation of the Board of
Directors", "--Opinion of Wasserstein Perella, Financial Advisor to Celadon" and
ANNEX B of the Preliminary Proxy Statement is incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth in "SUMMARY--Interests of Certain
Persons in the Merger"; "SPECIAL FACTORS--Interests of Certain Persons in the
Merger", "CERTAIN EFFECTS OF THE MERGER-- Certain Related Agreements"; and
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" of the
Preliminary Proxy Statement is incorporated herein by reference.
(b) Not applicable.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
The information set forth in "SUMMARY--Interests of Certain Persons in
the Merger", "CERTAIN EFFECTS OF THE MERGER--Certain Related Agreements",
"SPECIAL FACTORS--Interests of Certain Persons in the Merger" and "--Certain
Related Agreements" of the Proxy Statement is incorporated herein by reference.
See also Exhibits (c)(1) and(c)(2) attached hereto.
ITEM 12. PRESENT INTENTION AND RECOMMENDATIONS OF CERTAIN
PERSONS WITH REGARD TO THE TRANSACTION.
(a) and (b) The information set forth in "SUMMARY--The Special
Meeting", "-Recommendation of the Board"; "THE SPECIAL
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MEETING--Quorum; Required Vote"; "SPECIAL FACTORS--Reasons for the Merger;
Recommendation of the Board of Directors", "-- Position of Odyssey and Merger
Sub as to Fairness of the Merger", and "--Interests of Certain Persons in the
Merger--Voting Agreement" of the Preliminary Proxy Statement is incorporated
herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in "SUMMARY--Appraisal Rights" and
"CERTAIN EFFECTS OF THE MERGER--Appraisal Rights" of the Preliminary Proxy
Statement is incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in "SUMMARY--Selected Historical
Consolidated Financial Information" and "SELECTED HISTORICAL CONSOLIDATED
FINANCIAL INFORMATION" of the Preliminary Proxy Statement is incorporated herein
by reference. In addition, the audited consolidated financial statements of the
Company for the fiscal year ended June 30, 1997, a copy of which is attached
hereto as Exhibit (g), is incorporated herein by reference.
(b) The information set forth in "SUMMARY--Unaudited Pro Forma
Condensed Consolidated Financial Information" and "UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL INFORMATION" of the Preliminary Proxy Statement
is incorporated herein by reference.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) and (b) The information set forth in "THE SPECIAL MEETING--Record
Date, Solicitation and Revocability of Proxies" of the Preliminary Proxy
Statement is incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
Additional information concerning the Merger is set forth in the
preliminary copies of each of the Preliminary Proxy Statement, Letter to
Shareholders and Notice of Special Meeting of Stockholders which are attached
hereto as Exhibit (d).
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Bridge Commitment Letter from Bankers Trust Corporation to
Merger Sub dated June 23, 1998.
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(a)(2) Bank Loan Commitment Letter from General Electric Capital
Corporation to Merger Sub dated June 23, 1998.
(b)(1) Fairness Opinion, dated as of June 22, 1998, delivered by
Wasserstein Perella & Co., (filed herewith as Annex C to the Preliminary Proxy
Statement, which is filed as Exhibit (d) hereto).
(c)(1) Merger Agreement (filed herewith as Annex A to the Preliminary
Proxy Statement, which is filed as Exhibit (d) hereto).
(c)(2) Voting Agreement, dated as of June 23, 1998 among Merger Sub,
Stephen Russell and Hauseatic Corporation.
(d) Copies of each of the Preliminary Proxy Statement of the Company,
Letter to Stockholders, and Notice of Special Meeting of Stockholders.
(e) Section 262 of the Delaware General Corporation Law (filed
herewith as Annex B to the Preliminary Proxy Statement, which is filed as
Exhibit (d) hereto).
(f) None.
(g) The audited consolidated financial statements of the Company for
the fiscal year ended June 30, 1997.
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SIGNATURE
After due inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: July __, 1998
CELADON GROUP, INC.
By: /s/ Stephen Russell
Stephen Russell
President, Chief Executive Officer,
and Chairman
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SIGNATURE
After due inquiry and to the best of its knowledge and belief, each of
the undersigned certifies that the information set forth in this statement is
true, complete and correct.
Dated: ____________, 1998
LAREDO ACQUISITION CORP.
By: /s/
Name: Brian Kwait
Title: President
ODYSSEY INVESTMENT PARTNERS FUND, LP
By: ODYSSEY CAPITAL PARTNERS, LLC,
its General Partner
By: /s/ Stephen Berger
-----------------------------
Name: Stephen Berger
Title: Senior Managing Member
By: /s/ Brian Kwait
-----------------------------
Name: Brian Kwait
Title: Managing Member
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EXHIBIT INDEX
Exhibit No. DESCRIPTION
(a)(1) Bridge Commitment Letter from Bankers Trust Corporation to
Merger Sub dated June 23, 1998.
(a)(2) Bank Commitment Letter from General Electric Capital
Corporation to Merger Sub dated June 23, 1998.
(b)(1) Fairness Opinion, dated as June 22, 1998, delivered by
Wasserstein Perella & Co., (filed herewith as Annex C to the Preliminary Proxy
Statement, which is filed as Exhibit (d) hereto).
(c)(1) Merger Agreement (filed herewith as Annex A to the Preliminary
Proxy Statement, which is filed as Exhibit (d) hereto).
(c)(2) Voting Agreement, dated as of June 23, 1998 among Merger Sub,
Stephen Russell and Hauseatic Corporation.
(d) Copies of each of the Preliminary Proxy Statement of the Company,
Letter to Stockholders, and Notice of Special Meeting of Stockholders.
(e) Section 262 of the Delaware General Corporation Law (filed
herewith as Annex B to the Preliminary Proxy Statement, which is filed as
Exhibit (d) hereto).
(f) None.
(g) The audited consolidated financial statements of the Company for
the fiscal year ended June 30, 1997.
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Exhibit (a)(1)
[BRIDGE COMMITMENT LETTER]
BANKERS TRUST CORPORATION
l3O LIBERTY STREET
NEW YORK, NEW YORK 10006
Laredo Acquisition Corp.
c/o Odyssey Investment Partners Fund, LP
280 Park Avenue (38th Floor)
New York, NY 10017
Attention: Brian Kwait
Re: Celadon Group, Inc. Acquisition Financing
Gentlemen:
We understand that Odyssey Investment Partners Fund, LP ("Odyssey")
and certain other equity investors reasonably satisfactory to us (collectively,
the "Equity Investors") intend to consummate a leveraged recapitalization
transaction (the "Recapitalization") whereby Laredo Acquisition Corp., a
corporation newly formed by the Equity Investors ("Holdings"), would merge with
Celadon Group, Inc. (the "Acquired Business"). Upon consummation of the
Recapitalization, the assets of the Acquired Business will be held by a direct
wholly owned subsidiary of Holdings (the "Operating Company"). We further
understand that the funding requirements for the Recapitalization, the
refinancing of indebtedness of the Acquired Business (the "Refinancing") and
related fees and expenses will be approximately $279.5 million and such amount,
together with ongoing working capital requirements, will be provided solely from
(i) a revolving credit facility of the Operating Company (the "Bank Financing")
of up to $175.0 million, of which up to $7.5 million will be drawn as of the
closing date of the Recapitalization (the "Closing Date"), (ii) a $64.0 million
equity investment in Holdings (including up to $6.4 million of rollover equity
of certain stockholders of the Acquired Business) (the "Equity Financing"),
(iii) the assumption of existing indebtedness and (iv) the issuance and sale of
the Operating Company Debt Securities and the Holdings Discount Debt Securities
(each as defined below). The Recapitalization, the Refinancing, the Bank
Financing, the Equity Financing, any advance of the bridge loan contemplated by
this letter and the issuance and sale of the Operating Company Debt Securities
and the Holdings Discount Debt Securities are herein collectively referred to as
the "Transaction".
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<PAGE>
In connection with the Transaction, you have engaged BT Alex. Brown
Incorporated to sell or place senior subordinated debt securities of the
Operating Company (the "Operating Company Debt Securities") and senior discount
debt securities of Holdings (the "Holdings Discount Debt Securities" and,
together with the Operating Company Debt Securities, the "Debt Securities").
You have requested that Bankers Trust Corporation (the "Lender")
commit to provide to (i) the Operating Company funds in the amount of up to $100
million in the form of a senior subordinated bridge loan to be made available as
described in Section 1 hereof (the "Operating Company Bridge Loan") and (ii)
Holdings funds in the amount of up to $25 million in the form of a senior
discount bridge loan to be made available as described in Section 1 hereof (the
"Holdings Bridge Loan" and, together with the Operating Company Bridge Loan, the
"Bridge Loan").
Accordingly, subject to the terms and conditions set forth or
incorporated in this letter, the Lender agrees with you as follows:
Section 1. Bridge Loan. The Lender hereby commits, subject to the
terms and conditions hereof and in the Summary Term Sheets attached hereto as
Exhibits A and B (collectively, the "Term Sheet"), to provide to the Operating
Company a senior subordinated bridge loan on the Closing Date in the aggregate
principal amount of up to $100 million and to Holdings a senior discount bridge
loan on the Closing Date yielding gross proceeds of up to $25 million. The
proceeds of the Bridge Loan shall be used solely to finance the
Recapitalization, to consummate the Refinancing and to pay related fees and
expenses. The principal terms of the Bridge Loan are summarized in the Term
Sheet.
Unless the Lender's commitment hereunder shall have been terminated
pursuant to Section 7, the Lender shall have the exclusive right to provide the
Bridge Loan or other bridge or interim financing required in connection with the
Transaction.
You hereby represent and covenant that based on your review and
analysis, to the best of your knowledge (a) all information other than
Projections (as defined below), which has been or is hereafter made available to
the Lender by you or your representatives, advisors or affiliates in connection
with the transactions contemplated hereby (the "Information") has been reviewed
and analyzed by you in connection with the performance of your own due diligence
and, to your knowledge, is, or in the case of Information made available after
the date hereof will be, when taken together as a whole, true and correct in all
material respects and does not and will not contain any untrue statement of a
material fact or omit to state a material fact known to you and necessary to
make the statements contained therein, in the light of the circumstances under
which such statements were or are made, not misleading and (b) all financial
projections concerning the Acquired Business that have been or are hereafter
made available to the Lender by you or your representatives, advisors or
affiliates in connection with the transactions contemplated hereby (the
"Projections"), to your knowledge, have been or, in the case of
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<PAGE>
Projections made available after the date hereof, will be prepared in good faith
based upon reasonable assumptions (it being understood that the Projections are
subject to significant uncertainties and contingencies, many of which are beyond
your control and that no assurance can be given that such Projections will be
realized). In arranging and syndicating the Bridge Loan, the Lender will be
using and relying on the Information and the Projections. The representations
and covenants contained in this paragraph shall remain effective until a
definitive financing agreement is executed and thereafter the representations
contained herein shall be terminated and of no further force and effect.
Section 2. Financing Documentation. The making of the Bridge Loan will
be governed by definitive loan and related agreements and documentation
(collectively, the "Financing Documentation") in form and substance reasonably
satisfactory to the Lender and you. The Financing Documentation shall be
prepared by Cahill Gordon & Reindel, special counsel to the Lender. The
Financing Documentation shall contain such covenants, terms and conditions as
are consistent with this letter and the Term Sheet and such other covenants,
terms, conditions, representations, warranties, events of default and remedies
provisions as shall be reasonably satisfactory to the Lender and you.
Section 3. Conditions. The obligation of the Lender under Section 1 of
this letter to provide the Bridge Loan is subject to fulfillment of the
following conditions:
(a) Recapitalization Agreement. Holdings and the Acquired Business
shall have entered into a merger agreement relating to the Recapitalization
(the "Recapitalization Agreement") on terms and in form and substance
reasonably satisfactory to the Lender (it being understood that the draft
merger agreement dated June 23, 1998 is satisfactory to the Lender in all
material respects). The Recapitalization Agreement shall not have been
amended without the Lender's consent, which consent shall not be
unreasonably withheld. All conditions precedent to the Recapitalization
contained in the Recapitalization Agreement shall have been performed or
complied with substantially on the terms set forth therein and not waived
without the Lender's consent, which consent shall not be unreasonably
withheld and simultaneously with the making of the Bridge Loan, the
Recapitalization shall have been consummated.
(b) Financing Documentation. Holdings, the Operating Company and the
Lender shall have entered into the Financing Documentation relating to the
Bridge Loan and the transactions contemplated thereby, on terms and in form
and substance reasonably satisfactory to the Lender, Holdings and the
Operating Company.
(c) Bank Financing. The Operating Company shall have entered into
definitive documentation on terms and in form and substance reasonably
satisfactory to the Lender and the Operating Company with respect to the
Bank Financing (collectively with all documents and instruments related
thereto or delivered in connection therewith, the "Bank Documents") with a
commercial lender or lenders or a syndicate of commercial
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<PAGE>
lenders. The Bank Documents shall be in full force and effect and the
parties thereto shall be in compliance with all material agreements
thereunder.
(d) Equity Financing. On or prior to the Closing Date, Holdings shall
have received cash proceeds of not less than $64 million, which shall be
provided by the Equity Investors and up to $6.4 million shall have been in
the form of rollover equity. The terms of the Equity Financing shall be
otherwise satisfactory to the Lender.
(e) No Adverse Change or Development, Etc. (i) Nothing shall have
occurred since March 31, 1998 (and the Lender shall have become aware of no
facts or conditions not previously known to the Lender) which the Lender
shall reasonably determine could reasonably be expected to have a material
adverse effect on the business, property, assets, liabilities, condition
(financial or otherwise), results of operations or prospects of the
Acquired Business, after giving effect to the Transaction; (ii) a banking
moratorium shall not have been declared by New York or United States
authorities; and (iii) there shall not have been (A) an outbreak or
escalation of hostilities between the United States and any foreign power,
or (B) an outbreak or escalation of any other insurrection or armed
conflict involving the United States or any other national or international
calamity or emergency, or (C) any material change in the general financial
markets of the United States which, in each case in clauses (ii) and (iii)
hereof, in the reasonable judgment of the Lender would materially and
adversely affect the ability to sell or place the Debt Securities.
(f) Capital Structure. The pro forma consolidated capital structure of
Holdings and the Operating Company, after giving effect to the Transaction,
shall be consistent with the capital structure contemplated herein, and
other than the Bank Financing, the Bridge Loan and other indebtedness
reasonably satisfactory to the Lender (including up to approximately $83
million of capital leases), Holdings and its subsidiaries (including the
Operating Company), after giving effect to, and upon consummation of, the
Transaction, shall have no outstanding indebtedness for money borrowed.
(g) Opinions. As of the Closing Date, the Lender shall have received a
legal and other opinions (including with respect to solvency) from persons,
and covering matters, reasonably acceptable to the Lender and customary for
high yield financings.
(h) Take-Out Bank. You shall have engaged BT Alex. Brown Incorporated
(the "Take-Out Bank") to privately place the Debt Securities of Holdings
and the Operating Company, the proceeds of which will be used either to
fund the Transaction or to prepay in whole or in part the Bridge Loan.
Holdings and the Operating Company shall have prepared an offering
memorandum relating to the issuance of Debt Securities (which offering
memorandum shall contain audited, unaudited and pro forma financial
statements meeting the requirements of Regulation S-X under the Securities
Act of 1933, as amended, of Holdings, the Operating Company and the
Acquired Business for the
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<PAGE>
periods required of a registrant on Form S-1) and the Take-Out Bank shall
have been provided with a reasonable opportunity to market such Debt
Securities pursuant to such offering memorandum for such a period as is
customary to complete the sale of securities such as the Debt Securities.
Section 4. Securities Demand. You agree to comply with the provisions
in the fee letter dated the date hereof between you and the Lender (the "Fee
Letter").
Section 5. Indemnification and Contribution. You agree to indemnify
the Lender and each of its affiliates and each person in control of the Lender
and each of its affiliates and the respective officers, directors, employees,
agents and representatives of the Lender and its affiliates and control persons,
as provided in the Indemnity Letter dated the date hereof (the "Indemnity
Letter") and attached hereto.
Section 6. Expenses. In addition to any fees that may be payable to
the Lender hereunder and regardless of whether any of the transactions
contemplated by this letter are consummated, if this letter agreement is
terminated in accordance with Section 7 hereof, the Bridge Loan is made
available or the Financing Documentation is executed and delivered, you hereby
agree to reimburse the Lender for all reasonable fees and disbursements of legal
counsel and consultants, including but not limited to the reasonable fees and
disbursements of Cahill Gordon & Reindel, the Lender's special counsel, and all
of the Lender's travel and other reasonable out-of-pocket expenses incurred in
connection with the Transaction or otherwise arising out of the Lender's
commitment hereunder, in each case contemplated by this Section 6 only to the
extent that either (i) the Recapitalization is consummated or (ii) Holdings
receives reimbursement for such expenses pursuant to the Recapitalization
Agreement.
Section 7. Termination. The Lender's commitment hereunder to provide
the Bridge Loan shall terminate, unless expressly agreed to by the Lender in its
sole discretion to be extended to another date, on the earlier of (A) November
30, 1998 if no portion of the Bridge Loan has been funded (other than as a
result of failure of the Lender to fulfill its obligations hereunder), and (B)
the termination of the Recapitalization Agreement in accordance with the terms
thereof. No such termination of such commitment shall affect your obligations
under Sections 5 and 6 hereof or this Section 7, which shall survive any such
termination.
Section 8. Assignment. This letter shall not be assignable by any
party hereto without the prior written consent of the other parties (other than,
in the case of the Lender, to an affiliate of the Lender that is financially
capable of honoring its obligations as a Lender hereunder, it being understood
that any such affiliate shall be subject to the restrictions set forth in this
Section 8); provided, however, that the Lender shall have the right, in its sole
discretion, to syndicate the Bridge Loan, once funded (or, prior to funding, to
financial institutions reasonably acceptable to you) among banks or other
financial institutions pursuant to the Financing Documentation or otherwise and
to sell, transfer or assign all or any portion of, or interests or
participations in, the Bridge Loan and any notes issued in connection therewith.
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<PAGE>
Section 9. Miscellaneous. THIS LETTER SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES GOVERNING CONFLICTS OF LAWS, AND ANY RIGHT TO TRIAL BY JURY
WITH RESPECT TO ANY CLAIM, ACTION, SUIT OR PROCEEDING ARISING OUT OF OR
CONTEMPLATED BY THIS COMMITMENT LETTER IS HEREBY WAIVED. YOU AND WE HEREBY
SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE
COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY DISPUTE RELATED TO
THIS COMMITMENT LETTER OR ANY MATTERS CONTEMPLATED HEREBY. This letter
(including the provisions of the Indemnity Letter specifically incorporated
herein) embodies the entire agreement and understanding between you and the
Lender and supersedes all prior agreements and understandings relating to the
subject matter hereof. This letter may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
constitute one instrument. Capitalized terms used herein or in the Term Sheet
and not defined herein or therein shall have the meaning provided in the Fee
Letter.
The Lender reserves the right to employ the services of its affiliates
(including the Take-Out Bank) in providing services contemplated by this letter
and to allocate, in whole or in part, to its affiliates certain fees payable to
the Lender in such manner as the Lender and its affiliates may agree in their
sole discretion. You acknowledge that the Lender may share with any of its
affiliates (including the Take-Out Bank) and such affiliates may share with the
Lender (in each case, subject to any confidentiality agreements applicable
thereto), any information related to you or your affiliates, the Acquired
Business (including information relating to creditworthiness) or the
Transaction.
If you are in agreement with the foregoing, please sign and return to
the Lender at 130 Liberty Street, New York, New York 10006 the enclosed copy of
this letter no later than 5:00 p.m., New York time, on June 23, 1998, whereupon
the undertakings of the parties shall become effective to the extent and in the
manner provided hereby. This offer shall terminate if not so accepted by you on
or prior to that time.
Very truly yours,
BANKERS TRUST CORPORATION
By:
Name:
Title:
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<PAGE>
Accepted and Agreed to as of the date first above written:
LAREDO ACQUISITION CORP.
By:
Name:
Title:
By:
Name:
Title:
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EXHIBIT A
Bridge Loan and Term Loan Facility
Summary Term Sheet1
Borrower: A subsidiary (the "Borrower") of the surviving company of the
merger of Laredo Acquisition Corp., a corporation newly formed
by the Equity Investors ("Holdings"), with the Acquired Business.
Guarantors: All obligations under the Bridge Loan shall be unconditionally
guaranteed on a senior subordinated basis by each of the
Borrower's subsidiaries, if any, that guarantee the Bank
Financing (collectively, the "Guarantors").
Lender: Bankers Trust Corporation.
Amount: $100 million senior subordinated bridge loan (the "Bridge Loan").
Maturity: The commitment shall automatically expire on November 30, 1998
if the Bridge Loan has not been funded (other than as a result of
failure of the Lender to fulfill its obligations hereunder). Any
outstanding amount under the Bridge Loan will be required to be
repaid in full on the earlier of (a) one year following the
initial funding date of any portion of the Bridge Loan and (b)
the closing date of any permanent financing; provided, however,
that if the Borrower has failed to raise permanent financing
before the date set forth in (a) above, the Bridge Loan shall be
converted, subject to the conditions outlined under "Conditions
to Conversion of the Bridge Loan", to a senior subordinated term
loan facility (the "Term Loan" and, collectively with the Bridge
Loan, the "Facility") with a maturity of six months after the
scheduled maturity of the Bank Financing (as in effect on the
Closing Date); provided, however, that the Borrower shall pay to
the Lender on the Conversion Date (as defined below), a
conversion cash fee as provided in the Fee Letter (the
"Conversion Fee").
Commitment
and Funding
Fee: As provided in the Fee Letter.
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1 Capitalized terms used herein and not defined herein shall have
the meanings provided in the bridge loan commitment letter to
which this summary term sheet is attached.
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Use of To fund in part the Transaction and to pay related fees and
Proceeds expenses.
Interest
Rate: As provided in the Fee Letter.
Ranking: The obligations of the Borrower and the Guarantors under the
Bridge Loan will be senior subordinated obligations of the
Borrower and the Guarantors and will rank (i) junior in right of
payment to all senior indebtedness of the Borrower or the
Guarantors, as the case may be, (ii) senior in right of payment
with all subordinated indebtedness of the Borrower or the
Guarantors, as the case may be and (iii) PARI PASSU in right of
payment with all senior subordinated indebtedness of the
Borrower or the Guarantors, as the case may be.
Optional
Prepayment: The Borrower may prepay the Bridge Loan or the Term Loan, in
whole or in part, at any time at a redemption price equal to 100%
of the principal amount thereof plus accrued interest thereon;
PROVIDED, HOWEVER, that at such time as the Term Loan
bears interest at the Fixed Rate, the Term Loan shall be subject
to redemption restrictions and premiums typical for high yield
debt securities.
Mandatory
Prepayment: Net proceeds of sales of debt securities or equity securities in
a public offering or private placement by the Borrower or any of
its subsidiaries shall be used to prepay the Bridge Loan plus
accrued interest and any other amount payable thereunder to the
full extent of the net proceeds so received to the extent such
net proceeds (other than from the issuance of Debt Securities)
are not used to retire bank debt. The Borrower will be required
to make an offer to purchase all notes outstanding under the
Bridge Loan or the Term Loan, as the case may be, upon the
occurrence of a Change of Control (to be defined).
Participation/
Assignment
or
Syndication: The Lender may participate out or sell or assign, or syndicate
to other lenders, the Bridge Loan or Term Loan, in whole or in
part, at any time, subject to compliance with applicable
securities laws.
Conditions
to Conversion
of the Bridge
Loan: One year after the Funding Date of any portion of the Bridge
Loan, unless (A) the Borrower or any significant subsidiary
thereof is subject to a bankruptcy or other insolvency
proceeding, (B) there exists a payment default (whether
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<PAGE>
or not matured) with respect to the Bridge Loan or the
Conversion Fee or (C) there exists a default in the payment
when due at final maturity of any indebtedness (excluding the
indebtedness under the Bridge Loan) of the Borrower or any of its
subsidiaries in excess of $5 million for any such default or all
such defaults, or the maturity of such indebtedness shall have
been accelerated, the Bridge Loan shall convert into the Term
Loan; provided, however, that if an event described in
clause (B) or (C) is continuing at the scheduled Conversion
Date but the applicable grace period, if any, set forth in the
events of default provision of the Bridge Loan has not expired,
the Conversion Date shall be deferred until the earlier to occur
of (i) the cure of such event or (ii) the expiration of any
applicable grace period.
Debt Security
Exchange: The Lender may at any time after the Conversion Date require that
the Borrower exchange the Term Loan for long-term notes which
shall bear interest at the Fixed Rate, determined at such time,
and shall have such covenants as are customary for high yield
debt securities issued for cash in the then prevailing market and
reasonably acceptable to the Lender and the Borrower and shall in
addition provide customary and mutually acceptable registration
rights, including, without limitation, a registered exchange
offer or, if not permitted by applicable law to effect an
exchange offer, demand registrations.
Covenants: The Financing Documentation will contain customary affirmative
and negative high yield covenants (with customary carve-outs and
exceptions), including, without limitation, restrictions on the
ability of the Borrower and its subsidiaries to incur additional
indebtedness and to incur indebtedness which is subordinated to
senior debt and not subordinated to the Bridge Loan or Term Loan,
pay certain dividends and make certain other restricted payments
and investments, impose restrictions on the ability of the
Borrower's subsidiaries to pay dividends or make certain payments
to the Borrower, create liens, enter into transactions with
affiliates, and merge, consolidate or transfer substantially all
of their respective assets. Further, during the term of the
Bridge Loan, the covenants will be more restrictive than the
covenants applicable to the Term Loan and will include additional
prohibitive covenants relating to asset sales, certain
acquisitions, certain debt incurrences and certain other
corporate transactions as are customary for such financings.
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Representations
and
Warranties: Customary for transactions of this type.
Conditions
Precedent: Customary for transactions of this type as set forth in Section 3
of the bridge loan commitment letter.
Events
of Default: Customary for transactions of this type, including, without
limitation, payment defaults, covenant defaults, bankruptcy and
insolvency, judgments, cross acceleration of and failure to pay
at final maturity other indebtedness aggregating $5 million
or more, subject to, in certain cases, notice and grace
provisions.
Governing Law
and Forum: The State of New York.
Indemnification
and Expenses
Reimbursement: Customary for transactions of this type.
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EXHIBIT B
Senior Discount Bridge and Term Loan Facility
Summary Term Sheet 2
Borrower: Laredo Acquisition Corp., a corporation newly formed by the
Equity Investors (the "Borrower").
Guarantors: None.
Lender: Bankers Trust Corporation.
Amount: $25 million senior discount bridge loan (the "Senior Discount
Bridge Loan").
Maturity: The commitment shall automatically expire on November 30,
1998 if no portion of the Senior Discount Bridge Loan has been
funded (other than as a result of failure of the Lender to
fulfill its obligations hereunder). Any outstanding amount under
the Senior Discount Bridge Loan will be required to be repaid in
full on the earlier of (a) one year following the initial
funding date of any portion of the Senior Discount Bridge Loan
and (b) the closing date of any permanent financing; provided,
however, that if the Borrower has failed to raise permanent
financing before the date set forth in (a) above, the Senior
Discount Bridge Loan shall be converted, subject to the
conditions outlined under "Conditions to Conversion of the
Senior Discount Bridge Loan", to a senior discount term loan
facility (the "Senior Discount Term Loan" and, collectively with
the Senior Discount Bridge Loan, the "Facility") with a maturity
of 12 months after the scheduled final maturity of the Bank
Financing (as in effect on the Closing Date); provided, however,
that the Borrower shall pay to the Lender on the Conversion Date
(as defined below), a conversion cash fee as provided in the Fee
Letter (the "Conversion Fee").
Commitment
and Funding
Fee: As provided in the Fee Letter.
Use of
Proceeds: To fund in part the Transaction and to pay related fees and
expenses.
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2 Capitalized terms used herein and not defined herein
shall have the meanings provided in the commitment letter to
which this summary term sheet is attached.
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Interest
Rate: As provided in the Fee Letter.
Ranking: The obligations of the Borrower under the Senior Discount
Bridge Loan will be senior obligations of the Borrower and will
rank (i) PARI PASSU in right of payment to all senior
indebtedness of the Borrower, and (ii) senior to any subordinated
indebtedness of the Borrower.
Optional
Prepayment: The Borrower may prepay the Senior Discount Bridge Loan or
the Senior Discount Term Loan, in whole or in part, at any time
at a redemption price equal to 100% of the principal amount
thereof plus accrued interest thereon; PROVIDED, HOWEVER,
that at such time as the Senior Discount Term Loan bears
interest at the Fixed Rate, the Senior Discount Term Loan shall
be subject to redemption restrictions and premiums typical for
high yield debt securities.
Mandatory
Prepayment: Net proceeds of sales of debt or equity securities in a public
offering or private placement by the Borrower shall be used to
prepay the Senior Discount Bridge Loan plus accrued interest
and any other amount payable thereunder to the full extent of the
net proceeds so received. The Borrower will be required to make
an offer to purchase all notes outstanding under the Senior
Discount Bridge Loan or the Senior Discount Term Loan, as the
case may be, upon the occurrence of a Change of Control (to be
defined).
Participation/
Assignment
or
Syndication: The Lender may participate out or sell or assign, or syndicate to
other lenders, the Senior Discount Bridge Loan or Senior
Discount Term Loan, in whole or in part, at any time, subject to
compliance with applicable securities laws.
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<PAGE>
Conditions
to Conversion
of the Senior
Discount One year after the Funding Date of any portion of the Senior
Bridge Loan: Discount Bridge Loan, unless (A) the Borrower or any
significant subsidiary thereof is subject to a bankruptcy or
other insolvency proceeding, (B) there exists a payment default
(whether or not matured) with respect to the Senior Discount
Bridge Loan or the Conversion Fee or (C) there exists a default
in the payment when due at final maturity of any indebtedness
(excluding the indebtedness under the Senior Discount Bridge
Loan) of the Borrower or any of its subsidiaries in
excess of $5 million for any such default or all such defaults,
or the maturity of such indebtedness shall have been
accelerated, the Senior Discount Bridge Loan shall convert into
the Senior Discount Term Loan; PROVIDED, HOWEVER, that if an
event described in clause (B) or (C) is continuing at the
scheduled Conversion Date but the applicable grace period, if
any, set forth in the events of default provision of the Senior
Discount Bridge Loan has not expired, the Conversion Date
shall be deferred until the earlier to occur of (i) the cure of
such event or (ii) the expiration of any applicable grace
period.
Debt Security
Exchange: The Lender may at any time after the Conversion Date require
that the Borrower exchange the Senior Discount Term Loan for
long-term notes which shall bear interest at the Fixed Rate,
determined at such time, and shall have such covenants as are
customary for high yield debt securities issued for cash in the
then prevailing market and acceptable to the Lender and the
Borrower and shall in addition provide customary registration
rights, including, without limitation, a registered exchange
offer or, if not permitted by applicable law to effect an
exchange offer, demand registrations.
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<PAGE>
Covenants: The Financing Documentation will contain customary
affirmative and negative high yield covenants (with customary
carve-outs and exceptions), including, without limitation,
restrictions on the ability of the Borrower and its subsidiaries
to incur additional indebtedness, pay certain dividends and make
certain other restricted payments and investments, impose
restrictions on the ability of the Borrower's subsidiaries to pay
dividends or make certain payments to the Borrower, create
liens, enter into transactions with affiliates, and merge,
consolidate or transfer substantially all of their respective
assets. Further, during the term of the Senior Discount Bridge
Loan, the covenants will be more restrictive than the covenants
applicable to the Senior Discount Term Loan and will include
additional prohibitive covenants relating to asset sales, certain
acquisitions, certain debt incurrences and certain other
corporate transactions as are customary for such financings.
Representations
and
Warranties: Customary for transactions of this type.
Conditions
Precedent: Customary for transactions of this type as set forth in Section 3
of the bridge loan commitment letter.
Events Customary for transactions of this type, including, without
of Default: limitation, payment defaults, covenant defaults, bankruptcy and
insolvency, judgments, cross acceleration of and failure to pay
at final maturity other indebtedness aggregating $5 million or
more, subject to, in certain cases, notice and grace provisions.
Governing Law The State of New York.
and Forum:
Indemnification Customary for transactions of this type.
and Expense
Reimbursement:
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<PAGE>
June 23, 1998 Exhibit (a)(2)
CONFIDENTIAL
Odyssey Investment Partners Fund, LP
Laredo Acquisition Corp.
c/o Odyssey Capital Partners, LLC
280 Park Avenue
West Tower, 38th Floor
New York, New York 10017
Attn: Brian Kwait
Re: Commitment Letter
Ladies and Gentlemen:
You have advised General Electric Capital Corporation (AGE Capital@ or
AAgent@) that Laredo Acquisition Corp. (AHoldco@), a company formed by Odyssey
Investment Partners Fund, LP and certain other investors (collectively, the
AEquity Investor@), intends to acquire, through a leveraged recapitalization
transaction (the ARecapitalization@), Celadon Group, Inc., a Delaware
corporation (the ACompany@), pursuant to a merger agreement (the AMerger
Agreement@) to be entered into with the Company and approved by the respective
boards of Holdco and the Company. We understand that the Recapitalization will
be accomplished through the merger (the AMerger@) of Holdco with and into the
Company with the Company as the surviving entity (the ASurviving Entity@). We
understand that cash proceeds to the stockholders of the Company will be
approximately $151.2 million and that the remaining shares (the ARetained
Shares@) will be retained by certain stockholders of the Company (the
ARollover Stockholders@) and will have a value of approximately $6.4 million.
In addition, in connection with the Recapitalization, the Company will (i)
refinance (the ARefinancing@) approximately $18.9 million (or, if the cash
proceeds of the Subordinated Notes referred to below exceed $100.0 million, an
amount equal to approximately $18.9 million plus such excess) of currently
outstanding indebtedness and capital leases of the Company; (ii) assume
capital leases of the Company not to exceed approximately $83.1 million (or,
if the cash proceeds of such Subordinated Notes exceed $100.0 million, an
amount not to exceed approximately $83.1 million less such excess); and (iii)
pay estimated fees and expenses in connection with the Recapitalization, the
Merger, the Refinancing, and related transactions of approximately $19.9
million. As used herein, the term ACompany Reorganization@ shall refer,
collectively, to the Recapitalization, the Merger, and the Refinancing.
We understand that the total cash proceeds required to consummate the Company
Reorganization will be financed with the proceeds of the following: (i) the
issuance by Celadon Trucking Services, Inc., a New Jersey corporation
(ABorrower@), for cash equal to either (a) approximately $100.0
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million of subordinated bridge financing (the ASubordinated Bridge Notes@) or
(b) $100.0 million to $150.0 million of senior subordinated notes ( the
"Subordinated Permanent Notes"; the Subordinated Bridge Notes and the
Subordinated Permanent Notes are each, as applicable, sometimes referred to
herein as the "Subordinated Notes"); (ii) the issuance by Holdco, for gross
cash proceeds equal to approximately $25.0 million of either pay-in-kind (a)
senior discount debt securities (the "Holdco Permanent Notes") or (b) bridge
notes (the "Holdco Bridge Notes"; the Holdco Permanent Notes and the Holdco
Bridge Notes are each, as applicable, sometimes referred to herein as the
"Holdco Notes"); (iii) the issuance of common equity of Holdco (ACommon
Stock@) to be purchased by the Equity Investor, for cash proceeds of not less
than $57.6 million; and (iv) solely in connection with the Refinancing,
borrowings by Borrower of not more than $7.5 million under a $25.0 million
senior secured revolving credit facility (the ARevolver@).
In furtherance of the foregoing, you have further advised Agent that Borrower
is seeking up to $175,000,000 of financing (the "Financing"), consisting of
the Revolver to be used for working capital purposes and other corporate
purposes (including to partially finance the Refinancing as described above)
and a $150,000,000 Senior Secured Capital Expenditure and Acquisition Line
(the "Capex Line") to be used for certain permitted capital expenditures and
permitted acquisitions. The Company Reorganization, the Financing and all
related transactions are collectively referred to herein as the "Transaction".
Based on our understanding of the Transaction as described above and the
information which you have provided to us, GE Capital is pleased to offer its
commitment to provide the Financing described in this Commitment Letter in the
amount of $175,000,000, subject to the following terms and conditions. In
addition, without committing GE Capital in any manner, financing for the
assets of Gerth Transport and Servicio de Transportacion Jaguar, S.A. de C.V.
could be addressed through a separate Canadian or Mexican facility, as
applicable, in each case mutually satisfactory to GE Capital and Borrower.
AGENT:
GE Capital.
LENDERS:
BORROWER:
GE Capital and other lenders acceptable to GE Capital.
Celadon Trucking Services, Inc., a New Jersey corporation.
SUMMARY OF TERMS
FOR REVOLVER
REVOLVER MAXIMUM AMOUNT:
$25,000,000 (including a Letter of Credit Subfacility of up to $5,000,000).
Letters of Credit will be issued by a bank, and on terms, acceptable to GE
Capital, and will be guaranteed or otherwise backed by GE Capital
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and the Revolver Lenders. GE Capital's Revolver commitment may also include a
swing line subfacility of up to $5,000,000.
TERM:
Sixty (60) months.
AVAILABILITY:
Borrowing availability will be limited to the sum of (i) 85% of Borrower's
eligible accounts receivable, (ii) 100% of the net book value (after giving
effect to reserves for depreciation) of Borrower's eligible tractors and
trailers which at any relevant date of determination are no more than one year
old (the ANew Tractors and Trailers@) and (iii) 80% of the net book value
(after giving effect to reserves for depreciation) of Borrower's eligible
tractors and trailers (other than the New Tractors and Trailers), in each case
less reserves described below (the "Borrowing Base"), but not to exceed the
Revolver Maximum Amount. Agent will retain the right from time to time after
reasonable advance notice to establish or modify advance rates, standards of
eligibility and reserves against availability, in each case in Agent's
reasonable credit judgment. The face amount of all letters of credit
outstanding under the Letter of Credit Subfacility will be reserved in full
against availability. In addition, in no event shall the aggregate amount of
Loans (as hereinafter defined) and letters of credit exceed the Borrowing
Base.
SUMMARY OF TERMS FOR CAPEX LINE
CAPEX MAXIMUM AMOUNT:
Up to $150,000,000.
TERM:
Sixty (60) months.
AVAILABILITY:
Borrowing availability will be limited to the Borrowing Base, but not to
exceed the Capex Maximum Amount. The face amount of all letters of credit
outstanding under the Letter of Credit Subfacility and the greater of (a)
$20,000,000 and (b) the aggregate amount of any loans outstanding under the
Revolver (ARevolving Loans@) will be reserved in full against availability.
For each advance under the Capex Line, the Borrowing Base would include
eligible assets then being acquired with such advance.
TERMINATION:
If the Revolver is terminated, the Capex Line will immediately be due and
payable in full.
TERMS OF GENERAL
APPLICABILITY
USE OF PROCEEDS:
Revolving Loans made on the date the Financing is consummated (the "Closing
Date") will be used for immediate working capital and other corporate purposes
(including up to $7,500,000 to consummate the
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Refinancing). Revolving Loans made after the Closing Date will be used for
Borrower's working capital and other corporate purposes. Loans made under the
Capex Line ("Capex Loans"; together with Revolving Loans, "Loans") after the
Closing Date will be used for Borrower's permitted capital expenditures and
permitted acquisitions (to be defined). No Capex Loans will be made on the
Closing Date.
INTEREST:
Rates:
At Borrower's option, all loans will bear interest at either (a) a floating
rate equal to the Index Rate plus the Applicable Margin or (b) absent a
default, a fixed rate for periods of one, two, three or six months equal to
the reserve adjusted London Interbank Offered Rate ("LIBOR Rate") plus the
Applicable Margin.
Payment Dates:
Interest will be payable quarterly in arrears for Index Rate Loans and at the
expiration of each LIBOR period for LIBOR Loans except that in the case of
LIBOR periods greater than three months in duration, interest will be payable
at three-month intervals and on the expiration of such LIBOR periods.
Other Terms:
APPLICABLE MARGINS:
All interest will be calculated based on a 360 day year and actual days
elapsed. The Financing documentation will contain (a) mutually agreeable LIBOR
breakage provisions and LIBOR borrowing mechanics, (b) LIBOR Rate definitions,
and (c) the Index Rate definition which will equal the higher of the prime
rate as reported by The Wall Street Journal or the overnight Federal funds
rate plus 50 basis points.
Subject to the terms of the fifth bullet point under the heading "Other
Conditions" contained herein, the following Applicable Margins (consisting of
per annum rate margins) shall apply until the Applicable Margins are adjusted
as described below:
Applicable Revolver Index Margin 1.25%
Applicable Revolver LIBOR Margin 2.50%
Applicable L/C Margin 2.50%
Applicable Capex Index Margin 1.25%
Applicable Capex LIBOR Margin 2.50%
Applicable Unused Revolver Facility Fee Margin .50%
Applicable Unused Capex Facility Fee Margin .50%
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Starting with the delivery to Agent of the Surviving Entity's consolidated
quarterly financial statements for the first fiscal quarter ending after the
first anniversary of the Closing Date, the Applicable Margins shall be subject
to adjustment (up or down), prospectively, based on the Surviving Entity's
consolidated financial performance for the trailing four quarters most
recently ended in accordance with the grid attached hereto as Schedule I.
The definitive Financing documentation will contain provisions regarding the
delivery of financial statements, and the timing and mechanics of subsequent
prospective adjustments in Applicable Margins. If a default is continuing at
the time that a reduction in Applicable Margins is to be implemented, that
reduction will be deferred until the first month commencing after the cure or
waiver thereof.
FEES:
In addition to the fees and expenses payable to GE Capital as specified in the
fee letter among Holdco, GE Capital and Odyssey Investment Partners Fund, L.P.
("Odyssey") of even date herewith (the "Fee Letter") and that certain
engagement letter among Holdco, Odyssey and GE Capital dated June 22, 1998
(the "Engagement Letter"), the following fees will be payable to Agent under
the Financing documentation:
Letter of Credit Fee:
Equal to the Applicable L/C Margin per annum (calculated on the basis of a
360-day year and actual days elapsed) on the face amount of the letters of
credit under the Revolver, payable quarterly in arrears, plus any costs and
expenses incurred by Agent in arranging for the issuance or guaranty of
Letters of Credit and any charges assessed by the issuing bank.
Unused Revolver Facility Fee:
Equal to the Applicable Unused Revolver Facility Fee Margin per annum
(calculated on the basis of a 360-day year and actual days elapsed) on the
average unused daily balance of the Revolver, payable quarterly in arrears.
Unused Capex Facility Fee:
Equal to the Applicable Unused Capex Facility Fee Margin per annum (calculated
on the basis of a 360-day year and actual days elapsed) on the average unused
daily balance of the Capex Line, payable quarterly in arrears.
Prepayment Premium:
Payable in the event that the Revolver or the Capex Line commitment is reduced
or terminated other than as a result of Mandatory Prepayments (as hereinafter
defined), except Mandatory Prepayments required by clause (d) under the
heading "Mandatory Prepayments" contained herein, prior to the first
anniversary of the Closing Date, in an amount equal to the Revolver Maximum
Amount or the Capex Maximum Amount, as applicable, multiplied by 1%.
DEFAULT RATES:
From and after the occurrence of a default (after giving effect to any
applicable grace periods, if any), the interest rates applicable to all Loans
and the Letter of Credit Fee will be increased by 2% per annum over the
interest rate or Letter of Credit Fee otherwise applicable and such interest
and fees will be payable on demand.
SECURITY:
To secure all obligations of Borrower to Agent and Lenders, Agent, for itself
and the ratable benefit of Lenders, will receive a fully perfected first
priority security interest in all of the existing and after acquired real and
personal, tangible and intangible assets of all of the Surviving Entity's
domestic subsidiaries, including, without limitation, Borrower and its
domestic subsidiaries, including, without limitation, all cash,
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cash equivalents, bank accounts, accounts, other receivables, chattel paper,
contract rights, inventory (wherever located), instruments, documents,
securities (including, without limitation, all of the capital stock of the
Surviving Entity's domestic subsidiaries and 65% (or such greater percentage
that would not trigger adverse tax consequences to the Surviving Entity or
Borrower) of the capital stock of the Surviving Entity's or any domestic
subsidiaries' direct foreign subsidiaries) (whether or not marketable),
equipment, fixtures, real property interests, franchise rights, patents, trade
names, trademarks, copyrights, intellectual property, general intangibles,
investment property and all substitutions, accessions and proceeds of the
foregoing (including insurance proceeds) (collectively, together with the
assets of the Surviving Entity described in the second succeeding paragraph,
the "Collateral").
All Collateral will be free and clear of other liens, claims and encumbrances,
except for approximately $83,100,000 (or, if the cash proceeds of the
Subordinated Notes exceed $100,000,000, an amount not to exceed approximately
$83,100,000 less such excess) of existing capital leases and other permitted
liens and encumbrances acceptable to Agent.
The Surviving Entity will guarantee the obligations of Borrower under the
Financing documents and, to the extent provided above, pledge the capital
stock of Borrower and its other subsidiaries to Agent and grant to Agent a
security interest in all of its other real and personal assets.
All such obligations will be cross-defaulted to each other and to all other
material indebtedness of the Surviving Entity or any of its subsidiaries. All
such obligations shall be cross-collateralized with each other and cross-
collateralized and guaranteed by any and all domestic subsidiaries of the
Surviving Entity (other than Borrower).
MANDATORY PREPAYMENTS:
Borrower shall make prepayments against principal in the following amounts:
(a) all net proceeds of any sale or other disposition of any of the assets of
the Surviving Entity or any of its subsidiaries (other than the sale of
inventory in the ordinary course), (b) subject to exceptions for repairs and
replacements, all net insurance proceeds or other awards payable in connection
with the loss, destruction or condemnation of any assets of the Surviving
Entity or its subsidiaries, (c) 100% of the net proceeds from the issuance or
sale of debt which is used to refinance debt incurred under the Capex Line to
purchase tractors, trailers and other equipment and (d) 50% of the net cash
proceeds from the sale or issuance of public equity which is not dedicated as
reasonably determined by Agent for permitted capital expenditures and
permitted acquisitions (to be defined).
These payments will be applied as follows: (a) net proceeds from the
disposition of the Surviving Entity's or any of its subsidiaries tractors or
trailers, any net insurance proceeds related to the loss, destruction or
condemnation of such assets or any net proceeds from the sale or issuance of
public equity or debt securities shall first be applied against outstanding
Capex Loans until such Loans are repaid in full, second against outstanding
swing line advances until such advances are repaid in full and third against
outstanding Revolving Loans; and (b) all other such payments shall be applied
first against outstanding swing line advances until such advances are repaid
in full, second against outstanding Revolving Loans until such Loans are
repaid in full and third against outstanding Capex Loans. In general, such
payments will not require a permanent reduction in availability; provided,
that such net proceeds attributable to the sale or issuance of debt or public
equity and requiring prepayments above shall in an amount equal to any such
proceeds permanently reduce commitments under the Capex Line. In addition to
the foregoing and without requiring a mandatory prepayment of outstanding
Loans, the net proceeds from capital leases used to finance the purchase of
tractors, trailers and other equipment which was not previously financed with
proceeds of the Capex Line will permanently reduce commitments under the Capex
Line in an amount equal to the lesser of (a) 100% of such proceeds and (b) the
excess of (i) the Capex Maximum Amount over (ii) outstanding Capex Loans at
the time of such issuance.
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VOLUNTARY PREPAYMENTS:
Borrower may voluntarily prepay all or any portion of the Revolver and Capex
Loans and may voluntarily terminate or reduce the commitment under the
Revolver and/or Capex Line in minimum amounts to be agreed upon at any time,
upon at least 3 days' (in the case of prepayments of Loans bearing interest
based on the LIBOR Rate and otherwise one day) prior written notice. All
voluntary prepayments will be accompanied by the prepayment premium described
above and LIBOR breakage costs, if any.
FINANCIAL REPORTING:
The Financing documentation will require the Surviving Entity and Borrower and
each of their respective subsidiaries, on a monthly and quarterly basis, to
provide to Agent internally prepared financial statements. Annually, the
Surviving Entity and Borrower will be required to provide audited financial
statements, a board approved operating plan for the subsequent year, and a
reliance letter from their respective auditors. Borrower will provide, on an
as requested (and in no event less than monthly) basis, Borrowing Base
Certificates and other information (including, without limitation, fleet
aging, additions and retirements) reasonably requested by Agent. All financial
statements (other than monthly statements which shall be on a stand alone
basis) shall be prepared on a consolidated and consolidating basis.
DOCUMENTATION:
The Financing documentation will contain representations and warranties;
conditions precedent; affirmative, negative and financial covenants
(including, without limitation, maximum senior leverage ratio of 3.0 to 1.0,
minimum EBITDA and maximum fixed charge coverage ratio); indemnities; events
of default and remedies as required by Agent. Relevant documents, such as
Transaction documents, subordination agreements, inter- creditor agreements,
equity or stockholder agreements, incentive and employment agreements, tax
agreements, and other material agreements (including all documents relating to
the Subordinated Notes, the Holdco Notes and other indebtedness to remain
outstanding after the Closing Date), to be acceptable to Agent.
SYNDICATION:
Upon acceptance of this letter, GE Capital's affiliate, GECC Capital Markets
Group, Inc. ("GECMG"), will initiate discussions with potential lenders
relating to the syndication of the Financing. Each of Odyssey, Holdco, Company
and Borrower will agree to a syndication timetable that allows for the primary
syndication of the Financing prior to the Closing Date, but the success of the
syndication will not be a condition precedent to the closing of the Financing.
GECMG will syndicate the transaction with the assistance of Borrower, each of
Odyssey, Holdco and the Company. Such assistance shall include, but not be
limited to (i) prompt assistance in the preparation of the Information
Memorandum and the verification of the completeness and accuracy of the
information contained therein; (ii) preparation of offering materials and
projections by Borrower, Odyssey, Holdco and the Company and their respective
advisors taking into account the proposed Transaction and Financing; (iii)
providing GECMG with all information reasonably deemed necessary by GECMG to
successfully complete the syndication; (iv) confirmation as to the accuracy
and completeness of such offering materials, information and projections; (v)
participation of Holdco's, the Company's and Borrower's senior management and
senior personnel of Odyssey in meetings and conference calls with potential
lenders at such times and places as GECMG may reasonably request; and (vi)
using best efforts to ensure that the syndication efforts benefit from
Odyssey's, the Company's and Borrower's existing lending relationships.
GECMG may provide to industry trade organizations information with respect to
the Financing that is necessary and customary for inclusion in league table
measurements.
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OTHER TERMS:
GE Capital's commitment with respect to the Financing is conditioned upon
satisfaction of the following conditions as of the Closing Date, and the
Financing documents will require, among other things, compliance with
covenants pertaining to the following (all in form and substance satisfactory
to Agent):
* Cash management system for the Surviving Entity and its subsidiaries
acceptable to Agent. Agent will have springing cash dominion upon the
occurrence of certain events (to be mutually agreed upon) by means of
lockboxes and blocked account agreements executed on or before the Closing
Date.
* Commercially reasonable insurance protection for the Surviving Entity's,
Borrower's and their respective subsidiaries' industry, size and risk and
Agent's collateral protection (terms, underwriter, scope, and coverage to be
acceptable to Agent); Agent named as loss payee (property/casualty) and
additional insured (liability); and non-renewal/cancellation/amendment riders
to provide 30 days advance notice to Agent.
* Compliance with applicable laws, decrees, and material agreements or
obtaining of applicable consents and waivers.
* General and collateral releases from prior lenders, customary corporate and
estoppel certificates; landlord/mortgagee/bailee waivers; and consignment or
similar filings to the extent applicable.
* Limitations on commercial transactions, management agreements, service
agreements, and borrowing transactions between the Surviving Entity, Borrower
and its subsidiaries and their respective officers, directors, employees and
affiliates.
* Limitations on, or prohibitions of, cash dividends, other distributions to
equity holders, payments in respect of the Holdco Notes, the Subordinated
Notes, the Shareholder Notes (as hereinafter defined) and other subordinated
debt, payment of management fees to affiliates and redemption of common or
preferred stock; provided, that so long as no default has occurred or would
occur as a result thereof the Surviving Entity shall be permitted in
connection with certain terminations of employment to purchase certain of the
Rollover Stockholders' Retained Shares at a purchase price not to exceed their
fair market value if after giving effect to such purchase (a) the Surviving
Entity is in pro
-forma compliance with all covenants contained in the definitive Financing
documentation and (b) there is at least $5,000,000 of excess availability
under the Revolver. In addition to the conditions contained in the
foregoing proviso, the Surviving Entity shall not be permitted to pay more
than $4,000,000 in cash in the aggregate for all such Retained Shares so
purchased and any additional consideration paid for such purchases shall
consist of unsecured notes issued by the Surviving Entity (the
"Shareholder Notes").
* Prohibitions on additional indebtedness except for additional capital leases
incurred after the Closing Date by Borrower in an amount and subject to other
conditions acceptable to the Lenders;
provided, that at any date of determination if there are less than (a)
$40,000,000 of Capex Loans outstanding both before and after giving effect
to the incurrence of any such additional capital lease, the ratio of
outstanding Capex Loans to capital leases incurred since the Closing Date
after giving effect to such incurrence shall be at least 4 to 1 or (b)
$70,000,000 but at least $40,000,000 (such incremental amount of Capex
Loans being referred to herein as the "40 to 70 Capex Loans") of Capex
Loans outstanding both before and after giving effect to the incurrence of
any such additional capital lease, the ratio of outstanding
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40 to 70 Capex Loans to the amount of outstanding capital leases incurred
since the Closing Date after giving effect to such incurrence thereof less
$10,000,000 shall be at least 2 to 1.
* Other than the Merger and permitted acquisitions (to be defined),
prohibitions of mergers, acquisitions or sale of the Surviving Entity,
Borrower or any of their respective subsidiaries, their stock or a material
portion of their assets.
* Prohibitions of a direct or indirect change in control of the Surviving
Entity or Borrower.
* Limitations on capital expenditures.
* Agent's and Lenders' rights of: Inspection; access to facilities, management
and auditors. Without limiting the foregoing, Agent's auditors shall conduct a
field examination prior to the Closing Date for purposes of determining
accounts receivables' eligibility for inclusion in the Borrowing Base.
* Customary yield protection provisions, including, without limitation,
provisions as to capital adequacy, illegality, changes in circumstances and
withholding taxes.
* If and to the extent requested by Agent after the Closing Date, appraisals
of Borrower's fleet in scope and form, by firms, and with results acceptable
to Agent; provided that, notwithstanding anything to the contrary contained
herein, unless a default has occurred Borrower shall not be responsible for
the cost of such appraisals.
* Governing law: New York.
OTHER CONDITIONS:
GE Capital's commitment with respect to the Financing will be further
conditioned upon the following (all to Agent's satisfaction):
* Delivery of Transaction documents, including the Merger Agreement, to Agent
in a timely manner. Completion of the Company Reorganization on terms and
conditions reasonably acceptable to GE Capital with (i) the approval of the
respective boards of the Company and Holdco prior to any public announcement,
and (ii) the prior removal by the Company of any "poison pill provisions". In
addition, the Merger Agreement shall have been adopted by the stockholders of
the Company in accordance with the General Corporation law of the State of
Delaware. The sources and uses of funds for the Company Reorganization
(assuming the issuance of Subordinated Bridge Notes and Holdco Bridge Notes)
will be as set forth on Schedule II hereto. Upon consummation of the Company
Reorganization, the Surviving Entity will be the sole shareholder of Borrower.
* Corporate structure, capital structure (including, without limitation, the
equity to be contributed by the Equity Investor and the Subordinated Notes and
the Holdco Notes), any contingent liabilities, and tax and legal effects
resulting from the Transaction to be acceptable. At or prior to closing the
Equity Investor will
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contribute at least $57,600,000 of cash equity and the Rollover Stockholders
will retain Retained Shares, in each case on terms acceptable to Agent.
* The Surviving Entity shall be a holding company whose only asset shall be
the capital stock of Borrower and which shall not engage in any activities
other than those associated with being the sole shareholder of Borrower
and the issuer of the Holdco Notes and the Shareholder Notes, if any, and,
without limiting the foregoing, shall not incur any liabilities other than
pursuant to the Holdco Notes, the Shareholder Notes, the Financing
documents and legal, accounting and other corporate overhead expenses
acceptable to Agent.
* There shall be no material change, inaccuracy or omission in any information
previously provided to Agent or to the Lenders by Odyssey, Borrower, Holdco,
or the Company.
* As of the Closing Date, Holdco and Borrower shall have received at least
$125,000,000 (but not more than $175,000,000) in cash proceeds from the
issuance of the Subordinated Notes and the Holdco Notes. Terms of the Holdco
Bridge Notes and the Subordinated Bridge Notes, if applicable, must be
reasonably acceptable to Agent and terms of the Holdco Permanent Notes and the
Subordinated Permanent Notes, if applicable, must be acceptable to Agent, and
all obligations of Holdco, the Surviving Entity, Borrower and their respective
subsidiaries under or in respect of the Financing and all liens granted to
Agent and Lenders to secure such obligations must constitute permitted senior
indebtedness and senior liens, as applicable, under the terms of the
Subordinated Notes and the Holdco Notes. Without limiting the immediately
preceding sentence, the outstanding principal amount of the Subordinated
Bridge Notes, if applicable, shall equal $100,000,000 and the cash interest
rate thereon shall not exceed 14.75% per annum (it being understood, without
limiting any other rights of Agent or the Lenders hereunder, that a cash rate
of 14.75% per annum or lower on the Subordinated Bridge Notes is acceptable to
Agent). If Borrower issues Subordinated Bridge Notes on the Closing Date and
such notes are not refinanced within six months thereafter in connection with
the issuance of Subordinated Permanent Notes in a principal amount of not less
than $150,000,000 and otherwise acceptable to Agent, (a)
each of the Applicable Margins otherwise applicable hereunder (other than
the Applicable Unused Revolver Facility Fee Margin and the Applicable
Unused Capex Facility Fee Margin) shall be increased by 25 basis points
until such time, if at all, such acceptable refinancing occurs and (b)
Agent and the requisite Lenders in their discretion shall have the right
to require that Borrower prepay with proceeds of the Loans capital leases
assumed at closing in an amount determined by Agent and requisite Lenders.
* A letter from the Chief Executive Officer or Chief Financial Officer of the
Surviving Entity as to each of the Surviving Entity's, Borrower's and their
respective subsidiaries' solvency at closing after taking into account the
Financing and the Transaction; a pro forma consolidated balance sheet for each
of the Surviving Entity and Borrower.
* Total indebtedness of the Surviving Entity and its subsidiaries (including
the Financing, the Subordinated Notes, the Holdco Notes and capital leases) at
closing not to exceed $217,000,000.
* There shall be excess availability under the Revolver for Borrower at
closing (on a pro forma basis without deterioration of working capital) of at
least $17,500,000.
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* Agent shall be satisfied with the status of potential dissenters' rights
that may be exercised in connection with the Merger or retain the right to
reserve against availability as a result thereof.
* The Company shall have received a satisfactory fairness opinion with
respect to the consideration to be received by the stockholders of the
Company in connection with the Merger and provided a copy of such opinion
to Agent.
* Agent shall have received the Company's audited financial statements for the
period ending June 30, 1998 and unaudited financial statements for each
monthly period thereafter ending 30 days prior to the Closing Date.
* With respect to any real estate collateral, receipt of title insurance
policies in amount, form and from an issuer satisfactory to Agent.
* Receipt of all necessary or appropriate third party and governmental
waivers and consents.
* Satisfactory opinions of counsel from the Surviving Entity's and Borrower's
counsel (including local counsel as requested) reasonably acceptable to Agent.
* As of the Closing Date, there will have been (i) since March 31, 1998, no
material adverse change, individually or in the aggregate, in the business,
financial or other condition of the Company, or the Company and its
subsidiaries taken as a whole, the industry in which Borrower operates, or the
collateral which will be subject to the security interest granted to Agent and
Lenders or in the prospects or projections of
the Surviving Entity, or the Surviving Entity and its subsidiaries taken
as a whole, (ii) no litigation commenced which, if successful, would have
a material adverse impact on the Surviving Entity, or the Surviving Entity
and its subsidiaries taken as a whole, their business, or Borrower's
ability to repay the loans, or which would challenge the transactions
under consideration, (iii) since March 31, 1998, no material increase in
the liabilities, liquidated or contingent, of the Company, Borrower or
Company and its subsidiaries taken as a whole, or material decrease in the
assets of the Company, Borrower or Company and its subsidiaries taken as a
whole except as a result of sales of assets in the ordinary course of
business; and (iv) since the date hereof, no change in loan syndication,
financial or capital market conditions generally that in GECMG's judgment
would materially impair syndication of the Financing.
GE Capital's commitment hereunder is subject to the execution and delivery of
final legal documentation acceptable to GE Capital and its counsel
incorporating, without limitation, the terms set forth in this Commitment
Letter.
You agree that GECMG will act as the sole syndication agent for the Loans and
that no additional agents, co-agents or arrangers will be appointed, or other
titles conferred, without GECMG's consent. You agree that no Lender will
receive any compensation of any kind for its participation in the Financing,
except as expressly provided for in this letter or the Fee Letter.
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To ensure an orderly and effective syndication of the Financing, you agree
that until the termination of the syndication, as determined by GECMG, you
will not, and will not permit any of your affiliates to, syndicate or issue,
attempt to syndicate or issue, announce or authorize the announcement of the
syndication of or issuance of, or engage in discussions concerning the
syndication or issuance of, any debt facility or debt security for the Company
or Borrower or to finance the Company Reorganization (including any renewals
thereof), other than the Subordinated Notes and the Holdco Notes, without the
prior written consent of GECMG. You also acknowledge and agree that within the
last 365 days no person has attempted to syndicate for the Company or Borrower
a financing substantially similar to the Financing.
By signing this Commitment Letter, Odyssey, Holdco and Agent acknowledge that
this Commitment Letter supersedes any and all discussions and understandings,
written or oral, between or among GE Capital and any other person as to the
subject matter hereof, including, without limitation, any prior commitment
letters, if any; provided, however, that the Engagement Letter shall survive
the execution and delivery of this Commitment Letter and remain in full force
and effect in accordance with its terms. No amendments, waivers or
modifications of this Commitment Letter or any of its contents shall be
effective unless expressly set forth in writing and executed by Odyssey,
Holdco and Agent. This Commitment Letter is being provided to you on the
condition that, except as required by law, neither it, the Fee Letter, the
Engagement Letter, nor their contents will be disclosed publicly or privately
except to those individuals who are yours or, in the case of the Commitment
Letter, the Company's officers, employees or advisors who have a need to know
of them as a result of their being specifically involved in the Transaction
under consideration and then only on the condition that such matters may not,
except as required by law, be further disclosed. No person, other than the
parties signatory hereto, is entitled to rely upon this Commitment Letter or
any of its contents. No person shall, except as required by law, use the name
of, or refer to, GE Capital, or any of its affiliates, in any correspondence,
discussions, press release, advertisement or disclosure made in connection
with the Transaction without the prior written consent of GE Capital.
If the Financing closes, the Corporate Reorganization or substantially similar
transaction closes with Odyssey or any of its affiliates without the financing
contemplated herein being provided by GE Capital (other than solely by reason
of GE Capital's failure to honor its commitment hereunder) or Holdco is
reimbursed by the Company for its expenses as contemplated by Section 6.4 of
the Merger Agreement or receives a fee in connection with a Payment Event (as
defined in the Merger Agreement), Holdco agrees to pay upon demand to GE
Capital all out-of-pocket expenses which may be incurred by GE Capital, GECMG
or any of their respective affiliates in connection with the Financing or the
Transaction (including all reasonable legal, environmental, and other
consultant costs and fees, including costs and fees related to noting the
Agent's lien on certificate of titles, incurred in the preparation of this
Commitment Letter, the Fee Letter, the Engagement Letter, and evaluation of
and documenting of the Financing and the Transaction). Regardless of whether
the commitment herein is terminated or the Transaction or the Financing
closes, Holdco shall indemnify and hold harmless each of GE Capital, GECMG,
the Lenders, their respective affiliates, and the directors, officers,
employees, agents, attorneys and representatives of any of them (each, an
"Indemnified Person"), from and against all suits, actions, proceedings,
claims, damages, losses,
<PAGE>
<PAGE>
liabilities and expenses (including, but not limited to, attorneys' fees and
disbursements and other costs of investigation or defense, including those
incurred upon any appeal), which may be instituted or asserted against or
incurred by any such Indemnified Person in connection with, or arising out of,
this Commitment Letter, the Fee Letter, the Engagement Letter, the Financing
or the Transaction under consideration, the documentation related thereto, any
other financing related thereto, any actions or failures to act in connection
therewith, and any and all environmental liabilities and legal costs and
expenses arising out of or incurred in connection with any disputes between or
among any parties to any of the foregoing, and any investigation, litigation,
or proceeding related to any such matters. Notwithstanding the preceding
sentence, indemnitors shall not be liable for any indemnification to an
Indemnified Person to the extent that any such suit, action, proceeding,
claim, damage, loss, liability or expense results primarily from that
Indemnified Person's gross negligence or willful misconduct, as finally
determined by a court of competent jurisdiction. Under no circumstances shall
GE Capital, GECMG, or any of their respective affiliates be liable to you or
any other person for any punitive, exemplary, consequential or indirect
damages in connection with this Commitment Letter, the Fee Letter, the
Engagement Letter, the Transaction, the Financing, the documentation related
thereto or any other financing, regardless of whether the commitment herein is
terminated or the Transaction or the Financing closes. Without limiting any
obligation under the Engagement Letter or otherwise, Odyssey shall have no
obligations under this paragraph.
Odyssey, Holdco and Agent hereby expressly waive any right to trial by jury of
any claim, demand, action or cause of action arising in connection with this
Commitment Letter, the Fee Letter, the Engagement Letter, any transaction
relating hereto or thereto, or any other instrument, document or agreement
executed or delivered in connection herewith or therewith, whether sounding in
contract, tort or otherwise. Odyssey, Holdco and Agent consent and agree that
the state or federal courts located in New York County, City of New York, New
York, shall have exclusive jurisdiction to hear and determine any claims or
disputes between or among any of the parties hereto pertaining to this
Commitment Letter, the Fee Letter, the Engagement Letter, the Financing or the
Transaction under consideration, any other financing related thereto, and any
investigation, litigation, or proceeding related to or arising out of any such
matters, provided, that Odyssey, Holdco and Agent acknowledge that any appeals
from those courts may have to be heard by a court located outside of such
jurisdiction. Odyssey, Holdco and Agent expressly submit and consent in
advance to such jurisdiction in any action or suit commenced in any such
court, and hereby waive any objection which either of them may have based upon
lack of personal jurisdiction, improper venue or inconvenient forum.
Odyssey and Holdco acknowledge that GE Capital has entered into this
Commitment Letter and the Fee Letter in reliance on, among other things, that
Holdco would be entitled to payment of a breakup fee and reimbursement of
certain expenses from the Company pursuant to Section 6.4 of the draft of June
23, 1998 of the Merger Agreement. Odyssey and Holdco agree that (i) the
definitive Merger Agreement executed by the parties shall include the breakup
fee and the expense reimbursement provisions in favor of Holdco as set forth
in the above-referenced draft Merger Agreement and that such provisions shall
not be amended, modified or waived without the prior
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<PAGE>
written consent of GE Capital, and (ii) GE Capital shall have no obligation to
incur any expenses in connection with the Transaction unless and until such
definitive Merger Agreement is executed by the parties.
This Commitment Letter is governed by and shall be construed in accordance
with the laws of the State of New York applicable to contracts made and
performed in that State.
GE Capital shall have access to all relevant facilities, personnel and
accountants, and copies of all documents which GE Capital may request,
including business plans, financial statements (actual and pro forma), books,
records, and other documents.
This Commitment Letter shall be of no force and effect unless and until this
Commitment Letter and the Fee Letter are each executed and delivered to GE
Capital on or before 5:00 p.m. New York City time on June 24, 1998 at 335
Madison Avenue, 12th Floor, New York, New York 10017. Once effective, GE
Capital's commitment to provide financing in accordance with the terms of this
Commitment Letter shall cease if the Transaction does not close, or the
Financing is not funded for any reason, on or before November 30, 1998 and
neither GE Capital nor any of its affiliates shall have any liability to any
person in connection with its refusal to fund the Financing or any portion
thereof after such date.
We look forward to continuing to work with you toward completing this
transaction.
Sincerely,
GENERAL ELECTRIC CAPITAL CORPORATION
By: Eileen McColgan
Its Duly Authorized Signatory
<PAGE>
<PAGE>
SCHEDULE I
APPLICABLE MARGINS
If Total Leverage Ratio (to be Level of
defined but excluding Holdco Applicable Margins:
Notes) is:
<4.5 Level I
<5.25, but > 4.5 Level II
<6.0, but > 5.25 Level III
<6.75, but >6.0 Level IV
>6.75 Level V
- --------------------------------------- --------------------------------------
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Applicable Margins1
Level I Level II Level III Level IV Level V
------- -------- ------------------- -------- -------
<S> <C> <C> <C> <C> <C>
Applicable Revolver 0.50% 0.75% 1.0% 1.25% 1.50%
Index Margin
Applicable Revolver LIBOR 1.75% 2.00% 2.25% 2.50% 2.75%
Margin
Applicable Capex Index 0.50% 0.75% 1.0% 1.25% 1.50%
Margin
Applicable Capex LIBOR 1.75% 2.00% 2.25% 2.50% 2.75%
Margin
Applicable L/C Margin 1.75% 2.00% 2.25% 2.50% 2.75%
Applicable Unused Revolver .50% .50% .50% .50% .50%
Facility Fee Margin
Applicable Unused Capex .50% .50% .50% .50% .50%
Facility Fee Margin
</TABLE>
- ----------------------
1. Each of the rates set forth herein (other than the Applicable Unused
Revolver Facility Fee Margin and the Applicable Unused Capex Facility Fee
Margin) shall be increased by 25 basis points if required by the fifth bullet
point under the heading "Other Conditions" contained in this Commitment Letter.
<TABLE>
<CAPTION>
USES
- --------------------------------------------------------------------------------
<S> <C>
Seller Consideration $157,600,000
- ------------------------------------------------- -----------------------------
Capital Leases 83,100,000
- ------------------------------------------------- -----------------------------
Existing Debt 18,900,000
- ------------------------------------------------- -----------------------------
Fees & Expenses 19,900,000
TOTAL
- ------------------------------------------------- -----------------------------
$279,500,000
</TABLE>
<PAGE>
<PAGE>
SCHEDULE II
SOURCES AND USES
SOURCES
- --------------------------------------------------------------------------------
Capital Lease Obligations $ 83,100,000
- ------------------------------------------------- -----------------------------
Revolver 7,400,000
- ------------------------------------------------- -----------------------------
Subordinated Bridge Notes 100,000,000
- ------------------------------------------------- -----------------------------
Holdco Bridge Notes 25,000,000
- ------------------------------------------------- -----------------------------
Odyssey and Other Investors Cash 57,600,000
Equity
- ------------------------------------------------- -----------------------------
Management Rollover 6,400,000
TOTAL
- ------------------------------------------------- -----------------------------
$279,500,000
<PAGE>
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EXECUTION COPY
VOTING AGREEMENT
AGREEMENT dated as of June 23, 1998 by and between LAREDO ACQUISITION
CORP., a Delaware corporation ("Acquisition"), and the other parties signatory
hereto (each a "Stockholder").
RECITALS
A. Concurrently herewith, Acquisition, and Celadon Group, Inc., a
Delaware corporation (the "Company"), are entering into an Agreement and Plan of
Merger of even date herewith (as such agreement may be amended from time to
time, the "Merger Agreement"; capitalized terms used but not defined herein
shall have the meanings set forth in the Merger Agreement) pursuant to which
(and subject to the terms and conditions specified therein) Acquisition will be
merged with and into the Company (the "Merger").
B. As a condition to Acquisition entering into the Merger Agreement,
Acquisition requires that each Stockholder enter into, and each such Stockholder
hereby agrees to enter into, this Agreement.
AGREEMENT
To implement the foregoing and in consideration of the mutual
agreements contained herein, the parties hereby agree as follows:
3. Representations and Warranties of Stockholders. Each Stockholder hereby
severally and not jointly represents and warrants to Acquisition as follows:
A. Ownership of Shares.
i. Such Stockholder is the record holder or beneficial owner of
the number of shares of Company Common Stock as is set forth opposite
such Stockholder's name on Schedule I hereto (such shares shall
constitute the "Existing Shares", and together with any shares of
Company Common Stock acquired of record or beneficially by such
Stockholder in any capacity after the date hereof and prior to the
termination hereof, whether upon exercise of options, conversion of
convertible securities, purchase, exchange or otherwise, shall
constitute the "Shares").
ii. On the date hereof, the Existing Shares set forth opposite
such Stockholder's name on Schedule I hereto constitute all of the
outstanding shares of Company Common Stock owned of record or
beneficially by such Stockholder. Such Stockholder does not have
record or beneficial ownership of any Shares not set forth on Schedule
I hereto.
iii. Such Stockholder has sole power of disposition with respect
to all of the Existing Shares set forth opposite such Stockholder's
name on Schedule I and sole voting power with respect to the matters
set forth in Section 2 hereof and sole power to demand appraisal
rights, in each case with respect to all of the Existing Shares set
forth opposite such Stockholder's name on Schedule I, with no
restrictions on such rights, subject to applicable federal securities
laws and the terms of this
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Agreement.
iv. Such Stockholder will have sole power of disposition with
respect to Shares other than Existing Shares, if any, which become
beneficially owned by such Stockholder and will have sole voting power
with respect to the matters set forth in Section 2 hereof and sole
power to demand appraisal rights, in each case with respect to all
Shares other than Existing Shares, if any, which become beneficially
owned by such Stockholder with no restrictions on such rights, subject
to applicable federal securities laws and the terms of this Agreement.
B. Organization; Power; Binding Agreement. If such Stockholder is a
corporation, such Stockholder is a corporation duly formed, validly existing and
in good standing under the laws of its jurisdiction of its organization. If such
Stockholder is a corporation, such Stockholder has the necessary corporate power
and authority to enter into and perform all of such Stockholder's obligations
under this Agreement and has taken all corporate action necessary to execute and
deliver this Agreement, to consummate the transactions contemplated hereby and
to perform its obligations hereunder, and no other corporate proceedings on the
part of such Stockholder are necessary to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby. If such Stockholder is an individual, such Stockholder has
the legal capacity, power and authority to enter into and perform all of such
Stockholder's obligations under this Agreement. This Agreement has been duly and
validly executed and delivered by such Stockholder and constitutes a valid and
binding agreement of such Stockholder, enforceable against such Stockholder in
accordance with its terms. If such Stockholder is married and such Stockholder's
Shares constitute community property, this Agreement has been duly authorized,
executed and delivered by, and constitutes a valid and binding agreement of,
such Stockholder's spouse, enforceable against such person in accordance with
its terms.
C. No Conflicts. Except for filings under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), if applicable,
and any required amendments to any Schedule 13D filed by any such Stockholder,
(A) no filing with, and no permit, authorization, consent or approval of, any
state or federal public body or authority is necessary for the execution of this
Agreement by such Stockholder and the consummation by such Stockholder of the
transactions contemplated hereby and (B) neither the execution, delivery or
performance of this Agreement by such Stockholder nor the consummation by such
Stockholder of the transactions contemplated hereby nor compliance by such
Stockholder with any of the provisions hereof shall (x) conflict with or result
in any breach of any applicable certificate of incorporation, bylaws, trust,
partnership agreement or other agreements or organizational documents applicable
to such Stockholder, (y) result in a violation or breach of, or constitute (with
or without notice or lapse of time or both) a default (or give rise to any third
party right of termination, cancellation, material modification or acceleration)
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding, agreement
or other instrument or obligation of any kind to which such Stockholder is a
party or by which such Stockholder or any of such Stockholder's properties or
assets may be bound or (z) violate any order, writ, injunction, decree,
judgment, law, statute, rule or regulation applicable to such Stockholder or any
of such Stockholder's properties or assets.
D. No Transfer. Except as described on Schedule II, such Stockholder's
Shares and the certificates representing such Shares are now and at all times
during the term hereof will be held by such Stockholder, or by a nominee or
custodian for the benefit of such Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trusts or agreements, understandings
or arrangements or any other
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encumbrances whatsoever, except for any such encumbrances or proxies arising
hereunder.
E. No Finders. No broker, investment banker, financial adviser or
other person is entitled to any broker's, finder's, financial adviser's or other
similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of such Stockholder in his
or her capacity as such.
F. Acknowledgment. Such Stockholder understands and acknowledges that
Acquisition is entering into the Merger Agreement in reliance upon such
Stockholder's execution and delivery of this Agreement.
1. Agreement To Vote; Proxy.
2. Voting. Each Stockholder hereby severally and not jointly agrees that, until
the Termination Date (as defined in Section 7 hereof), at any meeting of the
stockholders of the Company, however called, or in connection with any written
consent of the stockholders of the Company, such Stockholder shall vote (or
cause to be voted) the Shares held of record or beneficially by such Stockholder
(i) in favor of the Merger and adoption of the Merger Agreement, the execution
and delivery by the Company of the Merger Agreement and the approval of the
terms thereof and in favor of each of the other actions contemplated by the
Merger Agreement and this Agreement and any actions required in furtherance
hereof and thereof; (ii) against any action or agreement that would (or would be
reasonably likely to) result in a breach of any covenant, representation or
warranty or any other obligation or agreement of the Company under the Merger
Agreement or this Agreement; and (iii) except as specifically requested in
writing by Acquisition in advance, against the following actions (other than the
Merger and the transactions contemplated by the Merger Agreement): (1) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company or any of its subsidiaries; (2) a
sale, lease or transfer (whether by merger, consolidation, operation of law or
otherwise) of a material amount of assets of the Company or any of its
subsidiaries or a reorganization, recapitalization, dissolution or liquidation
of the Company or any of its subsidiaries; (3) (a) any change in the majority of
the board of directors of the Company; (b) any change in the present
capitalization of the Company or any amendment of the Company's certificate of
incorporation or by-laws; (c) any other material change in the Company's
corporate structure or business; or (d) any other action which is intended, or
could reasonably be expected, to impede, interfere with, delay, postpone,
discourage or materially adversely affect the Merger or the transactions
contemplated by the Merger Agreement or this Agreement or the contemplated
economic benefits of any of the foregoing. Such Stockholder shall not enter into
any agreement or understanding with any person or entity prior to the
Termination Date to vote or give instructions after the Termination Date in any
manner inconsistent with clauses (i), (ii) or (iii) of the preceding sentence.
3. PROXY. EACH STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS, ACQUISITION AND
BRIAN KWAIT, PRESIDENT OF ACQUISITION, AND DOUGLAS HITCHNER, VICE PRESIDENT OF
ACQUISITION, IN THEIR RESPECTIVE CAPACITIES AS OFFICERS OF ACQUISITION, AND ANY
INDIVIDUAL WHO SHALL HEREAFTER SUCCEED TO ANY SUCH OFFICE OF ACQUISITION, AND
ANY OTHER DESIGNEE OF ACQUISITION, EACH OF THEM INDIVIDUALLY, SUCH STOCKHOLDER'S
IRREVOCABLE (UNTIL THE TERMINATION DATE) PROXY AND ATTORNEY-IN-FACT (WITH FULL
POWER OF SUBSTITUTION) TO VOTE THE SHARES AS INDICATED IN SECTION 2.1 ABOVE.
EACH STOCKHOLDER INTENDS THIS PROXY
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TO BE IRREVOCABLE (UNTIL THE TERMINATION DATE) AND COUPLED WITH AN INTEREST AND
WILL TAKE SUCH FURTHER ACTION AND EXECUTE SUCH OTHER INSTRUMENTS AS MAY BE
NECESSARY TO EFFECTUATE THE INTENT OF THIS PROXY AND HEREBY REVOKES ANY PROXY
PREVIOUSLY GRANTED BY SUCH STOCKHOLDER WITH RESPECT TO SUCH STOCKHOLDER'S
SHARES.
4. Certain Covenants of Stockholders. Except in accordance with the terms of
this Agreement, each Stockholder hereby severally covenants and agrees as
follows:
5. No Solicitation. Prior to the Termination Date, no Stockholder shall, in its
capacity as such, directly or indirectly (including through advisors, agents or
other intermediaries), solicit (including by way of furnishing information) or
respond to any inquiries or the making of any proposal by any person or entity
(other than Acquisition or any Affiliate thereof) with respect to the Company
that constitutes or could reasonably be expected to lead to an Acquisition
Proposal (as defined in Section 6.4 in the Merger Agreement). If any Stockholder
in its capacity as such receives any such inquiry or proposal, then such
Stockholder shall promptly inform Acquisition of the terms and conditions, if
any, of such inquiry or proposal and the identity of the person making it. Each
Stockholder, in its capacity as such, will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing. Notwithstanding the
foregoing, nothing in this Section 3.1 shall restrict a Stockholder who is also
a director of the Company from taking actions in such Stockholder's capacity as
a director to the extent and in the circumstances permitted by Section 6.4 of
the Merger Agreement.
6. Restriction on Transfer, Proxies and Noninterference; Restriction on
Withdrawal. Prior to the Termination Date, no Stockholder shall, directly or
indirectly: (i) except pursuant to the terms of the Merger Agreement and to
Acquisition pursuant to this Agreement, offer for sale, sell, transfer (whether
by merger, consolidation, operation of law or otherwise), tender, pledge,
encumber, assign or otherwise dispose of, enforce or permit the execution of the
provisions of any redemption agreement with the Company or enter into any
contract, option or other arrangement or understanding with respect to or
consent to the offer for sale, sale, transfer (whether by merger, consolidation,
operation of law or otherwise), tender, pledge, encumbrance, assignment or other
disposition of, or exercise any discretionary powers to distribute, any or all
of such Stockholder's Shares or any interest therein, (ii) except as
contemplated by this Agreement, grant any proxies or powers of attorney with
respect to any Shares, deposit any Shares into a voting trust or enter into a
voting agreement with respect to any Shares; or (iii) take any action that would
make any representation or warranty of such Stockholder contained herein untrue
or incorrect or have the effect of preventing or disabling such Stockholder from
performing such Stockholder's obligations under this Agreement. Acquisition
acknowledges the circumstances described on Schedule II which shall not be
construed as a breach of this covenant.
7. Waiver of Appraisal Rights. Each Stockholder hereby waives any rights of
appraisal from the Merger that such Stockholder may have.
8. Agreement to Roll-Over. Each Stockholder listed on Schedule A to the Merger
Agreement understands and acknowledges that Sub is entering into the Merger
Agreement in reliance upon the conversion of their shares into the right to
receive the Surviving Corporation Common Stock and agree to such conversion
pursuant to Section 3.2 of the Merger Agreement. Each Stockholder hereby agrees
to
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rollover the number of shares of Company Common Stock set forth opposite such
Stockholder's name on Schedule A to the Merger Agreement.
9. Confidentiality, No Hire.
A. Each Stockholder agrees that for a period ending five years after
the Effective Time of the Merger, such Stockholder will not disclose to any
other party, unless required to do so by law, any Confidential Information
relating to the Company or to any subsidiary or affiliate thereof which
information was acquired during the course of such Stockholder's relationship
with the Company. As used in this Agreement, the term "Confidential Information"
means information that is not generally known or available to the public and
that is used, developed or obtained by the Company or its subsidiaries or
affiliates in connection with its businesses, including but not limited to, (i)
products or services; (ii) fees, costs and pricing structures; (iii) designs;
(iv) computer software, including operating systems, applications and program
listings; (v) flow charts, manuals and documentation; (vi) data bases; (vii)
accounting and business methods; (viii) inventions, devices, new developments,
methods and processes, whether patentable or unpatentable and whether or not
reduced to practice; (ix) customers or customer requirements, order levels or
projections and customer or client lists; (x) other copyrightable works; (xi)
all technology and trade secrets; and (xii) all similar and related information
in whatever form. Confidential Information will not include any information that
has been published in a form generally available to the public prior to the date
the Stockholder proposes to disclose or use such information.
B. Each Stockholder agrees that for a period ending two years after
the Effective Time of the Merger, without the prior written consent of the
Company, neither such Stockholder nor any business or enterprise with which such
Stockholder is associated as an officer, director or controlling shareholder or
other investor (in each case, with the power to direct or cause the direction of
the management of such business or enterprise) will employ or attempt to employ
an employee of the Company or any of its Subsidiaries or joint ventures.
1. Hanseatic Agreement. Each Stockholder that is a party to that certain
Stockholders Agreement dated as of October 8, 1992 and as amended as of July 3,
1996 (the "Stockholders Agreement") by and among the Company, Stephen Russell,
and Hanseatic Corporation agrees that, from the date hereof until the date the
Merger Agreement is terminated in accordance with its terms, the Stockholders
Agreement shall be of no force or effect to the extent that the Stockholders
Agreement is inconsistent with this Agreement, the Merger Agreement or the
transactions contemplated hereby or thereby and that such Stockholder shall not,
and shall not attempt to, either directly or indirectly, exercise any of its
rights under the Stockholders Agreement in any manner inconsistent with this
Agreement, the Merger Agreement or the transactions contemplated hereby or
thereby (it being agreed that, without limitation, the exercise of any rights
under Article II of the Stockholders Agreement by any Stockholder in connection
with the transactions contemplated by the Merger Agreement would be inconsistent
with this Agreement, the Merger Agreement and the transactions contemplated
hereby and thereby). Each Stockholder that is party to the Stockholders
Agreement further agrees that the Stockholder Agreement shall terminate as of
the Closing and to execute such additional documents and agreements to effect
the foregoing. Acquisition acknowledges that Hanseatic Corporation's
representations and warranties set forth in Sections 1(a)(ii), 1(a)(iii) and
1(a)(iv) shall not be deemed to have been breached as a result of the existence
of the Stockholders Agreement.
2. Further Assurances. From time to time, at the other party's request and
without further consideration,
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each party hereto shall execute and deliver such additional documents and take
all such further action as may be necessary or desirable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement.
3. Certain Events. Each Stockholder agrees that this Agreement and the
obligations thereunder shall attach to such Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation such Stockholder's heirs, guardians, administrators or successors or
as a result of any divorce.
4. Stop Transfer. Each Stockholder agrees with, and covenants to, Acquisition
that such Stockholder shall not request that the Company register the transfer
(book-entry or otherwise) of any certificate or uncertificated interest
representing any of such Stockholder's Shares, unless such transfer is made in
compliance with this Agreement.
5. Termination. The obligations of the Stockholders under this Agreement shall
terminate upon the date the Merger Agreement is terminated in accordance with
its terms. The termination of this Agreement shall not relieve any party from
liability for any breach of this Agreement.
6. Miscellaneous.
7. Entire Agreement; Assignment. This Agreement (i) constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof and (ii) shall not
be assigned by operation of law or otherwise without the prior written consent
of the other parties, provided that Acquisition may assign, in its sole
discretion, its rights and obligations hereunder to any affiliate of
Acquisition, but no such assignment shall relieve Acquisition of its obligations
hereunder if such assignee does not perform such obligations.
8. Amendments. This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto; provided that Schedule I may be supplemented by
Acquisition by adding the name and other relevant information concerning any
stockholder of the Company who is or agrees to be bound by the terms of this
Agreement without the agreement of any other party hereto, and thereafter such
added stockholder shall be treated as a "Stockholder" for all purposes of this
Agreement.
9. Notices. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly received if so given) by hand delivery, telegram, telex or telecopy,
or by mail (registered or certified mail, postage prepaid, return receipt
requested) or by any courier service, such as Federal Express, providing proof
of delivery. All communications hereunder shall be delivered to the Stockholders
at the addresses set forth on Schedule I hereto. All communications hereunder
shall be delivered to Acquisition as follows:
c/o Odyssey Investment Partners, LLC
280 Park Avenue
West Tower, 38th Floor
<PAGE>
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New York, New York 10017
Attn: Brian Kwait
copy to:
Latham & Watkins
885 Third Avenue, Suite 1000
New York, New York 10022
Attn.: Richard Trobman
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
11. Enforcement. The parties agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
12. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original, but both of which shall
constitute one and the same Agreement.
13. Descriptive Headings. The descriptive headings used herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
14. Severability. Whenever possible, each provision or portion of any provision
of this Agreement will be interpreted in such manner as to be effective and
valid under applicable law but if any provision or portion of any provision of
this Agreement is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision or portion of
any provision in such jurisdiction, and this Agreement will be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision or portion of any provision had never been contained
herein.
15. Definitions; Construction. For purposes of this Agreement:
A. "beneficially own" or "beneficial ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act), including pursuant to
any agreement, arrangement or understanding, whether or not in writing. Without
duplicative counting of the same securities by the same holder, securities
beneficially owned by a Person shall include securities beneficially owned by
all other Persons with whom such Person would constitute a "group" as described
in Section 13(d)(3) of the Exchange Act.
B. "Person" shall mean an individual, corporation, partnership, joint
venture, association, trust,
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Page
----
unincorporated organization or other entity.
C. In the event of a stock dividend or distribution, or any change in
the Company Common Stock by reason of any split-up, subdivision,
recapitalization, combination, exchange of shares or the like, the term "Shares"
shall be deemed to refer to and include the Shares as well as all stock
distributed pursuant to such stock dividends and distributions and any shares
into which or for which any or all of the Shares may be changed, exchanged,
split, subdivided, combined or recapitalized.
1. Stockholder Capacity. Notwithstanding anything herein to the contrary, no
person executing this Agreement who is, or becomes during the term hereof, a
director of the Company makes any agreement or understanding herein in his or
her capacity as such director, and the agreements set forth herein shall in no
way restrict any director in the exercise of his or her fiduciary duties as a
director of the Company. Each Stockholder has executed this Agreement solely in
his or her capacity as the record or beneficial holder of such Stockholder's
Shares.
[Signature Page Follows]
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Page
----
IN WITNESS WHEREOF, Acquisition and each Stockholder have caused this
Agreement to be duly executed as of the day and year first above written.
LAREDO ACQUISITION CORP.
By:________________________
Name:______________________
Title:_____________________
By:________________________
Name:______________________
Title:_____________________
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Page
----
STOCKHOLDERS:
Stephen Russell
___________________________
Hanseatic Corporation
By:________________________
Name:______________________
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Page
----
Title:_____________________
<PAGE>
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Page
----
Schedule I
----------
Name Number of Existing Shares
Stephen Russell 924,804
Hanseatic Corporation 947,232*
*Exclusive of 12,121 shares issuable upon exercise of warrants, which for
purposes of this Agreement shall be deemed Shares solely in the event
of exercise of such warrants.
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Page
----
Schedule II
-----------
Hanseatic Americas LDC and certain clients of Hanseatic Corporation have
economic rights with respect to the Shares beneficially owned by Hanseatic
Corporation. However, such rights do not impair or limit Hanseatic Corporation's
record and beneficial ownership power of disposition, voting power or power to
demand appraisal rights with respect to its Shares.
<PAGE>
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PRELIMINARY COPY
[LETTERHEAD OF CELADON GROUP, INC.]
, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
of Celadon Group, Inc. ("Celadon" or the "Company") to be held at a.m. on , 1998
at __________ (the "Special Meeting").
At this meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of June
23, 1998 (the "Merger Agreement"), by and between Celadon and Laredo Acquisition
Corp. ("Merger Sub"). Merger Sub is a newly-formed Delaware corporation
controlled by Odyssey Investment Partners Fund, L.P. ("Odyssey").
Upon the terms and subject to the conditions of the Merger Agreement,
at the effective time of the transactions contemplated thereby (the "Effective
Time"), (a) Merger Sub will be merged into Celadon (the "Merger"), with Celadon
continuing as the surviving corporation (the "Surviving Corporation"); (b) the
current directors of Celadon will be replaced by the directors of Merger Sub
(and a majority of the directors of the Surviving Corporation will be designees
of Odyssey); (c) the shares of common stock of Merger Sub held by Odyssey will
be converted into shares of common stock of the Surviving Corporation,
representing approximately 90% of the outstanding shares of common stock of the
Surviving Corporation immediately following the Effective Time; (d) certain
stockholders of Celadon (including an officer and director and an entity
affiliated with a director) will retain an aggregate of 320,000 shares of common
stock of Celadon (the "Rollover Shares"), which represent approximately 4.1% of
the outstanding shares of common stock of Celadon and which will represent
approximately 10% of the outstanding shares of common stock of the Surviving
Corporation immediately after the Effective Time; (e) each share of common stock
of Celadon outstanding immediately prior to the Effective Time (except for the
Rollover Shares, treasury shares held by Celadon, and shares held by dissenting
stockholders who have properly exercised their rights pursuant to Section 262 of
the Delaware General Corporation Law) will be converted into the right to
receive $20.00 per share in cash (the "Cash Merger Price"); (f) the warrants
granted to Hanseatic Corporation ("Hanseatic," and such warrants the "Hanseatic
Warrants") will be canceled and Hanseatic shall thereafter have the right to
receive cash in an amount equal to the product of the number of shares of common
stock of Celadon previously subject to the Hanseatic Warrants and the excess of
the Cash Merger Price per share over the exercise price per share of the
Hanseatic Warrants; and (g) except for certain options to be retained by certain
officers and directors of the Company (the "Rollover Options") which represent
the right to purchase approximately ___% of the common stock of Celadon and
which will represent the right to purchase approximately _____ % of the common
stock of the Surviving Corporation immediately following the Effective Time,
each outstanding employee or director stock option (the "Options") granted under
the 1994 Celadon Stock Option Plan and the 1996 Non-Employee Director Stock
Option Plan (collectively, the "Stock Option Plans") will be canceled and the
former holder thereof shall thereafter have the right to receive cash in an
amount equal to the product of the number of shares of common stock of Celadon
previously subject to such Option and the excess of the Cash Merger Price per
share over the exercise price per share of such Option. Applicable withholding
taxes will be deducted from all payments made in respect of the Options and the
Hanseatic Warrants. Also, Stephen Russell, President, Chief Executive Officer,
and Chairman of the Company's Board, and four other members of senior management
of the Company will enter into new employment agreements, which will have a term
of four years with respect to Stephen Russell and three years with respect to
each other member of senior management and provide for severance payments to the
members of senior management under certain circumstances. In addition, an annual
bonus plan, and a stock option plan with respect to an aggregate
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amount of 7.5% of the common stock of the Surviving Corporation, will be
instituted for approximately twenty of the Company's executives, including
members of senior management. Upon consummation of the Merger and the other
transactions contemplated by the Merger Agreement, (a) options with respect to
3.0% of the common stock of the Surviving Corporation will be granted to Stephen
Russell pursuant to the stock option plan described in the preceding sentence,
and options with respect to 4.0% of such common stock will be distributed among
designated executives, including the other members of senior management, and (b)
signing bonuses in an aggregate amount of $1.1 million will be distributed among
designated executives, including approximately $500,000 which will be
distributed to Stephen Russell and certain other amounts to be distributed to
other members of senior management.
Two substantially similar litigations have been filed by the same law
firm in the Delaware Court of Chancery challenging the proposed Merger. In sum,
these putative class actions allege (a) that the payment of $20.00 per share to
public stockholders upon consummation of the Merger would constitute an
acquisition of such shares by management of the Company for less than fair and
adequate consideration and (b) that the Company's directors breached their
fiduciary duties to the Company and its stockholders.
The terms of the Merger Agreement are described in the accompanying
Proxy Statement and a conformed copy of the Merger Agreement is included as
Annex A with the Proxy Statement. The rights of dissenting stockholders are
described in the accompanying Proxy Statement and a copy of Section 262 of the
Delaware General Corporation Law is included as Annex B with the Proxy
Statement.
The affirmative vote of a majority of the issued and outstanding
shares of common stock of Celadon entitled to vote thereon is required to
approve and adopt the Merger Agreement. Stephen Russell and Hanseatic, as
stockholders of Celadon, have entered into a Voting Agreement, dated as of June
23, 1998, with Merger Sub pursuant to which they appointed certain persons
designated by Merger Sub as proxy to vote each of their respective shares of
common stock of Celadon in favor of the Merger Agreement at the Special Meeting.
As of June 23, 1998, the shares of common stock of Celadon held by such
stockholders represented approximately 24% of the outstanding shares of common
stock of Celadon. Stephen Russell and Hanseatic own, respectively, 200,000 and
120,000 Rollover Shares, which represent approximately 2.6% and 1.5%,
respectively, of the outstanding shares of common stock of Celadon and which
will represent approximately 6.25% and 3.75%, respectively, of the common stock
of the Surviving Corporation immediately following the Effective Time. Paul
Biddleman, President of Hanseatic, is Hanseatic's designee to the Company's
Board of Directors. In addition, Stephen Russell and _________ own,
respectively, _______ and __________ Rollover Options, which will represent the
right to purchase an additional ___% and ___%, respectively, of the common stock
of the Surviving Corporation immediately following the Effective Time.
Consummation of the Merger is subject to certain conditions, including
the completion of financing to provide an aggregate of approximately $239.1
million which will be used to fund the Cash Merger Price, the repayment of
certain outstanding indebtedness and capital leases, and transaction fees and
expenses. The financing transactions will include (a) the issuance of senior
subordinated notes by Celadon Trucking Services, Inc., a wholly-owned subsidiary
of the Company, (b) the issuance of senior discount notes by the Company, (c)
bank financing, and (d) equity financing.
The Board of Directors of the Company has unanimously approved the
Merger Agreement and has determined that the Merger is fair to, and in the best
interests of, the holders of Celadon's common stock (other than the holders of
the Rollover Shares) and recommends that stockholders vote FOR the approval and
adoption of the Merger Agreement.
The approval and determination of the Board was based on a number of
factors, described in the accompanying Proxy Statement, including the opinion of
Wasserstein Perella & Co. ("Wasserstein Perella"), the Company's financial
advisor, to the effect that, based upon and subject to various considerations
set forth in such opinion, as of the date of such opinion, the consideration to
be received by the holders of Celadon's common stock in connection with the
Merger was fair to such holders (other than the holders of the Rollover
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Shares) from a financial point of view. The opinion of Wasserstein Perella is
included as Annex C to the Proxy Statement and should be read in its entirety.
Your vote is important. Regardless of whether you plan to attend the
Special Meeting, please sign and date the enclosed proxy and return it in the
envelope provided in order that your shares may be represented at the Special
Meeting. If you decide to attend the Special Meeting, you may revoke your proxy
and vote your shares in person.
Sincerely,
Stephen Russell
Chairman of the Board
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PRELIMINARY COPY
CELADON GROUP, INC.
One Celadon Drive
Indianapolis, Indiana 46235-4207
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
To the Stockholders of Celadon Group, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Celadon Group, Inc. ("Celadon") will be held at a.m., local time, on , 1998, at
for the ------- following purposes:
(1) To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of June 23, 1998 (the "Merger
Agreement"), by and between Celadon and Laredo Acquisition Corp. ("Merger Sub"),
a newly formed Delaware corporation controlled by Odyssey Investment Partners
Fund, LP ("Odyssey"), and the transactions contemplated thereby. Upon the terms
and subject to the conditions of the Merger Agreement at the effective time of
the transaction contemplated (the "Effective Time"), (a) Merger Sub will be
merged into Celadon, with Celadon continuing as the surviving corporation (the
"Surviving Corporation"); (b) the current directors of Celadon will be replaced
by the directors of Merger Sub (and a majority of the directors of the Surviving
Corporation will be designees of Odyssey); (c) the shares of common stock of
Merger Sub held by Odyssey will be converted into shares of common stock of the
Surviving Corporation, representing approximately 90% of the outstanding shares
of common stock of the Surviving Corporation immediately following the Effective
Time; (d) certain stockholders of Celadon (including an officer and director and
an entity affiliated with a director) will retain existing shares of common
stock in Celadon (the "Rollover Shares"), which now represent approximately 4.1%
of the outstanding shares of common stock of Celadon and will represent
approximately 10% of the outstanding shares of common stock of the Surviving
Corporation immediately after the Effective Time; (e) each share of common stock
of Celadon outstanding immediately prior to the Effective Time (except for the
Rollover Shares, treasury shares held by Celadon, and shares held by dissenting
stockholders who have properly exercised their rights pursuant to Section 262 of
the Delaware General Corporation Law), will be converted into the right to
receive $20.00 per share in cash (the "Cash Merger Price"); (f) the warrants
granted to Hanseatic Corporation ("Hanseatic", and such other warrants, the
"Hanseatic Warrants") will be canceled and Hanseatic shall thereafter have the
right to receive cash in an amount equal to the product of the number of shares
of common stock of Celadon previously subject to the Hanseatic Warrants and the
excess of the Cash Merger Price per share over the exercise price per share of
the Hanseatic Warrants, reduced by applicable withholding taxes or other taxes
required by law to be withheld; (g) except for certain Options (defined below)
to be retained by certain officers and directors of the Company (the "Rollover
Options") which represent the right to purchase approximately ___% of the common
stock of Celadon and which will represent the right to purchase approximately
_____ % of the common stock of the Surviving Corporation immediately following
the Effective Time, each outstanding employee or director stock option (the
"Options") granted under the 1994 Celadon Stock Option Plan and the 1996
Non-Employee Director Stock Option Plan (the "Stock Option Plans") will be
canceled and the former holder thereof shall thereafter have the right to
receive cash in an amount equal to the product of the number of shares of common
stock of Celadon previously subject to such Option and the excess of the Cash
Merger Price per share over the exercise price per share of such Option, less
applicable withholding taxes; and (h) Stephen Russell, President, Chief
Executive Officer, and Chairman of the Company's Board, and four other members
of senior management of the Company will enter into new employment agreements
which will (i) have a term of four years with respect to Stephen Russell and
three years with respect to each other member of senior management and (ii)
provide for severance payments to the members of senior
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management under certain circumstances. In addition, an annual bonus plan, and a
stock option plan with respect to an aggregate amount of 7.5% of the common
stock of the Surviving Corporation, will be instituted for approximately twenty
of the Company's executives, including members of senior management. Upon
consummation of the Merger and the other transactions contemplated by the Merger
Agreement, (i) options with respect to 3.0% of the common stock of the Surviving
Corporation will be granted to Stephen Russell pursuant to the stock option plan
described in the preceding sentence, and options with respect to 4.0% of such
common stock will be distributed among designated executives, including the
other members of senior management and (ii) signing bonuses in an aggregate
amount of $1.1 million will be distributed among designated executives,
including approximately $500,000 to be distributed to Stephen Russell and
certain other amounts to be distributed to other members of senior management.
(2) To transact such other business as may properly come before the
meeting or any continuation, adjournment or postponement thereof.
Stephen Russell and Hanseatic own, respectively, 200,000 and 120, 000
Rollover Shares, which now represent approximately 2.6% and 1.5%, respectively,
of the outstanding shares of common stock of Celadon and which will represent
approximately 6.25% and 3.75%, respectively, of the common stock of the
Surviving Corporation immediately following the Effective Time. Paul Biddleman,
President of Hanseatic, is Hanseatic's designee to the Company's Board of
Directors. In addition, Stephen Russell and _______ own, respectively, ______,
and _____ Rollover Options, which will represent the right to purchase an
additional ___% and _____%, respectively, of the common stock of the Surviving
Corporation immediately following the Effective Time.
Two substantially similar litigations have been filed by the same law
firm in the Delaware Court of Chancery challenging the proposed Merger. In sum,
these putative class actions allege (a) that the payment of $20.00 per share to
public stockholders upon consummation of the Merger would constitute an
acquisition of such shares by management of the Company for less than fair and
adequate consideration and (b) that the Company's directors breached their
fiduciary duties to the Company and its stockholders.
A copy of the Merger Agreement appears as Annex A to, and is described
in, the accompanying Proxy Statement. Rights of dissenting stockholders, are
described in the accompanying Proxy Statement and a copy of Section 262 of the
Delaware General Corporations Law appears as Annex B thereto.
All stockholders are cordially invited to attend the meeting, although
only those stockholders of record at the close of business on , 1998, are
entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof.
By Order of the Board of Directors
Paul Will, Secretary
Dated: , 1998
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON, PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN
THE ACCOMPANYING ENVELOPE. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS
VOTED AT THE SPECIAL MEETING BY DELIVERING WRITTEN NOTICE OF REVOCATION TO THE
SECRETARY OF THE COMPANY, BY SUBMITTING TO THE SECRETARY OF THE COMPANY A LATER
DATED PROXY OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
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PRELIMINARY COPY
CELADON GROUP, INC.
ONE CELADON DRIVE
INDIANAPOLIS, INDIANA 46235-4207
---------------
PROXY STATEMENT
----------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
This proxy statement is being furnished to the stockholders of Celadon
Group, Inc., a Delaware corporation ("Celadon" or the "Company"), in connection
with the solicitation of proxies by the Board of Directors of the Company for
use at a Special Meeting of Stockholders to be held on , 1998, at local time, at
.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of June
23, 1998 (the "Merger Agreement"), by and between Celadon and Laredo Acquisition
Corp. ("Merger Sub"). Merger Sub is a newly-formed Delaware corporation
controlled by Odyssey Investment Partners Fund, L.P. ("Odyssey"). Upon the terms
and subject to the conditions of the Merger Agreement, at the Effective Time (as
defined below) (a) Merger Sub will be merged into Celadon (the "Merger"), with
Celadon continuing as the surviving corporation (the "Surviving Corporation");
(b) the current directors of Celadon will be replaced by the directors of Merger
Sub and a majority of the directors of the Surviving Corporation will be
designees of Odyssey; (c) the shares of common stock of Merger Sub held by
Odyssey will be converted into shares of common stock, par value $0.033 per
share, of the Surviving Corporation (the "Surviving Corporation Common Stock"),
representing approximately 90% of the outstanding shares of the Surviving
Corporation Common Stock immediately following the Effective Time; (d) certain
stockholders of Celadon (including an officer and director and an affiliate of a
director) will retain an aggregate of 320,000 outstanding shares (the "Rollover
Shares") of common stock, par value $0.033 per share, in Celadon (the "Celadon
Common Stock"), which now represent approximately 4.1% of the outstanding shares
of Celadon Common Stock and will represent approximately 10% of the outstanding
shares of the Surviving Corporation Common Stock immediately following the
Effective Time; (e) each share of Celadon Common Stock outstanding immediately
prior to the Effective Time (except for the Rollover Shares, treasury shares
held by Celadon (the "Excluded Shares")and shares, ("Dissenting Shares") held by
dissenting stockholders who have properly exercised their rights pursuant to
Section 262 of the Delaware General Corporation Law ("DGCL")) will be converted
into the right to receive $20.00 per share in cash (the "Cash Merger Price");
(f) the warrants granted to Hanseatic Corporation ("Hanseatic," and such
warrants the "Hanseatic Warrants") will be canceled and Hanseatic shall
thereafter have the right to receive cash in an amount equal to the product of
the number of shares of Celadon Common Stock previously subject to the Hanseatic
Warrants and the excess of the Cash Merger Price per share over the exercise
price per share of the Hanseatic Warrants, reduced by applicable withholding
taxes or other taxes required by law to be withheld ; and (g) except for certain
Options (as defined below) to be retained by certain officers and directors of
the Company (the "Rollover Options") which will represent the right to purchase
approximately _____ % of the Surviving Corporation Common Stock immediately
following the Effective Time, each outstanding employee or director stock option
(the "Options") granted under the 1994 Celadon Stock Option Plan and the 1996
Non- Employee Director Stock Option Plan (the "Stock Option Plans") will be
canceled and the former holder thereof shall thereafter have the right to
receive cash in an amount equal to the product of the number of shares of
Celadon Common Stock previously subject to such option and the excess of the
Cash Merger Price per share over the exercise price per share of such Option,
reduced by applicable withholding taxes or other taxes required by law to be
withheld. Stephen Russell, President, Chief Executive Officer, and Chairman of
the
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Company's Board, and four other members of senior management of the Company will
enter into new employment agreements which will (i) have a term of four years
with respect to Stephen Russell and three years with respect to each other
member of senior management and (ii) provide for severance payments to the
members of senior management under certain circumstances. In addition, an annual
bonus plan, and a stock option plan with respect to an aggregate amount of 7.5%
of the Surviving Corporation Common Stock, will be instituted for approximately
twenty of the Company's executives, including members of senior management. Upon
consummation of the Merger and the other transactions contemplated by the Merger
Agreement, (i) options with respect to 3.0% of the Surviving Corporation Common
Stock will be granted to Stephen Russell pursuant to the stock option plan
described in the preceding sentence, and options with respect to 4.0% of the
Surviving Corporation Common Stock will be distributed among the designated
executives, including the other members of senior management and (ii) signing
bonuses in an aggregate amount of $1.1 million will be distributed among
designated executives, including approximately $500,000 to be distributed to
Stephen Russell and certain other amounts to be distributed to other members of
senior management.
Two substantially similar litigations have been filed by the same law
firm in the Delaware Court of Chancery challenging the proposed Merger. In sum,
these putative class actions allege (a) that the payment of $20.00 per share to
public stockholders upon consummation of the Merger would constitute an
acquisition of such shares by management of the Company for less than fair and
adequate consideration and (b) that the Company's directors breached their
fiduciary duties to the Company and its stockholders.
Any shares of Celadon Common Stock held in the Company's treasury (the
"Excluded Shares") will be canceled and retired. The effective time of the
Merger will be the date and time of the filing of the Certificate of Merger with
the Delaware Secretary of State in accordance with the DGCL (the "Effective
Time"), which is scheduled to occur as soon as practicable after the
satisfaction of certain closing conditions. See "Special Factors--Interests of
Certain Persons in the Merger" and "Certain Provisions of the Merger
Agreement--Treatment of Securities in the Merger."
A copy of the Merger Agreement is included as Annex A hereto. The
summaries of the portions of the Merger Agreement set forth in this Proxy
Statement do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, the text of the Merger Agreement.
A copy of Section 262 of the DGCL is included as Annex B hereto. The
summaries the rights of dissenting stockholders set forth in this Proxy
Statement do not purport to be complete and are qualified in their entirety by
reference to, the text of Section 262 of the DGCL.
The affirmative vote of the holders of a majority of the issued and
outstanding shares of Celadon Common Stock entitled to vote thereon is required
to adopt the Merger Agreement. Only holders of record of shares of Celadon
Common Stock at the close of business on , 1998 (the "Record Date") are entitled
to notice of and to vote at the Special Meeting and any and all adjournments and
postponements thereof. Stephen Russell and Hanseatic, as stockholders of
Celadon, have entered into a Voting Agreement, dated as of June 23, 1998, with
Merger Sub (the "Voting Agreement"), pursuant to which each such stockholder
appointed certain persons designated by Merger Sub as his proxy to, among other
things, vote his shares of Celadon Common Stock (including shares issuable upon
exercise of Options prior to the Effective Time) in favor of the Merger
Agreement. As of June 23, 1998, the shares of Celadon Common Stock held by such
stockholders represented approximately 24% of the outstanding shares of Celadon
Common Stock. In addition, Stephen Russell and Hanseatic own, respectively,
200,000 and 120,000 Rollover Shares, which represent approximately 2.6% and 1.5%
of the outstanding shares of Celadon Common Stock and which will represent
approximately 6.25% and 3.75%, respectively, of the Surviving Corporation Common
Stock immediately after the Effective Time. Paul Biddleman, President of
Hanseatic, is Hanseatic's designee to the Company's Board of Directors. Stephen
Russell and _________ own, respectively, _________ and __________ Rollover
Options, which will represent the right to purchase an additional ___% and ___%,
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respectively, of the Surviving Corporation Common Stock immediately after
the Effective Time. See "Special Factors--Interests of Certain Persons in the
Merger."
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER. See "Special Factors--
Interests of Certain Persons in the Merger."
This Proxy Statement is first being mailed to the Company's
stockholders on or about , 1998.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE DATE OF THIS PROXY STATEMENT IS , 1998.
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT OR IN THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH THE SOLICITATION MADE HEREBY
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY CELADON, MERGER SUB OR ODYSSEY. THE DELIVERY
OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR IN ANY DOCUMENT
INCORPORATED HEREIN BY REFERENCE IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF OR THE DATE OF SUCH DOCUMENT, AS THE CASE MAY BE, OR THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF CELADON
SINCE THE DATE HEREOF OR THE DATE OF SUCH DOCUMENT, AS THE CASE MAY BE. THIS
PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY FROM ANY PERSON
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION.
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SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement. This summary is not intended to be a complete
description of the matters covered in this Proxy Statement and is subject to and
qualified in its entirety by reference to the more detailed information
contained elsewhere or incorporated by reference in this Proxy Statement,
including the Annexes hereto. Stockholders are urged to read and consider
carefully this entire Proxy Statement, including the Annexes.
THE PARTIES TO THE MERGER
Celadon. Celadon's principal executive offices are located at One
Celadon Drive, Indianapolis, Indiana 46235-4207 (Telephone: (317) 972-7000). For
additional information regarding Celadon and its business, see "Selected
Historical Consolidated Financial Information" and "Incorporation of Certain
Documents by Reference."
Merger Sub and Odyssey. Merger Sub was recently incorporated under the
laws of the State of Delaware for the purpose of consummating the Merger. Merger
Sub has not conducted any business other than the transactions described herein
and has no assets. Merger Sub was formed by and is controlled by Odyssey.
Odyssey is a Delaware limited partnership principally engaged in the business of
investing in companies. The address of the principal executive offices of each
of Merger Sub and Odyssey is located at c/o Odyssey Investment Partners, LLC,
280 Park Avenue, 38th Floor, New York, New York 10017. See "Merger Sub and
Odyssey."
THE SPECIAL MEETING
The Special Meeting will be held at a.m., local time, on 1998 at . At
the Special Meeting, stockholders of Celadon (a) will be asked to consider and
vote upon a proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby and (b) will transact such other business as
may properly come before the Special Meeting. The Board of Directors has fixed
the Record Date as the date for the determination of stockholders entitled to
notice of and to vote at the Special Meeting and any and all adjournments and
postponements thereof. As of the Record Date, there were ____________shares of
Celadon Common Stock issued and outstanding and entitled to vote at the Special
Meeting.
Adoption of the Merger Agreement requires the affirmative vote of the
holders of a majority of the issued and outstanding shares of Celadon Common
Stock entitled to vote at the Special Meeting. As of the Record Date, the
directors and executive officers of Celadon were the beneficial owners of
_________ shares of Celadon Common Stock (including shares of Celadon Common
Stock issuable upon the exercise of Options and the Hanseatic Warrants prior to
the Effective Time). The directors and executive officers of Celadon have
indicated that they intend to vote such shares in favor of the approval and
adoption of the Merger Agreement. In addition, Stephen Russell and Hanseatic
have entered into the Voting Agreement pursuant to which they agreed with Merger
Sub to vote in favor of the Merger Agreement. Stephen Russell and Hanseatic
beneficially own 1,989,860 shares of Celadon Common Stock (including shares of
Celadon Common Stock issuable upon the exercise of Options and the Hanseatic
Warrants prior to the Effective Time) of which 1,907,739 shares, constituting
approximately 25% of the outstanding Celadon Common Stock, are outstanding as of
June 23, 1998. The total number of outstanding shares of Celadon Common Stock
that either are held by the directors and officers of Celadon or are subject to
the Voting Agreement is 2,069,345, or approximately 27.0% of the outstanding
shares of Celadon Common Stock. See "Special Factors--Interests of Certain
Persons in the Merger--Voting Agreement."
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REASONS FOR THE MERGER
The Board of Directors of Celadon, in attempting to maximize
stockholder value, has unanimously approved the Merger Agreement and has
determined that the Merger Agreement is fair to and in the best interests of
Celadon's stockholders (other than the holders of the Rollover Shares and
Excluded Shares). This determination was based on, among other things, the
following factors: a comparison of the risks and benefits of the Merger against
the risks and benefits of the other strategic alternatives available to Celadon,
including continuing as an independent entity; a comparison of the benefits and
risks of a prior offer for the Company; the Cash Merger Price of $20.00 per
share of the Celadon Common Stock, which represents a premium over recent
historical price levels; the written opinion of Wasserstein Perella with respect
to the fairness from a financial point of view of the consideration to be
received by Celadon's stockholders (other than the holders of Rollover Shares
and Excluded Shares) in the Merger; and the terms and conditions of the Merger
Agreement. See "Special Factors--Reasons for the Merger; Recommendation of the
Board of Directors."
TERMS OF THE MERGER
General. At the Effective Time, Merger Sub will be merged with and
into the Company, with the Company continuing as the Surviving Corporation. Also
at the Effective Time, the current directors of the Company will be replaced by
the directors of Merger Sub, and a majority of the directors of the Surviving
Corporation will be designees of Odyssey. Stephen Russell (the President, Chief
Executive Officer, and Chairman of the Board of Celadon) will, upon consummation
of the Merger, become a director of the Surviving Corporation. All members of
the Company's current management will continue as such immediately after the
Effective Time. See "Certain Provisions of the Merger Agreement--Board of
Directors and Officers of the Surviving Corporation" and "Directors and
Executive Officers of the Surviving Corporation."
Cash Merger Price. At the Effective Time, each share of Celadon Common
Stock held by the Company's stockholders (other than the Rollover Shares,
Excluded Shares, and Dissenting Shares) will be converted into the right to
receive the Cash Merger Price. No interest will be paid or accrued on the Cash
Merger Price.
Payment of Cash Merger Price. The Cash Merger Price will be paid as
soon as practicable after the Effective Time upon receipt by a paying agent
selected by Merger Sub (the "Paying Agent") of certificates which, immediately
prior to the Effective Time represented, the shares of Celadon Common Stock held
by such stockholders. As of or at the Effective Time, Merger Sub will deposit
with the Paying Agent for the benefit of the holders of shares of Celadon Common
Stock, the funds necessary to pay the Cash Merger Price for each share payable
pursuant to the terms of the Merger Agreement. As soon as practicable after the
Effective Time, the Paying Agent will mail to each record holder of Celadon
Common Stock a notice and letter of transmittal advising the holder of the
effectiveness of the Merger and the procedure for surrendering certificates to
the Paying Agent for exchange into the Cash Merger Price. Stockholders should
not forward stock certificates to the Paying Agent until they have received
transmittal forms. Certificates should not be returned with the enclosed proxy
cards.
Rollover Shares. At the Effective Time, the Rollover Shares will be
converted on a share-for-share basis into shares of Surviving Corporation Common
Stock. The Rollover Shares will represent approximately 10% of the total
outstanding shares of Surviving Corporation Common Stock. Stephen Russell
(Chairman, Chief Executive Officer and President of Celadon ) and Hanseatic own,
respectively, 200,000 and 120,000 Rollover Shares, which represent approximately
2.6% and 1.5%, respectively, of the outstanding shares of Celadon Common Stock
and which will represent approximately 6.25% and 3.75%, respectively, of the
total outstanding shares of Surviving Corporation Common Stock immediately after
the Effective Time. Paul Biddleman, President of Hanseatic, serves as
Hanseatic's designee to Celadon 's Board of Directors. See "Special
Factors--Interests of Certain Persons in the Merger--Retention of Rollover
Shares" and "Certain Provisions of the Merger Agreement--Treatment of Securities
in the Merger."
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Excluded Shares. At the Effective Time, the Excluded Shares will be
canceled and retired without payment of any consideration therefor.
Issuance of Surviving Corporation Common Stock to Odyssey. At the
Effective Time, the issued and outstanding shares of Merger Sub will be
converted into 2,880,000 shares of Surviving Corporation Common Stock,
representing approximately 90% of the total outstanding shares of Surviving
Corporation Common Stock immediately following the Effective Time.
Payment for Options and Hanseatic Warrants. Except for the Rollover
Options, the Company will cause each Option under the Stock Option Plans,
whether or not then exercisable or vested, to be canceled. In consideration of
such cancellation, the Company will pay to such holders of Options an amount in
cash in respect thereof equal to the product of the excess of the Cash Merger
Price over the exercise price of each such Option and the number of shares of
Celadon Common Stock previously subject to the Option immediately prior to its
cancellation (such payment to be net of withholding taxes). The Company will
cause the Hanseatic Warrants to be canceled. In consideration of such
cancellation, the Company will pay to Hanseatic an amount in cash in respect
thereof equal to the product of the excess of the Cash Merger Price over the
exercise price of the Hanseatic Warrants and the number of shares of Celadon
Common Stock previously subject to the Hanseatic Warrants immediately prior to
cancellation (such payment to be net of withholding taxes).
EFFECTIVE TIME
The Effective Time of the Merger will be the date and time of the
filing of the Certificate of Merger with the Delaware Secretary of State in
accordance with the DGCL, which is scheduled to occur as soon as practicable
after the satisfaction of certain closing conditions. Either Merger Sub or the
Company may terminate the Merger Agreement should the Merger not be consummated
by November 30, 1998. See "Certain Provisions of the Merger
Agreement--Conditions to the Consummation of the Merger" and "--Termination;
Effects of Termination."
FINANCING ARRANGEMENTS
Financing of the Merger will require approximately $239.1 million to
pay the Cash Merger Price, to pay the value of the Options, to refinance certain
existing indebtedness and capital leases of Celadon and its subsidiaries (the
"Refinancing"), and to pay the fees and expenses in connection with the Merger
and such financing. These funds are expected to be provided through (a) the
issuance by Celadon Trucking Services, Inc. ("CTSI"), a wholly-owned subsidiary
of the Company, of $150 million of senior subordinated notes (the "CTSI Senior
Subordinated Notes"), (b) the issuance by the Company of senior discount notes
for gross proceeds of $25 million (the "Company Senior Discount Notes"), (c)
drawings of up to $7.5 million under the Revolver (defined below) of $25
million, and (d) equity financing provided by Odyssey in the amount of
approximately $57.6 million through the purchase of the common stock of Merger
Sub. In the event that the offerings of the CTSI Senior Subordinated Notes and
the Company Senior Discount Notes are not consummated at or prior to the
Effective Time, the Company and CTSI intend to incur the Bridge Loans (defined
below). The Merger Sub has obtained financing letters (each a "Financing
Letter") from General Electric Capital Corporation ("GE"), and Bankers Trust
Corporation ("BT") with respect to the terms and conditions of the financing to
be provided by each entity.
Revolving Credit Facility. Pursuant to a Financing Letter obtained by
Merger Sub from GE, as Agent, GE has committed to arrange, subject to the terms
and conditions provided therein, a $25 million revolving credit facility (the
"Revolver") to be used by CTSI for working capital purposes and other corporate
purposes. Pursuant to the terms of the GE Financing Letter, CTSI is prohibited
from borrowing in excess of $7.5 million of the Revolver for use in connection
with the Refinancing.
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Senior Secured Capital Expenditure and Acquisition Line. Pursuant to
the GE Financing Letter, GE has committed to arrange, subject to the terms and
conditions provided therein, for a $150 million senior secured capital
expenditure and acquisition line (the "CAPEX Line") to be used by CTSI for
certain permitted capital expenditures and the permitted acquisitions.
CTSI Senior Subordinated Notes. CTSI intends to issue $150 million of
CTSI Senior Subordinated Notes concurrently with the consummation of the Merger.
It is anticipated that the CTSI Senior Subordinated Notes will be issued
pursuant to a private placement exemption to the Securities Act of 1933, as
amended (the "Securities Act").
Company Senior Discount Notes. The Company intends to issue, for gross
proceeds of $25 million, Company Senior Discount Notes concurrently with the
consummation of the Merger. It is anticipated that the Company Senior Discount
Notes will be issued pursuant to a private placement exemption to the Securities
Act.
Bridge Loans. In the event that the offerings of the CTSI Senior
Subordinated Notes and the Company Senior Discount Notes are not consummated at
or prior to the Effective Time, (a) CTSI intends to incur a senior subordinated
bridge loan in an aggregate amount not to exceed $100 million (the "CTSI Bridge
Loan") and (b) the Company intends to incur a senior discount bridge loan
yielding gross proceeds of $25 million (the "Company Bridge Loan" and, together
with the CTSI Bridge Loan, the "Bridge Loans"). BT has agreed to provide the
Bridge Loans, subject to the terms and conditions of the BT Financing Letter.
Equity Investment. Odyssey's investment in the Surviving Corporation
after the Effective Time will consist of a cash contribution to Merger Sub in an
aggregate amount of approximately $57.6 million, which Merger Sub will
contribute to Celadon at the Effective Time.
The total equity investment in the Surviving Corporation after the
Effective Time will be approximately $64.0 million, consisting of (a)
approximately $57.6 million of Surviving Corporation Common Stock, in the form
of approximately $57.6 million contributed by Odyssey through the Merger Sub and
(b) the approximately $6.4 million value of the Rollover Shares.
For a summary of certain terms of the CTSI Senior Subordinated Notes,
Company Senior Discount Notes, the Bridge Loans, the Revolver and the CAPEX
Line, and a discussion of the sources of funds for the financing of the Merger,
see "Financing of the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Company's Board of Directors
that stockholders vote in favor of the Merger Agreement, stockholders should be
aware that certain members of Celadon's management and Board of Directors have
interests in the Merger that are in addition to, and may be deemed to be in
conflict with, the interests of the stockholders of Celadon generally. These
interests include (a) (i) benefits under certain employment agreements to be
executed by the Company, on the one hand, and by each of Stephen Russell and the
four other members of senior management on the other hand, (ii) an annual bonus
plan for Company executives (including senior management) to be adopted after
the Effective Time, (iii) a new stock option plan for Company executives
(including senior management) with respect to 7.5% of the common stock of the
Surviving Corporation, to be adopted after the Effective Time, and (iv) the
payment of signing bonuses in the aggregate amount of $1.1 million to Company
executives (including senior management); (b) the retention by Stephen Russell
and Hanseatic of the Rollover Shares; (c) the cash settlement of Options and the
Hanseatic Warrants pursuant to the terms of the Merger Agreement; (d)
indemnification of officers and directors; and (e) certain other matters.
Stephen Russell, President, Chief Executive Officer, and Chairman of the
Company's Board, owns 200,000 Rollover Shares, which represent approximately
2.6% of the outstanding shares of Celadon Common Stock and which will represent
approximately 6.25% of the outstanding shares of Surviving Corporation Common
Stock immediately following
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the Effective Time, and ________ Rollover Options which will represent the right
to purchase an additional _______% of the shares of Surviving Corporation Common
Stock Immediately following the Effective Time. Hanseatic owns 120,000 Rollover
Shares which represent approximately 1.5% of the outstanding shares of Celadon
Common Stock and which will represent approximately 3.75% of the outstanding
shares of Surviving Corporation Common Stock immediately following the Effective
Time. Paul Biddleman, President of Hanseatic, acts as Hanseatic's designee to
the Company's Board. See "Special Factors--Interests of Certain Persons in the
Merger."
RECOMMENDATION OF THE BOARD
The Board of Directors of the Company unanimously approved the Merger
Agreement and the transactions contemplated thereby, including the Merger. The
Board has determined that the Merger Agreement is fair to, and in the best
interests of, the stockholders of the Company (other than holders of the
Rollover Shares) and recommends that the stockholders vote FOR the approval and
adoption of the Merger Agreement. For a discussion of the factors considered by
the Board in reaching its recommendation and determination, see "Special
Factors--Reasons for the Merger; Recommendation of the Board of Directors."
Two substantially similar litigations have been filed by the same law
firm in the Delaware Court of Chancery challenging the proposed Merger. In sum,
these putative class actions allege (a) that the payment of $20.00 per share to
public stockholders upon consummation of the Merger would constitute an
acquisition of such shares by management of the Company for less than fair and
adequate consideration and (b) that the Company's directors breached their
fiduciary duties to the Company and its stockholders. See "Litigation."
OPINION OF FINANCIAL ADVISOR
Wasserstein Perella has delivered to the Board of Directors of the
Company its written opinion to the effect that, based upon and subject to
various considerations set forth in such opinion, as of the date of such
opinion, the consideration to be received by the holders of Celadon Common Stock
(other than holders of the Rollover Shares) in connection with the Merger was
fair to stockholders from a financial point of view. The full text of
Wasserstein Perella's opinion, including the procedures followed, the matters
considered and the assumptions made by Wasserstein Perella, is included as Annex
C to this Proxy Statement and should be read in its entirety. See "Special
Factors--opinion of Wasserstein Perella, Financial Advisor to Celadon."
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to various conditions, including
among other matters: (a) approval of the Merger Agreement and the transactions
contemplated thereby by the holders of a majority of the issued and outstanding
shares of Celadon Common Stock entitled to vote thereon; (b) receipt of all
governmental and other consents and approvals necessary to permit consummation
of the Merger, including expiration or termination of the statutory waiting
period under the Hart-Scott-Rodino Antitrust Improvements Acts of 1976, as
amended (the "HSR Act"); (c) receipt of the funding contemplated by the
Financing Letters; (d) Merger Sub's reasonable satisfaction that the Merger will
be accounted for as a recapitalization; and (e) satisfaction of certain
customary conditions. See "Certain Provisions of the Merger
Agreement--Conditions to the Consummation of the Merger."
CERTAIN RELATED AGREEMENTS
For a Summary of certain terms of agreements entered into in
connection with the Merger, see "Special Factors--Certain Related Agreements."
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CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, the Company's stockholders (other than
the holders of the Rollover Shares, the Excluded Shares, and the Dissenting
Shares) will have the right to receive $20.00 in cash, without interest, for
each share of Celadon Common Stock held immediately prior to the Effective Time.
As a result of the Merger, such stockholders will cease to have any ownership
interest in Celadon and will cease to participate in future earnings and growth,
if any, of Celadon. Moreover, if the Merger is consummated, public trading of
the Celadon Common Stock will cease, the Celadon Common Stock will cease to be
quoted on the Nasdaq National Market, the registration of the Celadon Common
Stock under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
will be terminated; and the Company will cease filing reports with the
Securities and Exchange Commission (the "Commission").
Immediately following the Merger, approximately 90% of the outstanding
shares of Surviving Corporation Common Stock will be owned by Odyssey and the
remaining 10% will be owned by certain stockholders (including an officer and
director and an affiliate of a director) of the Company. See "Special
Factors--Interests of Certain Persons in the Merger" and "Certain Provisions of
the Merger Agreement--Treatment of Securities in the Merger."
The Merger Agreement provides that the current directors of the
Company will be replaced by the directors of the Merger Sub. All members of the
Company's current management will continue as such immediately after the
Effective Time. See "Directors and Executive Officers of the Surviving
Corporation."
Upon consummation of the Merger, the Surviving Corporation expects to
refinance certain existing indebtedness and capital leases of Celadon. See
"Financing of the Merger."
It is currently anticipated that the Surviving Corporation will be
operated after the Merger in a manner substantially the same as Celadon's
current operations.
ACCOUNTING TREATMENT OF TRANSACTION
The Merger will be accounted for as a recapitalization. Accordingly,
the historical basis of Celadon's assets and liabilities will not be impacted by
the Merger and the transactions contemplated thereby.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The receipt of cash for Celadon Common Stock in the Merger will be a
taxable transaction for federal income tax purposes. See "Special
Factors--Certain Federal Income Tax Consequences of the Merger."
NO SOLICITATION; FIDUCIARY DUTIES
Under the Merger Agreement, Celadon has agreed immediately to cease
any existing activities, discussions or negotiations with any parties (other
than Odyssey and Merger Sub) with respect to (a) any acquisition or purchase of
20% or more of the assets or of over 20% of any class of equity securities of
the Company and its subsidiaries, (b) any tender offer (including a self tender
offer) or exchange offer that if consummated would result in any person
beneficially owning 20% or more of any class of equity securities of the Company
or any of its subsidiaries, (c) any merger, consolidation, recapitalization,
sale of all or substantially all of its assets, liquidation, dissolution or
similar transaction involving the Company or any of its subsidiaries whose
assets, individually or in the aggregate, constitute more than 20% of the assets
other than the transactions contemplated by the Merger Agreement, or (d) any
other transaction the consummation of which could reasonably be expected to
impede, interfere with, prevent or materially delay the Merger or which could
reasonably be expected to materially dilute the benefits to Merger Sub of the
transactions contemplated hereby (each such transaction being referred to herein
as an "Acquisition Proposal"). Pursuant to the Merger Agreement, Celadon has
agreed that neither it nor its subsidiaries will initiate, solicit or encourage,
directly
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or indirectly, or take any other action to facilitate, any inquiries or the
making or implementation of any proposal or offer that constitutes an
Acquisition Proposal, or negotiate or discuss with, or provide any confidential
information or data to, any person relating to an Acquisition Proposal, or
authorize or permit any of its officers, directors, employees, agents, or
representatives to take any such action. Celadon is obligated to notify Merger
Sub if any such inquiries or proposals are received by, or any such information
is requested from, the Company, or any such negotiations or discussions are
sought to be initiated or continued with the Company. Nothing contained in the
Merger Agreement prohibits the Board of Directors of the Company from furnishing
information to, or entering into discussions or negotiations with, any person or
entity that makes a bona fide Acquisition Proposal if, and only to the extent
that, (a) the furnishing of such information is pursuant to an appropriate
confidentiality agreement, (b) the Board of Directors of the Company determines
in good faith in reliance upon written advice of outside counsel that such
action is required for the Board to comply with its fiduciary duties to
stockholders imposed by law, (c) the Board determines in good faith after
consultation with its financial advisor that such Acquisition Proposal, if
accepted, is reasonably likely to be consummated, taking into account all legal,
financial, and regulatory aspects of the proposal and the person making the
proposal, and would, if consummated, result in a more favorable transaction than
the transaction contemplated by the Merger Agreement, and (d) the Company is
otherwise in compliance with its obligations regarding Acquisition Proposals as
provided in the Merger Agreement. See "Certain Provisions of the Merger
Agreement--No Solicitation; Fiduciary Out."
If the Merger Agreement is terminated under certain circumstances
generally related to the presence of an Acquisition Proposal, the Company will
be obligated to pay a fee to the Merger Sub and to reimburse Merger Sub for its
out-of-pocket expenses in an aggregate amount of up to $8.0 million. See
"Certain Provisions of the Merger Agreement--Termination; Effects of
Termination."
REGULATORY APPROVALS
The consummation of the Merger is subject to the expiration or
termination of the statutory waiting period under the HSR Act. The Company and
the Merger Sub will be filing notification and report forms under the HSR Act
with the Federal Trade Commission ("FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division"). See "Special
Factors--Regulatory Approvals."
TERMINATION; FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the
Effective Time upon the occurrence of certain events or if the Merger is not
consummated by November 30, 1998. Under certain circumstances generally related
to the presence of an Acquisition Proposal, or withdrawal by the Board of
Directors or modification in a manner adverse to Merger Sub of its approval or
recommendation of the Merger Agreement or the Merger, termination of the Merger
Agreement will result in a fee and reimbursement by the Company of Merger Sub's
out-of-pocket expenses in an aggregate amount of up to $8.0 million. See
"Certain Provisions of the Merger Agreement--Termination; Effects of
Termination."
APPRAISAL RIGHTS
Stockholders who meet the requirements of and follow the procedures
set forth in Section 262 of the DGCL may receive, in lieu of the $20.00 cash per
share of Celadon Common Stock to be paid in the Merger, a cash payment equal to
the "fair value" of their shares, exclusive of any element of value arising from
the accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, as determined by the Delaware Court of Chancery. Such fair
value is to be determined by judicial appraisal and could be more than, the same
as, or less than, the Cash Merger Price.
To be entitled to receive payment of the fair value of the shares of
Celadon Common Stock, a stockholder (a) must file a written demand for appraisal
of his or her shares with the Company prior to the voting by stockholders on the
Merger Agreement at the Special Meeting (such demand must reasonably
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inform the Company of the identity of the stockholder and that the stockholder
intends thereby to demand an appraisal of his or her shares); (b) must not vote
his or her shares in favor of approval and adoption of the Merger Agreement; (c)
must hold shares of Celadon Common Stock on the date of the making of a demand
for appraisal and continuously hold such shares through the Effective Time; and
(d) must have his or her shares valued in an appraisal proceeding, as described
below. See "Special Factors -- Appraisal Rights." A proxy or vote against
approval and adoption of the Merger Agreement will not satisfy the requirement
that a stockholder file a written demand for appraisal as set forth above.
MARKET PRICES; DIVIDENDS
Celadon Common Stock is quoted on the Nasdaq National Market under the
symbol "CLDN." On June 22, 1998, the last trading day prior to the public
announcement that Celadon and Merger Sub had executed the Merger Agreement, the
high and low sale prices per share of Celadon Common Stock as reported on the
Nasdaq National Market were $15 and $14.25, respectively.
The following table sets forth the high and low sale prices per share
of Celadon Common Stock on the Nasdaq National Market with respect to each
quarterly period since the First Quarter of fiscal year 1997.
<TABLE>
<CAPTION>
HIGH LOW
FISCAL 1997
<S> <C> <C>
First Quarter (July 1 - September 30)................... $ 9.50 $ 5.75
Second Quarter (October 1 - December 31)................ $11.25 $ 8.47
Third Quarter (January 1 - March 31).................... $12.75 $10.00
Fourth Quarter (April 1 - June 30)...................... $11.75 $10.25
FISCAL 1998
First Quarter (July 1 - September 30)................... $15.75 $11.13
Second Quarter (October 1 - December 31)................ $17.00 $12.88
Third Quarter (January 1 - March 31).................... $16.00 $13.00
Fourth Quarter (April 1 - June 22)...................... $15.38 $12.75
Fourth Quarter (June 23 - June 30)...................... $19.25 $14.00
FISCAL 1999
First Quarter (July 1 - ) ........................ $____ $____
</TABLE>
Although the Company has paid cash dividends on the Celadon Common
Stock from time to time, it has not paid any dividends on its Common Stock in
fiscal 1997 and 1998 and has no present intention of paying cash dividends on
the Celadon Common Stock in the foreseeable future. In addition, the payment of
dividends by the Company is subject to certain restrictions under the Company's
existing credit agreements, which will be refinanced in connection with the
Merger. Under the Merger Agreement, the Company has agreed not to pay any
dividends on the Celadon Common Stock prior to the Effective Time. Pursuant to
the
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terms of the agreements contemplated by the Financing Letters, the
Surviving Corporation's ability to pay certain dividends will be restricted. See
"Market Prices and Dividends."
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information set forth below is
qualified in its entirety by reference to, and should be read in conjunction
with, the consolidated financial statements and notes thereto included in the
documents incorporated by reference herein. The consolidated financial
information set forth below for and as of each of the years in the five-year
period ended June 30, 1997 has been derived from audited consolidated financial
statements of the Company. The consolidated financial information for and as of
the nine-month periods ended March 31, 1998 and 1997 has been derived from the
unaudited consolidated financial statements of the Company. The unaudited
financial statements include all adjustments, consisting of normal recurring
accruals, which the Company considers necessary for the fair presentation of the
financial position and results of operations for these periods. The results for
the nine-month period ended March 31, 1998 are not necessarily indicative of the
results to be expected for the year ended June 30, 1998. See "Incorporation of
Certain Documents by Reference."
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended June 30, March 31,
1993 1994 1995 1996 1997 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue $ 76,558 $ 94,746 $116,360 $166,544 $191,035 $140,759 $164,690
Operating income 5,162 8,330 9,179 1,737 12,435 9,509 11,680
Interest expense, net.................... 4,250 4,342 3,171 3,672 4,944 3,662 4,122
Equity loss in unconsolidated affiliate.. 343 -- -- -- -- -- --
Gain on sale of investment
in unconsolidated affiliate........... -- (189) -- -- -- -- --
Other (income) expense................... 21 (6) 103 72 (37) (37) (86)
Income (loss) from continuing operations
before income taxes................... 548 4,183 5,905 (2,007) 7,528 5,884 7,644
Provision for income taxes (benefit)..... 252 1,711 3,690 (411) 3,024 2,354 2,944
Income (loss) continuing operations 296 2,472 2,215 (1,596) 4,504 3,530 4,700
Income (loss) discontinued operations (288) 731 (2,606) (15,203) -- -- --
Net income (loss) ....................... 8 3,203 (391) (16,799) 4,504 3,530 4,700
Preferred stock dividends and redemption
premium (1) .......................... 317 262 -- -- -- -- --
Net income (loss) attributable to $(309) $2,941 $(391) $(16,799) $ 4,504 $3,530 $4,700
common stockholders .................
Earnings (loss per common share):
Continuing Operations ...................... $ (.01) $ .46 $ .31 $ (.20) $ .59 $ .46 $ .61
Discontinued Operations .................... (.09) .15 (.36) (1.93) -- -- --
Net income (loss) (2) ...................... $ (.10) $ .61 $ (.05) $(2.13) $ .59 $ .46 $ .61
Dividends per common share.................. $ (.02) $ -- $ -- $ -- $ -- $ -- $ --
Weighted average number of common shares
and common share equivalents outstanding 3,263 4,853 7,192 7,879 7,660 7,656 7,734
Nine Months Ended
Year Ended June 30, March 31,
1993 1994 1995 1996 1997 1997 1998
( IN THOUSANDS)
BALANCE SHEET
Working Capital (deficit) ............... $ (305) $ 17,491 $ 23,801 $ 17,039 $ 12,727 $ 11,420 $ 10,241
Total assets........................... 80,227 99,265 151,624 141,921 139,194 144,730 174,178
Long-term debt ........................ 44,028 29,234 39,557 50,025 54,361 55,918 75,182
Redeemable Preferred Stock............... 2,000 -- -- -- -- -- --
</TABLE>
9
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended June 30, March 31,
1993 1994 1995 1996 1997 1997 1998
( IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Redeemable Common Stock................ -- -- 3,614 -- -- -- --
Stockholders' Equity................... 1,538 42,079 (3) 57,839 (4) 41,962 45,794 44,651 54,002
- ------------------
</TABLE>
(1) Represents (i) dividends and redemption premium on the Series I Preferred
Stock which was redeemed in fiscal 1994, (ii) dividends on the Series F
12% Convertible Preferred Stock which was converted into Celadon Common
Stock in fiscal 1993, and (iii) dividends on previously redeemed
issuances of preferred stock.
(2) Calculation of fully-diluted net income (loss) per common share for all
periods prior to 1997 are anti-dilutive. All share and per shares amounts
have been adjusted to reflect the one-for-3.3 reverse stock split in
January 1994.
(3) Includes the effect of the net proceeds ($29.9 million) from the
Company's initial public offering and the conversion of the senior
subordinated debt ($7.6 million) to Celadon Common Stock.
(4) Includes the effect of the net proceeds ($15.9 million) from the
issuance of Celadon Common Stock in a public offering.
10
<PAGE>
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(in thousands; except per share data)
The accompanying unaudited pro forma condensed consolidated balance sheet
as of March 31, 1998 has been prepared to give effect to (i) the Merger and
related transactions contemplated by the Merger Agreement and (ii) the
acquisition of Gerth Transport of Ontario, Canada ("Gerth"), in each case as if
they had occurred as of the balance sheet date. The unaudited pro forma
condensed consolidated income statement for the year ended June 30, 1997 and for
the nine months ended March 31, 1998 have been prepared to give effect to (i)
the Merger and related transactions contemplated by the Merger Agreement and
(ii) the completion of the acquisition of the net assets of General Electric
Transportation Services ("GETS") and the acquisition of Gerth, in each case as
if it had occurred on July 1, 1996 and July 1, 1997, respectively. The
acquisitions of GETS and of Gerth were completed on September 3, 1997 and May
22, 1998, respectively, and were accounted for under the purchase method of
accounting. The recapitalization of the Company will be accounted for as a
recapitalization.
All adjustments necessary to fairly present this pro forma condensed
consolidated financial information have been made based on available information
and assumptions which, in the opinion of management, are reasonable. All such
pro forma adjustments and the assumptions on which they are based are described
in the accompanying notes to the pro forma condensed consolidated financial
statements. The unaudited pro forma condensed consolidated financial information
is based upon and should be read in conjunction with, the historical
consolidated financial statements of the Company and the notes thereto included
elsewhere in this Proxy Statement. The pro forma condensed consolidated
financial statements do not purport to represent what the Company's results of
operations or financial condition would actually have been had the Merger and
related transactions contemplated by the Merger Agreement, the acquisitions of
GETS and Gerth, and the other adjustments described below in fact occurred as of
such dates or to project the Company's results of operations or financial
condition for any future period or as of any date. In addition, there can be no
assurance that the assumptions used in the preparation of the pro forma
condensed consolidated financial statements will prove to be correct.
11
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Condensed Consolidated Income Statement for the
Year Ended June 30, 1997
(1) (2) (3)
Recent Pro Forma Recapitalization
Historical Acquisitions Adjustments Adjustments Pro Forma
<S> <C> <C> <C>
Operating revenue $191,035 $55,921 $246,956
Operating expenses 178,600 52,894 $(4,538)(A) 226,956
---------- ------------- ------------- --------------- ----------
Operating income 12,435 3,027 4,538 19,999
Other (income) expense:
Interest expense (net) 4,944 641 2,650(B) $15,690 (A) 23,926
Other (37) (37)
---------- ------------- ------------- ---------------- ------------
Income before taxes 7,528 2,385 1,888 (15,690) (3,889)
Provision for income taxes
(benefit) 3,024 954 755 (C) (6,276)(B) (1,543)
---------- ------------- -------------- --------------- -------------
Net income $ 4,504 $ 1,431 $1,133 ($ 9,414) ($ 2,346)
========== ============ =============== =============== =============
Per share data - net income:
Diluted EPS $ 0.59 $ 0.19 $ 0.15 ($ 0.73)
Basic EPS $ 0.59 $ 0.19 $ 0.15 ($ 0.73)
Average shares outstanding:
Diluted 7,660 7,660 7,660 3,200
Basic 7,628 7,628 7,628 3,200
Other data:
EBITDA (4) $ 22,570 $ 3,883 $6,976 $ 33,428
Depreciation and amortization $ 10,135 $ 856 $2,438 $ 13,429
</TABLE>
12
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Condensed Consolidated Income Statement for the
Nine Months Ended March 31, 1998
(1) (2) (3)
Recent Pro Forma Recapitalization
Historical Acquisitions Adjustments Adjustments Pro Forma
<S> <C> <C> <C> <C>
Operating revenue $164,690 $ 28,907 $193,597
Operating expenses 153,010 27,491 $(2,590)(A) 177,911
------------ --------- ---------- -------------------- ------------
Operating income 11,680 1,416 2,590 15,686
Other (income) expense:
Interest expense (net) 4,122 531 1,168(B) $ 11,728(A) 17,549
Other (86) (86)
------------ ---------- ---------- -------------------- ------------
Income before taxes 7,644 885 1,422 (11,728) (1,777)
Provision for income taxes
(benefit) 2,944 336 540(C) (4,457)(B) (636)
------------ ---------- ---------- -------------------- ------------
Net income $ 4,700 $ 549 $ 882 $ (7,272) ($ 1,141)
============ ========== ========== ==================== ===========
Per share data - net income:
Diluted EPS $ 0.61 $ 0.07 $ 0.11 ($ 0.36)
Basic EPS $ 0.61 $ 0.07 $ 0.12 ($ 0.36)
Average shares outstanding:
Diluted 7,734 7,734 7,734 3,200
Basic 7,647 7,647 7,647 3,200
Other data:
EBITDA (4) $ 21,190 $ 2,151 $ 3,744 $ 27,085
Depreciation and amortization $ 9,510 $ 735 $ 1,154 $ 11,399
</TABLE>
13
<PAGE>
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
(1) For the year ended June 30, 1997, this column reflects the results of
operations for GETS and Gerth for the entire year. For the nine months
ended March 31, 1998, this column reflects the results of operations
for GETS from July 1,1997 to September 3, 1997 (the date of its
acquisition by the Company) and the results of operations of Gerth
from July 1, 1997 to May 22, 1998 (the date of its acquisition by the
Company). The acquisitions of GETS and Gerth were accounted for by the
purchase method of accounting.
(2) This column reflects certain adjustments arising out of the
acquisition of GETS and the acquisition of Gerth and certain other
adjustments as follows:
<TABLE>
<CAPTION>
Year
Ended Nine Months
<S> <C> <C>
(A) The following are adjustments to operating expense: 6/30/97 Ended 3/31/98
Reflects the elimination of third-party maintenance expense for 480
trailers acquired in the acquisition of GETS. The Company's own
maintenance facilities have absorbed the costs of maintaining these
trailers. The savings were computed by comparing the difference
between the maintenance mileage charge paid by GETS to the
Company's internal variable cost for trailer maintenance. ($235) ($39)
Reflects the reduction in liability and cargo insurance and claims
expense due to incorporating the Gerth operations under the
Company's then existing insurance policies. The Company's
incremental insurance and claims expense as applied to Gerth was
determined based on the Company's historical cost structure under its
then existing policies. The coverages under both policies were
substantially similar. (939) (802)
Reflects the depreciation expense on 11 tractors and 52 trailers
acquired from a former affiliate of Gerth as part of the acquisition
of Gerth. These tractors and trailers had previously been leased by
Gerth from such affiliate. 161 120
Reflects the depreciation expense resulting from the refinancing of
355 trailers in connection with the acquisition of GETS. The Company
assumed existing operating leases for these trailers. These leases
were refinanced following the acquisition of GETS, and are currently
treated as capitalized leases. 426 142
Reflects depreciation expense associated with the conversion of
1,354 trailers from operating leases to capital leases that occurred
in January 1998. At that time, the Company declared that it would
exercise its end of lease option to purchase these trailers. Upon
declaration of this intent to purchase, the accounting treatment was
appropriately changed from operating lease to capital lease. 1,428 714
Reflects the elimination of the rental expense resulting from the
refinancing of 355 trailers (discussed above). (959) (320)
Reflects the elimination of rental expense associated with the
conversion of 1,354 trailers from operating leases to capital leases
(discussed above). (3,812) (1,906)
14
<PAGE>
<PAGE>
Reflects the expense savings associated with the turn-in of 100
short-term rental trailers. Due to the size of the combined trailer
pool resulting from the acquisition of Gerth, these trailers represent
excess capacity and will be returned to the lessors and not replaced
by the Company. (336) (252)
Reflects the elimination of intercompany rental expense on 11 tractors
and 52 trailers acquired from a former affiliate of Gerth as part of
the acquisition of Gerth. These tractors and trailers had previously
been leased by Gerth from such affiliate. (252) (189)
Reflects the reduction of third-party sales commission expense paid
by Gerth for one-half of Gerth's northbound Mexico loads. Gerth
utilizes a third-party agent to solicit shipments from Mexico to the
United States and Canada. The Company has its own sales force in
Mexico, which will assist in soliciting northbound business on behalf
of Gerth. The savings were calculated by comparing the incremental
difference between Gerth's third-party agent rate and the Company's
internal cost. (246) (204)
Reflects the elimination of intercompany charges previously allocated
to GETS by a subsidiary of General Electric Company. These
functions have been absorbed by the Company without an
incremental increase in costs. (198) (32)
Reflects the incremental goodwill amortization resulting from the
purchase accounting treatment of the acquisitions of GETS and
Gerth. 423 177
-------- ------
Operating expenses subtotal ($4,538) ($2,590)
(B) The following are adjustments to Interest expense:
Reflects the interest expense relating to the debt incurred to
purchase GETS and Gerth. $865 $321
Reflects the interest expense related to the refinancing of 355
trailers discussed above. 277 92
Reflects the interest expense associated with the conversion of 1,354
trailers from operating leases to capital leases (discussed above). 1,508 754
---------- ---------
Interest expense subtotal $2,650 $1,168
(C) Reflects the income tax effect of the pro forma adjustments at an
assumed rate of 40% for 1997 and 38% for 1998. 755 540
</TABLE>
(3) This column reflects certain effects of the recapitalization of the
Company as follows:
(A) Reflects the interest expense and amortization of financing fees
related to the Financing, the CTSI Senior Subordinated Notes,
and the Company Senior Discount Notes, and expenses, net of a
decrease in interest expense from the assumed repayment of
existing long-term debt as follows:
15
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
For Year For Nine Months
Ended Ended
June 30, 1997 March 31, 1998
<S> <C> <C>
Pro forma interest expense on new debt (a).............. $18,741 $14,032
Pro forma amortization of financing fees (b)............ 1,308 981
Fee for unused portion of the Financing (c)............. 843 632
Decrease from repayment of existing long-term debt...... (5,202) (3,917)
New pro forma interest adjustment................. $15,690 $11,728
========== =============
</TABLE>
(a) Pro forma adjustment to record interest expense on new debt is as
follows:
<TABLE>
<CAPTION>
Pro forma Pro Forma Interest
Assumed Interest Expense Expense for Nine
Assumed Outstanding for Year Ended Months Ended
Assumed New Debt Interest Rate Balance June 30, 1997 March 31, 1998
<S> <C> <C> <C> <C>
Revolver............................... 8.0% $6,485 $ 519 $ 389
CTSI Senior Subordinated Notes......... 10.0% 150,000 15,000 11,250
Company Senior Discount Notes.......... 12.5% 25,000 3,223 2,393
-------------- --------------------
$ 18,741 $14,032
============== ====================
</TABLE>
If the interest rate for the Revolver was to increase (decrease) by
1/8 of 1.0% net income would decrease (increase) by less than $100 for
the year ended June 30, 1997 and less than $100 for the nine months
ended March 31, 1998.
(b) Pro forma adjustment to reflect amortization of an estimated $9,300 of
financing fees related to the Financing, CTSI Senior Subordinated
Notes and Company Senior Discount Notes.
(c) Represents the commitment fee equal to 0.5% per annum of the undrawn
portion of the available commitment under the Financing. (B) Reflects
the income tax effect of the pro forma adjustments at an assumed rate
of 40% for 1997 and 38% for 1998. The actual tax benefit may be
limited as the Company is in a net operating loss carryforward
position and the tax benefit of additional losses may require the
recognition of a valuation allowance to reduce such benefit under FAS
No. 109. In addition, there can be no assurance that interest
accretion on the Company Senior Discount Notes will be tax deductible.
(4) "EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization. Although EBITDA is not a measure of performance calculated in
accordance with GAAP, the Company believes that EBITDA is accepted as a
generally recognized measure of performance in the truckload industry.
Nevertheless, this measure should not be considered in isolation or as a
substitute for operating income, net income, net cash provided by operating
activities or any other measure for determining the Company's operating
performance or liquidity which is calculated in accordance with GAAP.
16
<PAGE>
<PAGE>
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of March 31, 1998
<TABLE>
<CAPTION>
(1) (2) (3)
Company Gerth Gerth Recapitalization
Historical Historical Pro Forma Adjustments Pro Forma
Adjustments
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,657 $1,657
Trade receivables, net 31,533 $6,108 37,641
Other current assets 15,585 15,585
Total current assets 48,775 6,108 54,883
Fixed assets, net 111,650 7,023 $864 119,537
Goodwill and Intangibles 9,022 2,750 11,772
Fees and expenses $9,300 (A) 9,300
Other assets 4,731 386 5,117
Total assets $174,178 $13,518 $3,614 $9,300 $200,610
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable and accrued expenses $19,635 $3,095 $900 $23,630
Current maturities of debt 18,872 1,340 $(12,192)(B) 8,021
Total current liabilities 38,507 4,435 900 (12,192) 31,651
Financing 6,485 (B) 6,485
Capital lease obligations, less current maturities 64,099 5,361 (37,375)(B) 32,085
Existing long-term debt, less current maturities 11,083 2,603 3,833 (17,518)(B)
CTSI Subordinated Notes 150,000 (B) 150,000
Company Discount Notes 25,000 (B) 25,000
Total debt, less current maturities 75,182 7,964 3,833 126,592 213,570
Other liabilities 9,475 9,475
Total liabilities 123,164 12,399 4,733 114,400 254,696
Minority Interest 12 12
Stockholders' equity (deficit) 51,002 1,119 (1,119) (105,100)(C) (54,098)
Total liabilities and stockholders' equity
(deficit) $174,178 $13,518 $3,614 $9,300 $200,610
</TABLE>
17
<PAGE>
<PAGE>
(1) This column reflects the historical balances of assets acquired and
liabilities assumed pursuant to the Gerth acquisition.
(2) This column reflects the application of purchase accounting to the net
assets acquired in connection with the acquisition of Gerth.
(3) This column reflects certain effects of the recapitalization of the Company
as follows:
(A) Represents financing fees incurred in connection with the Financing
and the issuance of the CTSI Senior Subordinated Notes and Company
Senior Discount Notes and advisory fees incurred in connection with
raising such financing.
(B) Represents the Revolver, CTSI Senior Subordinated Notes and the
Company Senior Discount Notes used to fund the recapitalization and
refinance existing indebtedness and certain capital leases.
(C) Components of pro forma adjustments to stockholders' equity (deficit)
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Equity investment by Odyssey............................................. $57,600
Less:
Payment of cash consideration in recapitalization (including fees and
expenses)............................................................... (159,191)(1)
Payment to holders of options, net...................................... (3,397)(2)
Payment to holders of warrants, net..................................... (111)(3)
Subtotal................................................................. (162,700)
Net pro forma adjustment................................................. $(105,100)
</TABLE>
- ---------------------------------
1 Represents payments to stockholders for 7,401,989 shares of Celadon
Common Stock (other than 320,000 shares to be retained by an officer
and director and an entity affiliated with a director of the Company
and an affiliate of a director) at the Cash Merger Price at the
Effective Time and $11,151 of fees and expenses.
2 Represents payments to holders of options to purchaseapproximately
444,675 shares of Celadon Common Stock at the Cash Merger Price, net
of the aggregate option exercise price.
3 Represents payments to Hanseatic to purchase 12,121 shares of Celadon
Common Stock at the Cash Merger Price, net of the aggregate warrant
exercise price.
18
<PAGE>
<PAGE>
THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to the holders of Celadon
Common Stock in connection with the solicitation of proxies by the Board of
Directors of Celadon from holders of the outstanding shares of Celadon Common
Stock for use at the Special Meeting of Stockholders to be held at a.m., local
time, on , 1998 at and any adjournments and postponements thereof. At the
Special Meeting, stockholders of Celadon (a) will be asked to consider and vote
upon a proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby and (b) will transact such other business as may properly
come before the Special Meeting.
RECORD DATE, SOLICITATION, AND REVOCABILITY OF PROXIES
The Board of Directors of the Company has fixed the Record Date as the
date for determining the Celadon stockholders entitled to receive notice of and
to vote at the Special Meeting and any adjournments or postponements thereof.
Only holders of record of Celadon Common Stock as of the Record Date are
entitled to notice of and to vote at the Special Meeting. As of the Record Date,
there were ________ shares of Celadon Common Stock issued, outstanding, and held
by _________ holders of record. Holders of Celadon Common Stock are entitled to
one vote on each matter considered and voted on at the Special Meeting for each
share of Celadon Common Stock held of record at the close of business on the
Record Date.
Proxies in the form enclosed are being solicited by the Board of
Directors of the Company. Shares of Celadon Common Stock represented by properly
executed proxies, if such proxies are received in time and are not revoked, will
be voted in accordance with the instructions indicated on the proxies. If no
instructions are indicated, such proxies will be voted FOR approval and adoption
of the Merger Agreement and the transactions contemplated thereby. Any holder of
Celadon Common Stock who returns a signed proxy but fails to provide
instructions as to the manner in which such holder's shares are to be voted will
be deemed to have voted FOR approval and adoption of the Merger Agreement and
the transactions contemplated thereby.
It is not anticipated that any matter other than the proposal to
approve and adopt the Merger Agreement will be brought before the Special
Meeting. If any other matter is properly presented at the Special Meeting for
consideration, including, among other things, a motion to adjourn the Special
Meeting to another time and/or place (including, without limitation, for the
purpose of soliciting additional proxies), the persons named in the enclosed
form of proxy card and acting thereunder will have discretion to vote on such
matter in accordance with their best judgment; provided, however, that no proxy
that directs the shares represented thereby to be voted against the proposal to
approve and adopt the Merger Agreement will be voted in favor of any adjournment
of the Special Meeting for purposes other than the absence of a quorum.
A stockholder who has given a proxy may revoke it at any time prior to
its exercise at the Special Meeting, by (a) giving written notice of revocation
to the Secretary of the Company, (b) properly submitting to the Company a duly
executed proxy bearing a later date, or (c) voting in person at the Special
Meeting. All written notices of revocation and other communications with respect
to revocation of proxies should be addressed to the Company as follows: Celadon
Group, Inc., One Celadon Drive, Indianapolis, Indiana 42636-4207, Attention:
Corporate Secretary. A proxy appointment will not be revoked by death or
supervening incapacity of the stockholder executing the proxy unless, before the
shares are voted, notice of such death or incapacity is filed with the Company's
Secretary or other person responsible for tabulating votes on behalf of the
Company.
The expense of soliciting proxies for the Special Meeting will be paid
by the Company. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers, and employees of Celadon in person or by
telephone, telegram, or other means of communication. Such directors, officers,
and employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
Arrangements will be made with custodians, nominees, and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such custodians, nominees, and fiduciaries, and Celadon will
reimburse such custodians, nominees, and fiduciaries for reasonable
out-of-pocket
19
<PAGE>
<PAGE>
expenses incurred in connection therewith. In addition, Celadon has retained
D.F. King & Co., Inc., a proxy solicitation organization, to assist in the
solicitation of proxies for the Special Meeting for a fee of $_______, plus
reasonable out-of-pocket expenses.
QUORUM; REQUIRED VOTE
Approval of the Merger Agreement and the transactions contemplated
thereby requires the presence of a quorum and the affirmative vote of the
holders of a majority of the issued and outstanding shares of Celadon Common
Stock entitled to vote thereon at the Special Meeting. The presence, in person
or by properly executed proxy, of the holders of a majority of the issued and
outstanding shares of Celadon Common Stock at the Special Meeting is necessary
to constitute a quorum of the holders of Celadon Common Stock at the Special
Meeting. Abstentions and broker non-votes will be counted as shares present for
purposes of determining the presence of a quorum. However, because the proposal
to approve and adopt the Merger Agreement requires the affirmative vote of a
majority of the issued and outstanding shares of Celadon Common Stock,
abstentions and broker non- votes will have the effect of a vote against the
Merger Agreement and the transactions contemplated thereby in determining
whether effective action has been taken. THE EFFECT ON APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT OF FAILING TO PROPERLY EXECUTE AND RETURN A PROXY CARD OR
TO VOTE AT THE SPECIAL MEETING WILL BE THE SAME AS VOTING AGAINST THE APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
As of the Record Date, the directors and executive officers of Celadon
were the beneficial owners of __________ shares of Celadon Common Stock. The
directors and executive officers of Celadon have indicated that they intend to
vote such shares in favor of the approval and adoption of the Merger Agreement.
Stephen Russell, President, Chief Executive Officer, and Chairman of the
Company's Board and Hanseatic, principal stockholders of the Company, who
beneficially own in the aggregate 1,989,860 shares of Celadon Common Stock
(including shares of Celadon Common Stock issuable upon the exercise of Options
and the Hanseatic Warrants prior to the Effective Time) of which 1,907,739
shares, constituting approximately 24% of the outstanding Celadon Common Stock,
are outstanding as of June 23, 1998, have entered into the Voting Agreement,
pursuant to which each of them appointed certain persons designated by Merger
Sub as his or its proxy to, among other things, vote their respective shares of
Celadon Common Stock (including shares issuable upon exercise of Options prior
to the Effective Time) in favor of the Merger Agreement. Paul Biddleman,
President of Hanseatic, is Hanseatic's designee to the Company's Board of
Directors. See "Special Factors--Interests of Certain Persons in the
Merger--Voting Agreement."
SPECIAL FACTORS
BACKGROUND OF THE TRANSACTION
Historically, the for-hire truckload industry in which the Company
competes has been highly fragmented. More recently, however, there has been
increasing movement toward consolidation in the industry, with larger carriers
gaining market share over smaller carriers. To position itself strategically in
the industry, the Company, beginning in 1996, reorganized its senior management
team. The new senior management of the Company focused its attention on refining
and furthering the Company's existing core routing strategy by making strategic
acquisitions along core routes. In order to pursue this strategy, and to take
advantage of other opportunities for growth within the industry, senior
management believed that the Company needed additional sources of capital.
In early January 1998, Stephen Russell, Chairman, Chief Executive
Officer, and President of the Company, was approached by a senior executive
officer of a national trucking and transportation services company (the
"Potential Strategic Acquiror"), who expressed his company's interest in a
strategic purchase of Celadon in a stock-for-stock exchange, in which holders of
Celadon Common Stock would receive shares of the Potential Strategic Acquiror's
common stock in exchange for their shares of Celadon Common Stock. The exchange
rate for the Celadon Common Stock would be based upon a valuation of the Celadon
Common Stock at $18.00 per share. The transaction would be structured to qualify
as a pooling transaction under applicable accounting rules and would be tax-free
to Celadon under the Internal Revenue Code of 1986, as amended (the
20
<PAGE>
<PAGE>
"Code"). Following the initial meeting with the senior executive, Mr. Russell
discussed with the Board of Directors the structure of the proposed transaction
and the valuation placed on the Celadon Common Stock by the Potential Strategic
Acquiror. Celadon consulted with Furman Selz, Incorporated ("Furman Selz"),
which had previously advised the Company with respect to certain financial
matters, about the proposal made by the Potential Strategic Acquiror, and also
requested that Furman Selz provide suggested alternatives for increasing
stockholder value in the Company and for furthering the Company's growth
strategy.
Following its consultation with Furman Selz, the Board rejected the
Potential Strategic Acquiror's $18 valuation of the Celadon Common Stock, but
indicated that the Company would be willing to continue discussions at a per
share valuation of approximately $22. At a meeting on February 12, 1998, the
Potential Strategic Acquiror rejected the Board's valuation of $22 per share and
suggested that the initial valuation of $18 per share might be reduced based
upon the Potential Strategic Acquiror's financial and strategic analysis of the
Company. As a result of the meeting, the Board of Directors, with the advice of
senior management, decided not to proceed further with discussions.
In late January, Furman Selz presented, as its suggested alternative
to the Company, a $15 - $30 million issuance of convertible preferred stock to
strengthen the Company's balance sheet and provide funds to pursue its growth
strategy. After reviewing the proposed terms and having discussions with Furman
Selz regarding the convertible preferred stock, the Company determined that the
proposed terms, including the coupon rate, conversion price, and a mandatory put
option, made this alternative too costly for the Company. On February 10, 1998,
Stephen Russell (with the authorization of the Board of Directors) met with
representatives of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ")
to discuss additional strategic alternatives. DLJ suggested that the Company
make an offering of $50 million in debt securities in order to provide funds for
the Company to pursue its growth strategy. The Board of Directors considered and
rejected this alternative because the proposed terms of the debt securities were
less favorable than the Company wanted, particularly in light of the fact that
the Company had not identified an immediate and specific use for the funds.
On February 19, 1998, Mr. Russell met with representatives of
Wasserstein Perella to discuss alternatives for the Company that would enable
the Company to maintain its acquisition strategy. Wasserstein Perella suggested
that the Company consider opportunities in the equity markets and a sale of the
Company. Thereafter, Wasserstein Perella made a presentation to the Board
regarding various alternatives including a private placement of the Company's
equity and a possible sale of the Company. After considering Wasserstein
Perella's suggestions, the Board determined that a private sale of the Company
was an attractive alternative, particularly in light of the fact that an equity
offering would have required the sale of shares of Celadon Common Stock or
securities convertible into shares of Celadon Common Stock at that time when the
Celadon Common Stock was trading in the range of $13 to $16 per share.
On March 20, 1998, Celadon engaged Wasserstein Perella to act as the
Company's financial advisor in connection with the possible merger with, or sale
of substantially all of the Company's assets or stock to, a third party.
Wasserstein Perella identified a broad list of potential buyers based primarily
upon Wasserstein Perella's trucking industry knowledge and their familiarity
with potential financial buyers.
The Company advised Wasserstein Perella that it believed that, besides
the Potential Strategic Acquiror, the number of companies within the trucking
industry likely to be interested in acquiring the Company at a price that
exceeded the initial proposal made by the Potential Strategic Acquiror was
small, and that those companies were likely to value the Company on a basis
consistent with the Potential Strategic Acquiror's valuation of the Company. In
light of the foregoing, and in light of the fact that the Company believed the
distribution of information about the Company within the trucking industry would
adversely affect the Company, the Company advised Wasserstein Perella to limit
the distribution of information about the Company to potential financial buyers.
Thereafter, on behalf of Celadon, Wasserstein Perella contacted potential
buyers, and arranged for the execution of confidentiality agreements by
interested parties. Upon execution of a confidentiality agreement, each
potential buyer was furnished with a package of information concerning the
Company.
On April 4, 1998, a representative of Odyssey contacted Stephen
Russell to express an interest in a recapitalization transaction following which
the Company would be privately held. Mr. Russell then contacted
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Wasserstein Perella, who provided information to Odyssey regarding the Company
after receiving Odyssey's executed confidentiality agreement. Based on their
initial review of the information provided by Wasserstein Perella, on April 13,
1998, representatives of Odyssey (accompanied by representatives of GE)
conducted a due diligence visit with the Company and had discussions with senior
management regarding the Company's business and operations. At this meeting,
Odyssey indicated that, as a financial buyer, its interest in any transaction
with the Company was contingent upon the retention of the Company's senior
management. Odyssey expressed continued interest in the Company following the
initial meeting and called the Company's senior management for additional
information regarding financial projections. Odyssey also reiterated that
Odyssey's interest was conditioned upon the transaction qualifying for treatment
as a recapitalization for accounting purposes. In connection with the
transaction and in furtherance of the foregoing, Odyssey would require a limited
number of stockholders of the Company to rollover their shares of Celadon Common
Stock into shares of Surviving Corporation Common Stock. Although Wasserstein
Perella continued discussions with other potential buyers, no other parties met
with the Company or made any formal or informal proposal to enter into a
transaction with the Company.
On April 29, 1998, Odyssey, together with GE, indicated in writing its
desire to continue to discuss pursuing a recapitalization transaction with the
Company at a price of $18.50 per share of Celadon Common Stock (the "Odyssey
Proposal"), subject to, among other things, the satisfactory completion of due
diligence. The Board of Directors indicated to Odyssey that it believed that the
valuation of Celadon Common Stock at $18.50 per share did not adequately reflect
the impact on the Company of its fiscal 1998 acquisitions, specifically the
acquisition of the net assets of GETS in September 1997 and the acquisition of
Gerth, which was scheduled to be completed in May 1998. As a result, Odyssey (GE
having at this point withdrawn from the discussions) reviewed and revised the
Odyssey Proposal to take into account the Gerth transaction (which expanded the
Company's service area to Canada) and the GETS acquisition. The revised Odyssey
Proposal which was presented to the Company on April 30, 1998, provided for a
valuation of $20.00 per share for the Celadon Common Stock, subject, among other
things, to the satisfactory completion of due diligence. In addition, Odyssey
conditioned its willingness to proceed with the revised Odyssey Proposal upon
the Company entering into an exclusivity agreement and reimbursement arrangement
with Odyssey and Odyssey and the Company agreeing upon the terms of employment
agreements for senior management and annual bonus, signing bonus, and stock
option plans for certain Company executives (including members of senior
management). After considering the revised Odyssey Proposal at a meeting on May
1, 1998, the Board authorized Stephen Russell to continue discussions with
Odyssey.
As a condition to Odyssey's proceeding further with a potential
transaction, the Company and Odyssey reached an understanding with respect to
the employment terms for senior management and certain exclusivity and
reimbursement arrangements which were memorialized in an agreement, dated as of
May 15, 1998. The agreement provided that, for a period of 21 days (the
"Exclusivity Period") following its execution, the Company would not (a)
solicit, initiate or encourage any offers or proposals relating to, (b) respond
to any submissions, proposals, or offers relating to, (c) engage in any
negotiations or discussions with any person relating to, or (d) otherwise
cooperate in any way with any person in connection with any acquisition,
recapitalization, liquidation, dissolution, or similar transaction involving all
or any portion of the Company or its business or assets or all or any portion of
the Company's capital stock or other equity interests. The agreement provided
for extensions of the Exclusivity Period at Odyssey's request under certain
circumstances, subject to Odyssey reconfirming its interest in pursuing a
transaction. The Board of Directors agreed to the Exclusivity Period based upon
(a) the level of the Odyssey valuation, (b) the fact that no other party
contacted by Wasserstein Perella had made, or then appeared likely to make, a
more favorable proposal to the Company with respect to the acquisition of the
Company, and (c) the understanding of the parties that definitive documentation
for the transaction would provide that it could be terminated by the Board of
Directors in the exercise of its fiduciary duties if a proposal for a superior
transaction were later received. On May 19, 1998 the Board of Directors
authorized Mr. Russell to negotiate the terms of definitive agreements with
respect to the revised Odyssey Proposal.
During the Exclusivity Period, Odyssey performed detailed legal,
business and accounting due diligence. At the conclusion of the Exclusivity
Period, Odyssey reconfirmed its interest in a possible recapitalization
transaction at the Cash Merger Price and, as a result, the Exclusivity Period
was extended, as provided in the agreement, for an additional nine days. At the
end of the nine-day period, Odyssey again reconfirmed its interest in a possible
recapitalization transaction at the Cash Merger Price and the Exclusivity Period
was extended, as
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provided in the agreement, for an additional seven days to June 22, 1998. During
that seven-day period, the parties negotiated the definitive Merger Agreement
and the Voting Agreement.
At a meeting held on June 22, 1998, the Board of Directors of Celadon
met to review drafts of the definitive documentation with respect to the
proposed Merger. At the meeting, the Board of Directors received the opinion of
Wasserstein Perella with respect to the fairness, from a financial point of
view, of the Cash Merger Price to be received by Celadon's stockholders (other
than holders of Rollover Shares) described under "Opinion of Wasserstein
Perella, Financial Advisor to Celadon," and, based on that opinion and on the
other factors described herein under "Reasons for the Merger; Recommendation of
the Board of Directors," the Board approved the Merger Agreement and the Voting
Agreement in substantially the forms submitted to the Board, and authorized
senior management to complete negotiation of certain remaining points and to
execute final documents. On June 22, 1998, Odyssey requested that the
Exclusivity Period be extended until noon on June 23, 1998, to provide
sufficient time to finalize the definitive Merger Agreement and Voting
Agreement. On June 23, 1998, the Merger Agreement and the Voting Agreement were
executed by the parties, and Odyssey and Celadon issued a press release
announcing the transaction.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
At a meeting held at 4:30 pm on June 22, 1998, the Board of Directors
unanimously approved the Merger Agreement and determined, among other things,
that the Merger Agreement was fair to and in the best interests of Celadon's
stockholders (other than Rollover Shares) and recommended that Celadon's
stockholders approve the Merger Agreement. In reaching these conclusions, the
Board of Directors consulted with Wasserstein Perella and Celadon 's legal
counsel and considered the following factors:
(a) A comparison of the risks and benefits of the Merger against the
risks and benefits of the other strategic alternatives available to
Celadon, including continuing as an independent entity and the initial
proposal of the Potential Strategic Acquiror. Of the alternatives available
to Celadon, the Merger was determined by the Board of Directors to be the
alternative which would yield the best results to the stockholders of
Celadon from a financial point of view. The Merger was determined to be
more favorable to the stockholders than Celadon continuing as an
independent entity because Celadon's ability to engage in strategic
acquisitions and other opportunities in a consolidating trucking industry
was contingent upon the Company's access to substantial amounts of capital.
Alternative means for obtaining such capital, including those proposed by
Furman Selz and DLJ, were determined to be either too costly to the Company
or inappropriate for the Company's current needs. See "-- Background of the
Transaction."
(b) The $20.00 per share of Celadon Common Stock to be paid to
stockholders in the Merger represented a premium of approximately 36.8%
over the closing price of $14.63 per share of Celadon Common Stock on June
22, 1998, which closing immediately preceded the June 22, 1998 board
meeting. The $20.00 per share consideration also represented a premium of
(a) approximately 11.1 % over the $18.00 valuation proposed by the
Potential Strategic Acquiror in its initial proposal, although the initial
proposal of the Potential Strategic Acquiror, unlike the Odyssey Proposal,
was a tax deferred transaction and (b) approximately 10.8% over the initial
Odyssey Proposal of $18.50. The Board of Directors considered that shares
of Celadon Common Stock have traded at a range from a low of $10.25 to a
high of $17.00 during the 52 weeks prior to June 22, 1998, meaning that the
Merger offered a substantial premium to stockholders compared to recent
historical price levels of Celadon Common Stock.
(c) The written opinion, dated as of June 22, 1998, of Wasserstein
Perella (and the analysis presented to the Board of Directors of Celadon
underlying such opinion) to the effect that, based on the assumptions made,
matters considered and limits of the review undertaken by Wasserstein
Perella, the Cash Merger Price to be received by Celadon's stockholders
(other than holders of the Rollover Shares) in the Merger was fair, from a
financial point of view, to the stockholders. See " -- Opinion of
Wasserstein Perella, Financial Advisor to Celadon."
(d) The terms and conditions of the Merger Agreement and related
matters were the product of arm's-length negotiations in which Celadon was
assisted by its legal counsel, Proskauer Rose LLP, and
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its financial advisor, Wasserstein Perella. In particular, the Board
considered that under the terms of the Merger Agreement, the Board was not
prohibited from furnishing information in response to an unsolicited bona
fide written Acquisition Proposal or from considering, negotiating, or
participating in discussions regarding an unsolicited bona fide written
Acquisition Proposal, if (i) such information was furnished pursuant to a
reasonable and customary confidentiality agreement, (ii) such
consideration, negotiation or discussion of an Acquisition Proposal was
conducted in good faith, upon written advice of outside counsel that such
action was required by the Board's fiduciary responsibility to the
Company's stockholders, and (iii) the Board determined in good faith after
consultation with its financial advisor that such Acquisition Proposal is
on financial terms more favorable to the Company's stockholders than the
Merger. Under such circumstances, the Board could terminate the Merger
Agreement upon payment of a break-up fee of $6.5 million to Merger Sub and
reimbursement of Merger Sub's out-of-pocket expenses, up to a maximum of
$1.5 million. See "Certain Provisions of The Merger Agreement."
(e) The terms and conditions of the Voting Agreement, pursuant to
which, among other things, Stephen Russell and Hanseatic, who own, in the
aggregate, approximately 24% of the issued and outstanding shares of
Celadon Common Stock, have agreed to vote and have granted a related proxy
to vote their shares of Celadon Common Stock in favor of the Merger
Agreement and have agreed to reinvest in the Company by means of retaining
the Rollover Shares. The Voting Agreement would terminate if the Board
terminated the Merger Agreement in order to recommend or endorse an
Acquisition Proposal. In addition, Stephen Russell and four other members
of senior management have agreed to enter into new employment agreements on
at least as favorable terms as those contained in their existing employment
agreements. Upon consummation of the Merger and related transactions, the
Surviving Corporation will pay signing bonuses to designated Company
executives (including senior management) and will institute an annual bonus
plan and a stock option plan with respect to an aggregate amount of 7.5% of
the Surviving Corporation Common Stock. See "Interests of Certain Persons
in the Merger."
The foregoing discussion of the information and factors considered by
the Board of Directors is not intended to be exhaustive, but includes the
material factors considered by the Board of Directors. In reaching its
determination to approve the Merger Agreement, and in view of the variety of
factors considered by the Board of Directors in connection with its evaluation
of the Merger Agreement, the Board of Directors did not assign any relative or
specific weights to the various factors considered by it.
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PURPOSES AND REASONS OF ODYSSEY AND MERGER SUB FOR THE MERGER
The purposes of the Merger are (a) to enable Odyssey, through Merger
Sub, to make an investment in, and obtain a controlling interest in, the
Company, and (b) to enable existing stockholders of the Company to realize a
substantial premium over recent historical market prices for the shares of
Celadon Common Stock owned by them. Merger Sub was formed by Odyssey for the
purpose of engaging in such transaction. Merger Sub elected to proceed with the
Merger for the same reasons that motivated Odyssey.
The acquisition of Celadon has been structured as a merger pursuant to
which Celadon will be the surviving corporation, and certain current officers,
directors and stockholders of the Company will retain an interest in the Company
in order to (a) effect a recapitalization of the Company for accounting purposes
and (b) preserve the corporate identity of Celadon and its existing contractual
arrangements with third parties.
POSITION OF ODYSSEY AND MERGER SUB AS TO FAIRNESS OF THE MERGER
Odyssey and Merger Sub, as the parties proposing to acquire the
Company, did not participate in the deliberations of the Board regarding, or
receive advice from the Company's financial advisors as to the fairness to the
Company's stockholders of, the Merger. As a result, Odyssey and Merger Sub are
not in a position to specifically adopt the conclusions of the Board with
respect to such matters. However, based upon their understanding from
discussions with senior management of the Company regarding the factors
considered by the Board referred to herein, Odyssey and Merger Sub also believe
that these factors, when considered together with (a) the historical market
prices for shares of the Celadon Common Stock, (b) the substantial premium of
the Cash Merger Price over the closing price on June 22, 1998, (c) the extent of
the sale process described in "Background of the Transaction," (d) the unanimous
recommendation of the Board of Directors, (e) the agreement of certain principal
stockholders to vote their shares of Celadon Common Stock in favor of the Merger
Agreement and the transactions contemplated thereby, (f) the receipt by the
Board of the written opinion of its independent financial advisor (see "--
Opinion of Wasserstein Perella, Financial Advisor to Celadon") to the effect
that, based on the assumptions made, matters considered and limits of the review
undertaken, the Cash Merger Price to be received was fair from a financial point
of view, to Celadon's stockholders (other than holders of the Rollover Shares)
and (g) the arm's-length nature of the negotiations between Odyssey and Merger
Sub, on the one hand, and the Company on the other, provide a reasonable basis
for them to believe, as they do, that the Merger is fair to the stockholders of
the Company (other than holders of the Rollover Shares). This belief should not,
however, be construed as a recommendation to the Company's stockholders by
Odyssey or Merger Sub to vote to approve the Merger Agreement and the
transactions contemplated thereby. Neither Odyssey nor Merger Sub has undertaken
any formal evaluation of the fairness of the Merger to the stockholders of the
Company and neither of them has assigned specific relative weights to the
factors considered by them.
OPINION OF WASSERSTEIN PERELLA, FINANCIAL ADVISOR TO CELADON
Celadon retained Wasserstein Perella on March 20, 1998 on an exclusive
basis to assist the Company in its analysis and consideration of various
financial and strategic alternatives available to it. In connection with the
contemplated Merger, Celadon's Board of Directors requested that Wasserstein
Perella render its opinion as to the fairness, from a financial point of view,
of the Cash Merger Price to be received by Celadon's stockholders (other than
the holders of the Rollover Shares).
At the June 22, 1998 meeting of Celadon's Board of Directors,
representatives of Wasserstein Perella made a presentation with respect to the
Merger and tendered to Celadon's Board of Directors its oral opinion,
subsequently confirmed in writing as of the same date, that, as of such date,
and based on the assumptions made, matters considered and limits of the review
undertaken by Wasserstein Perella, the Cash Merger Price to be received by
Celadon's stockholders (other than holders of the Rollover Shares) was fair,
from a financial point of view, to such stockholders.
THE FULL TEXT OF WASSERSTEIN PERELLA'S WRITTEN OPINION DATED JUNE 22,
1998 (THE "WASSERSTEIN PERELLA OPINION"), WHICH SETS FORTH, AMONG OTHER THINGS,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN, IS
ATTACHED HERETO AS
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ANNEX C AND INCORPORATED HEREIN BY REFERENCE. CELADON STOCKHOLDERS ARE URGED TO
READ THE WASSERSTEIN PERELLA OPINION IN ITS ENTIRETY. THE WASSERSTEIN PERELLA
OPINION IS DIRECTED TO CELADON'S BOARD OF DIRECTORS, ADDRESSES ONLY THE FAIRNESS
OF THE MERGER CONSIDERATION TO CELADON'S STOCKHOLDERS (OTHER THAN THE HOLDERS OF
THE ROLLOVER SHARES) FROM A FINANCIAL POINT OF VIEW, AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY CELADON STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT THE SPECIAL MEETING. THE WASSERSTEIN PERELLA OPINION WAS RENDERED TO
CELADON'S BOARD OF DIRECTORS FOR ITS CONSIDERATION IN DETERMINING WHETHER TO
APPROVE THE MERGER AGREEMENT. THE DISCUSSION OF THE WASSERSTEIN PERELLA OPINION
IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE WASSERSTEIN PERELLA OPINION.
In connection with the Wasserstein Perella Opinion, Wasserstein
Perella reviewed drafts of the Merger Agreement and related documents, and for
purposes thereof, assumed that the final forms of such documents would not
differ in any material respect from the drafts provided to it. Wasserstein
Perella also reviewed and analyzed certain publicly available business and
financial information relating to Celadon for recent years and interim periods
to the date of the Wasserstein Perella Opinion, as well as certain internal
financial and operating information, including financial forecasts, analyses,
and projections prepared by or on behalf of Celadon and provided to it for
purposes of its analysis, and Wasserstein Perella met with management of the
Company to review and discuss such information and, among other matters,
Celadon's business, operations, assets, financial condition, and future
prospects.
Wasserstein Perella reviewed and considered certain financial and
stock market data relating to Celadon, and compared that data with similar data
for certain other companies, the securities of which are publicly traded, that
it believed may have been relevant or comparable in certain respects to Celadon
or one or more of its businesses or assets, and Wasserstein Perella reviewed and
considered the financial terms of certain recent acquisitions and business
combination transactions in the trucking industry specifically, and in other
industries generally, that it believed to be reasonably comparable to the Merger
or otherwise relevant to its inquiry. Wasserstein Perella also performed such
other financial studies, analyses, and investigations and reviewed such other
information as it considered appropriate for purposes of the Wasserstein Perella
Opinion.
In Wasserstein Perella's review and analysis and in formulating its
opinion, Wasserstein Perella assumed and relied upon the accuracy and
completeness of all of the financial and other information provided to or
discussed with it or publicly available, and Wasserstein Perella did not assume
any responsibility for independent verification of any of such information.
Wasserstein Perella also assumed and relied upon the reasonableness and accuracy
of the financial projections, forecasts and analyses provided to it, and it
assumed that such projections, forecasts and analyses were reasonably prepared
in good faith and on bases reflecting the best currently available judgments and
estimates of Celadon's management. Wasserstein Perella expressed no opinion with
respect to such projections, forecasts and analyses or the assumptions upon
which they are based. In addition, Wasserstein Perella did not review any of the
books and records of Celadon, or assume any responsibility for conducting a
physical inspection of the properties or facilities of Celadon, or for making or
obtaining an independent valuation or appraisal of the assets or liabilities of
Celadon, and no such independent valuation or appraisal was provided to it.
Wasserstein Perella also assumed that the transactions described in the Merger
Agreement would be consummated without waiver or modification of any of the
material terms or conditions contained therein by any party thereto. The
Wasserstein Perella Opinion is necessarily based on economic and market
conditions and other circumstances as they existed and could be evaluated by it
as of the date thereof.
The following is a brief summary of certain of the quantitative
analyses performed and factors considered by Wasserstein Perella in connection
with rendering the Wasserstein Perella Opinion and reviewed with the Board of
Directors of Celadon at its June 22, 1998 meeting.
Historical Financial Position. In rendering its opinion, Wasserstein
Perella reviewed and analyzed historical and current financial information of
Celadon which included, but was not limited to, Celadon's (i) balance sheets,
(ii) annual income statements, (iii) cash flow statements, (iv) operating
margins, and (v) growth rates.
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Cash Merger Price Premium Over Historical Stock Price. Wasserstein
Perella reviewed and analyzed the average closing prices per share for the
Celadon Common Stock for various periods prior to June 22, 1998, in order to
compute the premium over these average prices that the Cash Merger Price
($20.00) would represent. The Cash Merger Price was a 36.8% premium over the
June 22, 1998 single day closing price of $14.63 per share. The Cash Merger
Price was a 39.9% premium over the prior one week daily average (June 16 to June
22, 1998) closing price of $14.30 per share. The Cash Merger Price was a 42.4%
premium over the prior four week daily average (May 26 to June 22, 1998) closing
price of $14.05 per share. The Cash Merger Price was a 38.2% premium over the
prior twelve week daily average (March 31 to June 22, 1998) closing price of
$14.47 per share. This information was presented to the Board of Directors of
Celadon to give it background information regarding the stock price performance
of the Celadon Common Stock over the periods indicated. In addition, the fact
that the Cash Merger Price exceeded the price per share at which the Celadon
Common Stock traded during the periods reviewed was consistent with a
determination that the Cash Merger Price was fair to Celadon's stockholders
(other than the holders of the Rollover Shares).
Analysis of Certain Other Publicly Traded Companies. Wasserstein
Perella compared certain financial information and commonly used valuation
measurements for Celadon to corresponding information for two groups of publicly
traded trucking companies. The first group, collectively referred to as "Smaller
Market Cap Trucking Companies" consisted of six companies: Covenant Transport,
Inc., Knight Transportation, Inc., M.S. Carriers, Inc., Transport Corporation of
America, Inc., USA Truck, Inc., and U.S. Express Enterprises, Inc. The second
group, collectively referred to as "Larger Market Cap Trucking Companies"
consisted of four companies: Heartland Express, Inc., J.B. Hunt Transport
Services, Inc., Swift Transportation Co., Inc., and Werner Enterprises, Inc. The
Smaller Market Cap Trucking Companies and Larger Market Cap Trucking Companies
were selected based upon the similarity of their truckload operations to those
of Celadon. Such companies were divided into the corresponding two groups based
upon their individual Firm Values (as hereinafter defined) as of June 17, 1998,
with the Smaller Market Cap Trucking Companies having estimated Firm Values (as
hereinafter defined) of $500 million or less and the Larger Market Cap Trucking
Companies having estimated Firm Values in excess of $500 million. The financial
information used by Wasserstein Perella in its analysis included, among other
things, (i) common equity market valuation; (ii) operating performance; (iii)
capitalization ratios; (iv) ratios of common equity market value ("Equity
Value") and Equity Value as adjusted to include debt plus preferred stock less
cash ("Firm Value") to earnings before interest expense, income taxes,
depreciation and amortization ("EBITDA"), and (v) ratios of common equity market
prices per share ("Market Price") to common equity earnings per share ("EPS").
The ratios set forth above were calculated using closing stock prices as of June
17, 1998. In the case of Celadon, Wasserstein Perella also computed such ratios
using the Cash Merger Price of $20.00 per share, Celadon's Equity Value as
implied in the Merger (the "Equity Merger Value") and Celadon's Firm Value as
implied in the Merger (the "Firm Merger Value"), where each was appropriate. The
financial information used in connection with the multiples provided below was
based on (i) the latest reported 12 month period as derived from publicly
available information, (ii) estimated EPS for calendar years 1998 and 1999 as
reported by the Institutional Brokers Estimating System ("IBES"), and (iii)
projected EBITDA and other estimated financial projections derived from publicly
available equity research analysis.
In conjunction with Celadon's management, Wasserstein Perella made
adjustments (described below) to Celadon's EBITDA and net income figures in
order to more accurately evaluate the valuation multiple range implied by the
Cash Merger Price; these adjusted figures were among the key financial figures
used to negotiate the Merger Agreement. Such figures were adjusted and pro forma
in an attempt to more accurately depict Celadon's most recent financial results,
while adding the results Celadon may have achieved if it had actually operated
its recent acquisitions--GETS and Gerth--for a full year. "Expected Fiscal 1998
Adjusted EBITDA and EPS" were derived by (a) estimating Celadon's fiscal year
results for July 1, 1997 to June 30, 1998, excluding Gerth's results for the
period it was owned by Celadon, (b) adding two additional months of results for
GETS (which was acquired on September 1, 1997 and thus had only 10 months of
results included in Celadon's fiscal year results), (c) adding estimated 12
months of results Celadon may have achieved if it had actually operated Gerth
(which was acquired by Celadon in May 1998) from July 1, 1997 to June 30, 1998,
and (d) adjusting for the conversion of certain trailer leases from operating to
capital leases. "Projected Calendar 1998 Adjusted EBITDA and EPS" were derived
by adding the projected calendar 1998 Celadon results (excluding Gerth results
for the period it was owned by Celadon) to the current run rate results for
Gerth assuming Celadon's ownership of Gerth for such period.
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Using the Celadon Common Stock price of $14.25 and share prices of
other comparable companies as of June 17, 1998 ("Market Price"), Wasserstein
Perella noted that (a) the multiple of Firm Value to Expected Fiscal 1998
Adjusted EBITDA was 6.0x for Celadon (and the multiple of Firm Merger Value to
Expected Fiscal 1998 Adjusted EBITDA was 7.3x), compared to a range of 5.0x to
8.6x of trailing 12 months EBITDA, with a median of 5.7x, for the Smaller Market
Cap Trucking Companies and a range of 5.9x to 9.2x of trailing 12 months EBITDA,
with a median of 7.8x, for the Larger Market Cap Trucking Companies; (b) the
multiple of Firm Value to Projected Calendar 1998 Adjusted EBITDA was 5.7x for
Celadon (and the multiple of Firm Merger Value to Projected Calendar 1998
Adjusted EBITDA was 7.0x), compared to a range of 4.4x to 7.4x of projected
calendar 1998 EBITDA, with a median of 4.7x, for the Smaller Market Cap Trucking
Companies and a range of 5.3x to 8.4x of projected calendar 1998 EBITDA, with a
median of 6.5x, for the Larger Market Cap Trucking Companies; (c) the multiple
of Market Price to Expected Fiscal 1998 Adjusted EPS was 14.0x for Celadon (and
the multiple of the Cash Merger Price to Expected Fiscal 1998 Adjusted EPS was
20.0x), compared to a range of 13.8x to 22.5x of trailing 12 months EPS, with a
median of 15.6x, for the Smaller Market Cap Trucking Companies and a range of
17.2x to 21.1x of trailing 12 months EPS, with a median of 18.8x, for the Larger
Market Cap Trucking Companies; and (d) the multiple of Market Price to Projected
Calendar 1998 Adjusted EPS was 11.9x for Celadon (and the multiple of the Cash
Merger Price to Projected Calendar 1998 Adjusted EPS was 17.1x), compared to a
range of 12.0x to 19.8x of projected calendar 1998 EPS, with a median of 13.8x,
for the Smaller Market Cap Trucking Companies and a range of 15.7x to 21.6x of
projected calendar 1998 EPS, with a median of 18.0x, for the Larger Market Cap
Trucking Companies. Based on the foregoing comparisons, Wasserstein Perella
noted that the multiples implied in the Merger were generally within the ranges
and above the medians of trading multiples for the Smaller Market Cap Trucking
Companies and the Larger Market Cap Trucking Companies and that this fact
supported a determination that the Cash Merger Price was fair to Celadon's
stockholders (other than the holders of the Rollover Shares).
Analysis of Selected Precedent Transactions. Wasserstein Perella
reviewed the financial terms, to the extent publicly available, of two announced
and completed mergers and acquisitions since January 1, 1995 in the full
truckload carriage industry (the "Full Truckload Transactions") and six
announced or completed mergers and acquisitions (including the two Full
Truckload Transactions) since January 1, 1995 in the general trucking industry
(the "Trucking Transactions"). Wasserstein Perella calculated various financial
multiples based on certain publicly available information for each of the Full
Truckload Transactions and the Trucking Transactions and compared them to
corresponding financial multiples for the Merger, based on the Firm Merger
Value. Wasserstein Perella noted that the multiple of Firm Value was 7.3x the
Expected Fiscal 1998 Adjusted EBITDA for the Merger, versus (i) a range of 7.0x
to 7.2x of trailing 12 months EBITDA with a median of 7.1x for the Full
Truckload Transactions and (ii) a range of 5.8x to 11.0x with a median of 7.4x
for the Trucking Transactions. Wasserstein Perella noted that all multiples for
the Full Truckload Transactions and the Trucking Transactions were based on
information available at the time of announcement of each of such transactions,
without taking into account differing market and other conditions during the
period during which each of such transactions occurred. Wasserstein Perella
noted that based on the foregoing comparisons, and subject to the limitations of
its review, the multiples implied in the Merger were generally within the ranges
of multiples implied in the Full Truckload Transactions and the Trucking
Transactions and that this fact supported a determination that the Cash Merger
Price was fair to Celadon's stockholders (other than the holders of the Rollover
Shares).
Discounted Cash Flow Analysis. Wasserstein Perella performed
discounted cash flow analyses for Celadon using financial projections for fiscal
years 1998 through 2003 provided by the management of Celadon. Celadon's
management prepared a set of financial projections which were based on
management base assumptions for future performance. Wasserstein Perella
aggregated the present value of the cash flows from 1998 through 2003 with the
present value of a range of terminal values. All cash flows were discounted at
rates ranging from 11.0% to 13.0%. The terminal values were computed using a
range of multiples of 6.0x to 7.0x for fiscal year 2002 EBITDA. Wasserstein
Perella arrived at such discount rates based on its judgment of the weighted
average cost of capital of selected publicly traded trucking companies, and
arrived at such terminal values based on its review of the trading
characteristics of the common stock of selected publicly traded trucking
companies. This analysis indicated a range of values for the Celadon Common
Stock of $17.35 and $26.04 per share with a midpoint of $21.70 per share.
Wasserstein Perella noted that the Cash Merger Price was within the foregoing
valuation range and that this fact supported a determination that the Cash
Merger Price was fair to Celadon's stockholders (other than the holders of the
Rollover Shares).
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<PAGE>
Leveraged Equity Return Analysis. Wasserstein Perella calculated the
projected internal rates of return that could be realized on the equity invested
in a leveraged acquisition of the Company at a purchase price per share of
Celadon Common Stock of $20.00 using projections provided by Celadon's
management. Wasserstein Perella assumed an initial post-transaction equity
amount invested in Celadon of $64.0 million, consisting of $60.0 million of
equity from Odyssey and $4.0 million consisting of the Rollover Shares. Assuming
that Celadon achieves between 90% and 110% of its projections, that the interest
rate on its $150 million of post-transaction subordinated debt ranges within
8.5% to 10.5%, and that its terminal Firm Value multiples ranges from 6.0x to
7.0x EBITDA, this analysis indicated a five year internal rate of return ranging
from 8.6% to 38.0%. This supported a conclusion that the Company would be
unlikely to achieve a price from a financial buyer that was materially higher
than the Cash Merger Price.
Relevant Market and Economic Factors. In rendering its opinion,
Wasserstein Perella considered, among other factors, the condition of the U.S.
stock markets and the current level of economic activity, particularly in the
long haul trucking industry. No company used in the analysis of certain other
publicly traded companies nor any transaction used in the analysis of selected
mergers and acquisitions summarized above is identical to Celadon or the Merger.
In addition, Wasserstein Perella believes that both the analysis of certain
other publicly traded companies and the analysis of selected mergers and
acquisitions are not simply mathematical. Rather, such analyses must take into
account differences in the financial and operating characteristics of these
companies and other factors, such as general economic conditions, conditions in
the traffic lanes and markets in which such companies compete and strategic and
operating plans for such companies, that could affect the public trading value
and acquisition value of these companies and therefore any such analyses must be
made as of a specific date.
While the foregoing summary describes the analyses and factors that
Wasserstein Perella deemed material in its presentation to the Board of
Directors of Celadon, it is not a comprehensive description of all analyses and
factors considered by Wasserstein Perella. The preparation of a fairness opinion
is a complex process involving various determinations as to the most appropriate
and relevant methods of financial analysis and the applications of these methods
to the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Wasserstein Perella believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, would create an incomplete view of the evaluation process
underlying the Wasserstein Perella Opinion. In performing its analyses,
Wasserstein Perella considered general economic, market and financial conditions
and other matters, as they existed as of the date of the Wasserstein Perella
Opinion, many of which are beyond the control of Celadon. The analyses performed
by Wasserstein Perella are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than those suggested
by such analyses. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty. Additionally, analyses relating to the value
of a business do not purport to be appraisals or to reflect the prices at which
the business actually may be sold. Furthermore, no opinion is being expressed as
to the prices at which the Celadon Common Stock may trade at any future time.
The terms of the Merger were determined through negotiations between
Celadon and Merger Sub and were approved by the Board of Directors of Celadon.
Although Wasserstein Perella provided advice to Celadon during the course of
these negotiations, the decision to enter into the Merger Agreement was solely
that of the Board of Directors of Celadon. As described above, the Wasserstein
Perella Opinion and the presentation of Wasserstein Perella to the Board of
Directors of Celadon were only one of a number of factors taken into
consideration by such Board in making its determination to approve the Merger.
The Wasserstein Perella Opinion was provided to the Board of Directors of
Celadon to assist it in connection with its consideration of the Merger and does
not constitute a recommendation to any holder of Celadon Common Stock as to how
to vote with respect to the Merger.
Pursuant to a letter agreement dated March 20, 1998 between Celadon
and Wasserstein Perella, the fee payable to Wasserstein Perella upon
consummation of the Merger will be approximately $3.0 million. Such fee is
contingent upon the consummation of the Merger. In addition, Celadon has agreed
to reimburse Wasserstein Perella for its reasonable out-of-pocket expenses
incurred in connection with rendering financial advisory services, including
fees and disbursements of its legal counsel. Celadon has agreed to indemnify
Wasserstein Perella and
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its directors, officers, agents, employees and controlling persons, for certain
costs, expenses, losses, claims, damages and liabilities related to or arising
out of its rendering of services under its engagement as financial advisor.
The Board of Directors of Celadon retained Wasserstein Perella to act
as its advisor based upon Wasserstein Perella's qualifications, reputation,
experience and expertise. Wasserstein Perella is an internationally recognized
investment banking firm and, as a customary part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwriting transactions,
private placements and valuations for corporate and other purposes. Wasserstein
Perella may actively trade the debt and equity securities of Celadon for its own
account and for the account of its customers and accordingly may at any time
hold a long or short position in such securities.
CERTAIN PROJECTIONS
The Company does not as a matter of policy make public forecasts or
projections as to future performance or earnings. However, in connection with
the sale of the Company, the Company prepared projections of its anticipated
future operating performance of the five fiscal years ended June 30, 2002.
Such projections were prepared assuming that the sale had not occurred
and upon estimates and assumptions (including with respect to industry
performance, general economic and business conditions, taxes, and other matters)
that inherently are subject to material uncertainties and risk, all of which are
difficult to quantify and many of which are beyond the control of the Company.
The projections were not prepared with a view to public disclosure or compliance
with the published guidelines of the Commission or the guidelines established by
the American Institute of Certified Public Accountants regarding projections or
forecasts and are included herein only because such information was provided to
potential acquirors. The Company's internal operating projections are, in
general, prepared solely for internal use in connection with capital budgeting
and other management decisions and are subjective in many respects and thus
susceptible to various interpretations. Certain assumptions on which the
projections were based related to the achievement of strategic goals,
objectives, and targets over the applicable periods that are more favorable than
historical results. There can be no assurance that the assumptions made in
preparing the projections will prove accurate, and actual results may be
materially greater or less than those contained in the projections. Neither the
Company's independent auditors, nor any other independent accountants or
financial advisors, have compiled, examined, or performed any procedures with
respect to the projections contained herein, nor have they expressed any opinion
or any form of assurance on such information or its achievability, and assume no
responsibility for, and disclaim any association with, the projections. The
inclusion of the projections should not be regarded as an indication that the
Company, or any other person who received such information, considers it an
accurate prediction of future events. The Company does not intend to update,
revise, or correct such projections if they become inaccurate (even in the short
term).
The projections below constitute forward looking statements and
involve numerous risks and uncertainties. The Company's actual results may
differ materially from the results anticipated from the projections discussed
herein as a result of various factors, including, but not limited to, the effect
of changing economic or business conditions, weather conditions, competitive
initiatives and pricing pressures, shifts in market demand, the performance and
needs of industries served by the Company, actual future costs of operating
expenses such as fuel and related taxes, increases in labor costs, and
management retention. There can be no assurance that the Company will achieve
the results anticipated from the projections discussed herein.
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<PAGE>
Set forth below is a summary of the projections for the five fiscal
years ended June 30, 2002:
<TABLE>
<CAPTION>
PROJECTED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PROJECTED FOR THE YEAR ENDING JUNE 30,
1998 1999 2000 2001 2002
<S> <C> <C> <C> <C> <C>
Total revenues.................... $226,271 $287,984 $331,727 $380,075 $436,543
Total operating expenses.......... 210,086 262,633 296,761 334,719 381,598
Operating income.................. 16,185 25,351 34,966 45,356 54,945
Operating ratio................... 92.8% 91.2% 89.5% 88.1% 87.4%
Earnings before taxes............. 10,319 16,344 24,146 32,623 39,751
Net income........................ 6,372 10,133 14,488 19,574 23,851
Earnings per share................ $ 0.82 1.30 $ 1.86 $ 2.51 $ 3.06
</TABLE>
<TABLE>
<CAPTION>
PROJECTED BALANCE SHEETS
(IN THOUSANDS)
PROJECTED AS AT JUNE 30,
1998 1999 2000 2001 2002
<S> <C> <C> <C> <C> <C>
Total assets..................... $190,290 $229,092 $269,449 $325,224 $373,065
Total liabilities ............... 137,637 166,306 192,175 228,376 252,367
Total stockholders' equity ...... 52,641 62,774 77,262 96,836 120,686
Total liabilities & equity....... $190,290 $229,092 $269,449 $325,224 $373,065
</TABLE>
Material assumptions on which the revenue projections were based
include the following:
(a) Revenue growth is based upon an assumed overall medium term growth
rate of 15%. The Company anticipates that the revenue growth will stem from
market share gains, increased volume with existing customers and rate increases.
Revenue growth of 27.3% in 1999 reflects a full year's effect of the
acquisitions of GETS and Gerth, which occurred on September 3, 1997 and May 22,
1998, respectively. Annual revenue growth is expected to reach approximately 15%
in 2000 and continue at that rate over the remaining years.
(b) Revenue growth from the Company's dry van and Mexico operations
assumes increases in loads carried and to a lesser extent increases in revenue
per load. Revenue per load is projected to remain flat in 1999 and then grow at
the rate of 0.8% per year over the remaining projection period. It is projected
that this improvement in pricing performance will result from the Company's
pursuit of rate increases and the elimination of less profitable business.
(c) Revenue growth from the Company's flatbed operations is expected
to grow 3% in 1999 and then at the rate of 10% annually over the remaining
projection period. This growth assumes increases in loads carried as well as
minor increases in revenue per load.
Material assumptions on which the operating expenses projections were
based include the following:
(a) The Company assumes that its operating ratio gradually decreases
to 87.4% in 2002 from 92.8% as a result of the revenue growth on which its
revenue projections were based and as a result of the cost trends described
below.
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(b) Driver compensation rates are expected to increase at the rate of
approximately 1% per year throughout the projection period, due to projected
improvements in driver retention and resulting seniority mix changes. Owner
- -operator compensation rates are expected to increase at the rate of
approximately 1.2% annually due to increases in the owner-operator pay package.
Owner-operator capacity as a percentage of total capacity is expected to
increase from 10.1% in 1998 to 15.2% by 2002.
(c) Fuel expense as a percentage of Company tractor generated revenue
decreases from 17.7% in 1998 to 17.1% by 2002. The Company realized fuel hedge
losses in 1998 that are not projected to recur during the projection period.
(d) A decrease in operating supplies and maintenance expenses as a
percentage of revenue over the course of the projection period is based upon the
assumption that higher revenues are achieved without a corresponding increase in
costs, reflecting increased efficiencies associated with a larger base of
operations.
(e) An increase in depreciation and amortization from 5.8% of revenues
to 7.1% of revenues over the projection period is primarily based on the
Company's plan to finance all future equipment purchases under capital leases.
Historically the Company has utilized a combination of operating leases and
capital leases to finance equipment purchases. A corresponding decrease in
equipment lease expense is included in the projections. The sum of depreciation
and equipment lease expense as a percentage of revenue decreases over the
projection period due to expected improvements in equipment utilization as the
Company improves driver retention and increases traffic density along key lanes.
(f) The Company expects its costs related to insurance and claims,
taxes and licenses, and communications to remain constant at 2.9%, 2.0% and 1.8%
of total revenue, respectively. These costs fundamentally vary with the size of
the Company's overall operation.
(g) Selling and administrative expenses as a percentage of revenues
decrease over the projection period since it is assumed that higher revenues are
achieved without a corresponding increase in costs. The Company does not
anticipate a significant increase in back-office resources over the projection
period and does not expect to add personnel to its corporate staff.
(h) Interest expense is projected to increase from $6.0 million in
1998 to $15.2 million in 2002 primarily as a result of the Company's plan to
finance all future equipment purchases under capital leases. Historically, the
Company has utilized a combination of operating leases and capital leases to
finance equipment purchases. This increase in interest expense is net of
interest expense decreases resulting from decreasing working capital loan
balances over the projection period. These projections assume that excess cash
is assumed to be used to reduce outstanding balances under the Company's bank
loan agreement. The Company has assumed that the interest rates on all of its
debt obligations will remain consistent with current rates.
(i) The Company is projecting its effective income tax rate to be
40.0% in 1999 through 2002.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Company's Board of Directors
that stockholders vote in favor of the Merger Agreement, stockholders should be
aware that certain members of Celadon's management and Board of Directors have
certain interests in the Merger that are in addition to, and may be deemed to be
in conflict with, the interests of the stockholders of Celadon generally.
Officers of the Surviving Corporation. All members of the Company's
current management will continue as such after the Effective Time until their
successors are duly appointed or elected in accordance with applicable law. See
"Directors and Executive Officers of the Surviving Corporation."
Benefits Under Employment Agreements, Signing Bonuses, and New Stock
Option Plan. The Company has existing employment agreements with Stephen
Russell, Ronald S. Roman, Nancy L. Morris, and Michael Archual. At the Effective
Time, the Surviving Corporation will enter into new employment agreements (each
a
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"New Employment Agreement") with each of these senior executive officers of the
Company and with Robert Goldberg, Executive Vice President and Chief Financial
Officer of the Company (Messrs. Russell, Goldberg, Roman, and Archual and Ms.
Morris collectively, the "Management Team"). The New Employment Agreements
executed by Messrs. Russell, Roman and Archual, and by Ms. Morris, will be on
terms at least as favorable as those contained in their existing employment
agreements, and the employment agreement executed by Mr. Goldberg shall be
consistent with that of Mr. Roman. The New Employment Agreements will each (a)
have a three-year term (except for that of Mr. Russell, which shall have a
four-year term), and (b) provide for certain severance payments to be made upon
(i) termination of the officer's employment by the Surviving Corporation without
"cause" or (ii) the failure to offer such officer continued employment with the
Surviving Corporation upon expiration of the term of his or her New Employment
Agreement, on substantially similar terms as set forth therein. In addition, an
annual bonus plan, and a stock option plan with respect to an aggregate amount
of 7.5% of the common stock of the Surviving Corporation, will be instituted for
approximately twenty of the Company's executives, including the Management Team.
Upon consummation of the Merger and the other transactions contemplated by the
Merger Agreement, (i) options with respect to 3.0% of the Surviving Corporation
Common Stock will be granted to Stephen Russell, and options with respect to
4.0% of the Surviving Corporation Common Stock will be distributed among
designated executives, including the other members of the Management Team and
(ii) signing bonuses in an aggregate amount of $1.1 million will be distributed
to designated executives, including approximately $500,000 to be distributed to
Stephen Russell and certain other amounts to be distributed to other members of
the Management Team.
Retention of Rollover Shares. At the Effective Time, an aggregate of
320,000 shares of Celadon Common Stock held by Stephen Russell and Hanseatic
will be converted into shares of Surviving Corporation Common Stock on a
share-for-share basis. The Rollover Shares represent approximately 4.1% of the
outstanding shares of Celadon Common Stock and will represent approximately 10%
of the total outstanding shares of the Surviving Corporation Common Stock
immediately following the Effective Time.
The Rollover Shares are held as follows:
<TABLE>
<CAPTION>
Name Number of Shares
<S> <C> <C> <C> <C> <C> <C>
Stephen Russell
President,
Chief Executive Officer,
and Chairman of the Board 200,000 shares
Hanseatic Corporation 120,000 shares
-------------
</TABLE>
Paul Biddleman, President of Hanseatic Corporation, is Hanseatic's
designee to the Company's Board of Directors.
Options and Warrants. As of June 23, 1998, the directors and executive
officers of the Company held Options to acquire an aggregate of 444,675 shares
of Celadon Common Stock and Hanseatic held Hanseatic Warrants to acquire an
aggregate of 12,121 shares of Celadon Common Stock. Except with respect to the
Rollover Options, under the terms of the Merger Agreement, each holder of
Options and Hanseatic will receive in cash an amount equal to the number of
shares of Celadon Common Stock subject to such Option or Hanseatic Warrant
(regardless of whether or not such Options and Hanseatic Warrants are then
exercisable or vested) multiplied by the amount by which the Cash Merger Price
exceeds the exercise price of such Option or Hanseatic Warrant, less any
applicable withholding taxes. Pursuant to such provision, the executive officers
and directors of Celadon will be entitled to receive for their Options an
aggregate of approximately $ (before federal and state income taxes) upon
consummation of the Merger, and Hanseatic will be entitled to receive $111,271
for the Hanseatic Warrants.
The executive officers and directors named in the table below (a) held
the number of outstanding Options indicated as of June 23, 1998, (b) held the
number of Rollover Options indicated as of June 23, 1998, and (c) will receive
the indicated amounts before federal and state income taxes in respect of
Options or Warrants pursuant to the Merger Agreement. As of June 23, 1998
Hanseatic held the Hanseatic Warrants indicated in the table below
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<PAGE>
<PAGE>
and will receive the indicated amount before federal and state income taxes in
respect of the Hanseatic Warrants pursuant to the Merger Agreement.
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS OR AVERAGE AMOUNT
WARRANTS EXERCISE OF ROLLOVER
NAME OUTSTANDING PRICE PAYMENT OPTIONS
<S> <C> <C>
Stephen Russell 70,000 $12.01
Robert Goldberg 20,000 $14.25
Ronald S. Roman 45,000 $ 9.89
Michael Archual 17,500 $ 9.71
Nancy L. Morris 14,000 $11.12
Michael W. Dunlap 10,000 $12.06
Paul A. Will 15,000 $12.71
Paul A. Biddleman 32,500 $13.60
Michael Miller 32,500 $13.60
Joel E. Smilow 16,000 $11.50
Kilin To 32,500 $13.60
Hanseatic Corporation 12,121 $10.82 $111,271
Total 317,121 ---
</TABLE>
Present Interests in Celadon Common Stock. As of June 23, 1998, the
directors and executive officers of Celadon owned an aggregate of 2,069,345
shares of Celadon Common Stock (excluding shares subject to Options). Excluding
the Rollover Shares, 1,749,345 shares will be converted into the right to
receive the Cash Merger Price per share pursuant to the Merger Agreement. Such
Cash Merger Price will be $34,986,900 in the aggregate. The executive officers
and directors named in the table below (a) held the number of shares of Celadon
Common Stock indicated as of June 23, 1998, (b) will receive the Cash Merger
Price in respect of the number of shares indicated, (c) will receive the
indicated aggregate amount in respect to all shares held other than the Rollover
Shares, and (d) will retain the indicated number of Rollover Shares.
34
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SHARES TO BE AGGREGATE
AGGREGATE EXCHANGED AMOUNT
NUMBER OF FOR CASH TO BE ROLLOVER
NAME SHARES OWNED MERGER PRICE RECEIVED SHARES
<S> <C> <C> <C> <C>
Stephen Russell 924,804 724,805 $14,496,100 200,000
Ronald S. Roman 1,000 1,000 20,000 0
Robert Goldberg 0 0 0 0
Michael Archual 4,200 4,200 $84,000 0
Nancy L. Morris 1,000 1,000 $20,000 0
Michael W. Dunlap 0 0 0 0
Paul A. Will 0 0 0 0
Paul A. Biddleman(1) 982,935 862,935 $17,258,700 120,000
Michael Miller 0 0 0 0
Joel E. Smilow 119,200 119,200 $2,384,000 0
Kilin To 24,085 24,085 $481,700 0
Total 2,069,345 1,749,345 $34,986,900 320,000
</TABLE>
- ---------------
(1) 982,935 of such shares of Celadon Common Stock are owned by Hanseatic
Americas LDC, a Bahamian limited duration company in which the sole
managing member is Hansabel Partner LLC, a Delaware limited liability
company in which Hanseatic is the sole managing member. Mr. Biddleman is
President of Hanseatic and holds shared voting and investment power with
respect to the shares held by Hanseatic. Excludes 924,804 shares of Celadon
Common Stock owned by Mr. Russell that are subject to a stockholder
agreement among Mr. Russell, Hanseatic and the Company, which agreement is
to be terminated prior to the Effective Time.
Indemnification of Officers and Directors. The Merger Agreement
provides that the Surviving Corporation will use best efforts to provide a
run-off policy for the current directors and officers liability insurance policy
maintained by the Company, which run-off policy will remain in effect for a
period of six years after the Effective Time of the Merger, at a premium not to
exceed 125% of the annual premium of the Company's directors and officers
insurance policy in effect as of the date of the Merger Agreement. In addition,
the Merger Agreement provides that all rights to indemnification for acts or
omissions occurring prior to the Effective Time in favor of the current or
former directors or officers of the Company, as provided in the Articles of
Incorporation or By-laws of the Company, will survive the Merger and continue in
full force and effect in accordance with their terms from the Effective Time to
the maximum extent permitted by law with respect to any claims against the
current or former directors or officers of the Company arising out of such acts
or omissions.
Voting Agreement. Stephen Russell, President, Chief Executive Officer,
and Chairman of the Board of the Company and Hanseatic, have entered into the
Voting Agreement with Merger Sub, pursuant to which they have each agreed to
vote their respective shares of Celadon Common Stock (including shares issuable
upon exercise of Options prior to the Effective Time) in favor of the Merger
Agreement and the transactions contemplated thereby at the Special Meeting or
any adjournment thereof. Paul Biddleman, President of Hanseatic, is Hanseatic's
designee to the Company's Board of Directors. Unless the Merger Agreement has
been terminated in accordance with its terms, such stockholders agreed to vote
their respective shares of Celadon Common Stock against (i) any merger agreement
or merger (other than the Merger Agreement and Merger), consolidation, sale of
substantially all of the assets, reorganization, dissolution, or other similar
transaction or any other Acquisition Proposal, and (ii) any amendment of the
Company's Certificate of Incorporation or By-Laws or other proposal or
transaction involving the Company or any of its subsidiaries, which amendment or
other proposal or transaction would in any manner impede, frustrate, prevent, or
nullify the Merger, the Merger Agreement, or any of the other
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<PAGE>
<PAGE>
transactions contemplated thereby. Until the Merger is consummated or the Merger
Agreement is terminated in accordance with its terms, such stockholders agreed
they will not transfer their shares to any person other than Merger Sub or its
designee, or enter into any other voting arrangement with respect to their
shares. The Voting Agreement terminates upon the consummation of the
transactions contemplated by the Merger Agreement or termination of the Merger
Agreement in accordance with its terms. As of June 23, 1998, the parties to the
Voting Agreement owned 1,859,036 shares of Celadon Common Stock, or 24% of the
outstanding Celadon Common Stock.
LITIGATION
Two substantially similar litigations were filed by the same law firm
in the Delaware Court of Chancery in and for New Castle County (David
Finkelstein v. Stephen Russell et. al (the "Finkelstein Action") and Lila Gold
and Jocelyn Feuerstein v. Stephen Russell et. al, (the "Gold Action") (civil
action nos. 16480NC and 16481NC, respectively)) challenging the proposed Merger.
In sum, these putative class actions allege that the $20.00 per share to be paid
pursuant to the Merger would permit management of the Company to acquire the
public shares of the Company for less than fair and adequate consideration
because, inter alia, the intrinsic value of the Celadon Common Stock is claimed
to be (an unspecified amount) higher, the Cash Merger Price allegedly does not
provide an adequate premium to the public stockholders of the Company, and the
Cash Merger Price is supposedly arbitrary, not the result of arm's length
negotiations and reached without "shopping" the Company or taking other
(unspecified) steps to ascertain the best price for the Company. Both actions
name the Company and its directors and claim that the individual defendants
breached their fiduciary duties to the Company and its stockholders. Odyssey
Investment Partners, LLC, manager of Odyssey, is also named in the Finkelstein
Action. The complaints seek certification of the class, certain injunctive and
declaratory relief, rescission of the Merger if it is consummated, and
unspecified money damages and costs. No answer has yet been filed to these
complaints. The Company believes the suits are without merit and intends to
defend them vigorously.
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, the Company's stockholders (other than
the holders of the Rollover Shares, the Excluded Shares, and the Dissenting
Shares) will have the right to receive $20.00 in cash, without interest, for
each share of Celadon Common Stock held immediately prior to the Effective Time.
As a result of the Merger, such stockholders will cease to have any ownership
interest in Celadon and will cease to participate in future earnings and growth,
if any, of Celadon. Moreover, if the Merger is consummated, public trading of
the Celadon Common Stock will cease, the Celadon Common Stock will cease to be
quoted on the Nasdaq National Market, the registration of the Celadon Common
Stock under the Exchange Act will be terminated and the Company will cease
filing reports with the Commission.
Immediately after the Merger, approximately 90% of the outstanding
shares of Surviving Corporation Common Stock will be owned by Odyssey and the
remaining 10% will be owned by certain officers, directors, and principal
stockholders of the Company. See "--Interests of Certain Persons in the Merger"
and "Certain Provisions of the Merger--Treatment of Securities in the Merger."
The Merger Agreement provides that the current directors of the
Company will be replaced by the directors of the Merger Sub. All members of the
Company's current management will continue as such after the Effective Time. See
"Directors and Executive Officers of the Surviving Corporation."
Upon consummation of the Merger, the Surviving Corporation expects to
refinance certain existing indebtedness and capital leases of Celadon. See
"Financing of the Merger."
It is currently anticipated that the Surviving Corporation will be
operated after the Merger in a manner substantially the same as Celadon's
current operations.
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ACCOUNTING TREATMENT OF TRANSACTION
The Merger will be accounted for as a recapitalization. Accordingly
the historical basis of Celadon's assets and liabilities will not be impacted by
the Merger and the transactions contemplated thereby.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material federal income tax
consequences of the Merger that are generally applicable to holders of Celadon
Common Stock who, pursuant to the Merger, exchange all of their Celadon Common
Stock for cash. The discussion is based upon current provisions of the Code,
currently applicable Treasury regulations, and judicial and administrative
decisions and rulings. Future legislative, judicial, or administrative changes
or interpretations could alter or modify the statements and conclusions set
forth herein, and any such changes or interpretations could be retroactive and
could affect the tax consequences to the stockholders of the Company.
The discussion below does not purport to deal with all aspects of
federal income taxation that may affect particular stockholders in light of
their individual circumstances, and is not intended for stockholders subject to
special treatment under the federal income tax law (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign persons, stockholders who hold their stock as part of a hedge,
appreciated financial position, straddle or conversion transaction, stockholders
who do not hold their stock as capital assets, and stockholders who have
acquired their stock upon the exercise of employee options or otherwise as
compensation). Furthermore, the discussion below does not address the federal
income tax consequences of the Merger to (i) stockholders who hold Rollover
Shares and/or Rollover Options (including, without limitation, the federal
income tax consequences to such stockholders of the receipt of cash pursuant to
the Merger) or (ii) stockholders who may be considered to own shares of stock of
the Surviving Corporation after the Effective Time through application of
constructive ownership rules of Section 318 of the Code (which, in very general
terms, deem a stockholder to own shares of stock that are owned by certain
members of his or her family (spouse, children, grandchildren, and parents) and
other related parties including, for example, certain entities in which such
stockholder has a direct or indirect interest (including partnerships, estates,
trusts and corporations), as well as shares of stock that such stockholder (or a
related party) has the right to acquire upon exercise of an option or conversion
right). In addition, the discussion below does not consider the effect of any
applicable state, local, or foreign tax laws.
EACH HOLDER OF CELADON COMMON STOCK IS STRONGLY URGED AND EXPECTED TO
CONSULT WITH SUCH HOLDER'S TAX ADVISOR TO DETERMINE THE PARTICULAR FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER IN LIGHT OF SUCH HOLDER'S
SPECIFIC CIRCUMSTANCES AS WELL AS THE APPLICABILITY AND EFFECT OF STATE, LOCAL,
AND FOREIGN TAX LAWS.
The Merger. A stockholder who, pursuant to the Merger, exchanges all
of Celadon Common Stock for cash will recognize gain or loss equal to the
difference (between (a) the amount of cash such stockholder receives in the
Merger and (b) the stockholder's adjusted tax basis in such shares. Such gain or
loss will be capital gain or loss, and generally will be long-term capital gain
or loss if at the Effective Time the stockholder's holding period for the
Celadon Common Stock is more than one year. In the case of individuals, "net
capital gain," i.e., the excess of net long-term capital gain over net
short-term capital loss, is generally subject to a reduced rate of federal
income tax.
Backup Withholding. Stockholders who own Celadon Common Stock should
be aware that the Company will be required in certain cases to withhold and
remit to the United States Internal Revenue Service 31% of amounts payable in
the Merger to any person (a) who has provided either an incorrect tax
identification number or no number at all, (b) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (c) who has failed to certify to the
Company that it is not subject to backup withholding or that is an "exempt
recipient." Backup withholding is not an additional tax, but rather may be
credited against the taxpayer's tax liability for the year.
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APPRAISAL RIGHTS
The following summary does not purport to be a complete statement of
the provisions of Delaware law relating to the appraisal rights of stockholders
and is qualified in its entirety by reference to the provisions of Section 262
of the DGCL set forth in full as Annex B to this Proxy Statement.
Holders of record of shares of Celadon Common Stock who meet the
requirements summarized herein and comply with the applicable procedures
summarized herein will be entitled to appraisal rights under Section 262 of the
DGCL. A person having a beneficial interest in shares of Celadon Common Stock
held of record in the name of another person, such as a broker or nominee, must
act promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner to perfect appraisal rights.
ALL REFERENCES IN SECTION 262 AND IN THIS SUMMARY TO A "STOCKHOLDER"
ARE TO THE RECORD HOLDER OF CELADON COMMON STOCK AS TO WHICH APPRAISAL RIGHTS
ARE ASSERTED. VOTING AGAINST, ABSTAINING FROM VOTING OR FAILING TO VOTE ON
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT WILL NOT CONSTITUTE A DEMAND FOR
APPRAISAL WITHIN THE MEANING OF SECTION 262 OF THE DGCL.
Stockholders who meet the requirements and follow the procedures set
forth in Section 262 of the DGCL may receive, in lieu of the $20.00 cash of
Celadon Common Stock to be paid in the Merger, a cash payment equal to the "fair
value" of their shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, as determined by the Court of Chancery. Such fair value is to
be determined by judicial appraisal and could be more than, the same as, or less
than, the Cash Merger Price. The statutory right of appraisal granted in Section
262 is subject to strict compliance with the procedures set forth below and in
Section 262. Failure to follow any of these procedures may result in termination
or waiver of appraisal rights under Section 262.
To be entitled to receive payment of the fair value of the shares of
Celadon Common Stock, a stockholder (a) must file a written demand for appraisal
of his or her shares with the Company prior to the voting by stockholders on the
Merger Agreement at the Special Meeting (such demand must reasonably inform the
Company of the identity of the stockholder and that the stockholder intends
thereby to demand an appraisal of his or her shares); (b) must not vote his or
her shares in favor of approval and adoption of the Merger Agreement; and (c)
must have his or her shares valued in an appraisal proceeding, as described
below. A proxy or vote against approval and adoption of the Merger Agreement
will not satisfy the requirement that a stockholder file a written demand for
appraisal as set forth above. The requirement of a written demand is separate
from, and should not be confused with, the requirement that a stockholder not
vote in favor of approval and adoption of the Merger Agreement. A failure to
vote on the Merger Agreement will not be construed as a vote in favor of
approval and adoption of the Merger Agreement and will not constitute a waiver
of a stockholder's rights of appraisal. A stockholder who returns a signed proxy
indicating that he or she abstains from voting will similarly not waive his or
her rights of appraisal. However, because a proxy signed and left blank will,
unless properly revoked, be voted in favor of approval and adoption of the
Merger Agreement, a stockholder who returns a signed proxy left blank will waive
his or her rights of appraisal. Therefore, a stockholder electing to exercise
appraisal rights who votes by proxy must not leave his or her proxy blank, but
must either vote against approval and adoption of the Merger Agreement or
abstain from voting.
A holder of shares of Celadon Common Stock wishing to exercise such
holder's appraisal rights must be the record holder of such shares on the date
the written demand for appraisal is made and must continue to hold such shares
of record until the Effective Time of the Merger. Accordingly, a holder of
shares of Celadon Common Stock who is the record holder of such shares on the
date the written demand for appraisal is made, but who thereafter transfers such
shares prior to the Effective Time of the Merger, will lose any right to
appraisal in respect to such shares.
Only a holder of record of shares of Celadon Common Stock is entitled
to assert appraisal rights for the shares registered in the holder's name. A
demand for appraisal should be executed by or on behalf of the holder of record,
fully and correctly, as such holder's name appears on such holder's stock
certificates. If the shares are
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owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, execution of the demand should be made in that capacity, and if the
shares are owned of record by more than one person as in a joint tenancy or
tenancy in common, the demand should be executed by or on behalf of all joint
owners. An authorized agent, including an agent for two or more joint owners,
may execute a demand for appraisal on behalf of a holder of record; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is an agent acting for such owner or
owners. A record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares held
for one or more beneficial owners; in such case, the written demand should set
forth the number of shares as to which appraisal is sought, and where no number
of shares is expressly mentioned the demand will be presumed to cover all shares
held in the name of the record owner. Stockholders who hold their shares in
brokerage accounts or other nominee forms and who wish to exercise appraisal
rights are urged to consult with their brokers to determine the appropriate
procedures for the making of a demand for appraisal by such a nominee.
If the Merger Agreement is approved and adopted by the stockholders,
the Surviving Corporation will send a notice within ten days after the Effective
Time to each stockholder who has complied with Section 262 of the DGCL by
delivering to the Company a demand for appraisal of his or her shares and not
voting in favor of or consenting to the Merger, stating the date that the Merger
became effective. Within 120 days after the Effective Time, the Surviving
Corporation, or any stockholder seeking appraisal rights who has theretofore
complied with Section 262, may file a petition in the Court of Chancery
demanding a determination of the value of shares of all stockholders seeking
appraisal rights. The Surviving Corporation is under no obligation, and has no
present intention, to file such a petition, and all stockholders seeking to
exercise appraisal rights should initiate all necessary action with respect to
the perfection of their appraisal rights within the time periods and in the
manner prescribed in Section 262. Within 120 days after the Effective Time, any
stockholder who has complied with the provisions of Section 262, upon written
request, shall be entitled to receive from the Surviving Corporation a statement
setting forth the aggregate number of shares of Celadon Common Stock not voted
in favor of approval and adoption of the Merger Agreement and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement must be mailed to any such
stockholder within ten days after his or her written request for such a
statement is received by the Surviving Corporation or within ten days after
expiration of the period of delivery of demands for appraisal under Section
262(d), whichever is later.
If a petition for appraisal is timely filed, the Court of Chancery
will conduct a hearing on such petition to determine whether the stockholders
seeking appraisal rights have complied with Section 262 and have thereby become
entitled to appraisal rights. The Court of Chancery will then determine the fair
value of the shares of Celadon Common Stock exclusive of any element of value
arising from the expectation or accomplishment of the Merger, but including a
fair rate of interest, if any, to be paid on the amount determined to be the
fair value. In determining fair value, the Court of Chancery is to take into
account all relevant factors. Stockholders considering appraisal should bear in
mind that the fair value of their shares determined under Section 262 could be
more than, the same as, or less than, the consideration they will receive
pursuant to the Merger Agreement if they do not seek appraisal of their shares,
and that the written opinion of Wasserstein Perella set forth as Annex B hereto
is not necessarily an opinion regarding fair value under Section 262. The
Delaware Supreme Court has stated that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal
proceedings.
The Court of Chancery will determine the amount of interest, if any,
to be paid upon the amounts to be received by persons whose shares have been
appraised. The costs of the appraisal proceeding may be assessed against one or
more parties to the proceeding as the Court of Chancery may consider equitable.
Upon application by a stockholder, the Court of Chancery may order all or a
portion of the expenses incurred by any stockholder in connection with the
appraisal proceedings (including, without limitation, reasonable attorneys' fees
and the fees and expenses of experts) to be charged pro rata against the value
of all of the shares of Celadon Common Stock entitled to an appraisal.
A stockholder will fail to perfect his or her right of appraisal if he
or she (a) does not deliver a written demand for appraisal to the Company prior
to the vote for approval and adoption of the Merger Agreement, (b)
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votes his or her shares of Celadon Common Stock in favor of approval and
adoption of the Merger Agreement, (c) does not file a petition for appraisal
within 120 days after the Effective Time, or (d) delivers to the Company both a
written withdrawal of his or her demand for appraisal and an acceptance of the
terms of the Merger Agreement, except that any such attempt to withdraw such
demand not made within 60 days after the Effective Time requires the written
approval of the Company. If any stockholder who properly demands appraisal of
such stockholder's shares of Celadon Common Stock under Section 262 fails to
perfect, or effectively withdraws or loses, such stockholder's right to
appraisal, the shares of Celadon Common Stock of such stockholder will be
converted into the right to receive the Cash Merger Price receivable with
respect to such shares in accordance with the Merger Agreement.
If an appraisal proceeding is properly instituted, such proceeding may
not be dismissed as to any stockholder who has perfected his or her right of
appraisal without the approval of the Court of Chancery, and any such approval
may be conditioned on such terms as the Court of Chancery deems just.
After the Effective Time, no stockholder who has demanded appraisal
rights will be entitled to vote his or her shares of Celadon Common Stock for
any purpose or to receive dividends on, or other distributions in respect of,
such shares (except dividends or distributions payable to stockholders as of a
record date prior to the Effective Time).
Delaware courts have decided that the statutory appraisal remedy,
depending on factual circumstances, may or may not be a dissenter's exclusive
remedy. Several decisions by the Delaware courts have held that a controlling
stockholder has a fiduciary duty to the other stockholders which requires that
the merger be "entirely fair" to such other stockholders. In determining whether
a merger is fair to minority stockholders, the Delaware courts have considered,
among other things, the type of and amount of consideration to be received by
stockholders and whether there was fair dealing among the parties. The Delaware
Supreme Court stated in Weinberger v. UOP, Inc., 457 A.2d 701, 714 (1983), that
although the remedy ordinarily available in a merger that is found not to be
"fair" to minority stockholders is the right to appraisal described above, such
appraisal remedy may not be adequate "in certain cases, particularly where
fraud, misrepresentations, self-dealing, deliberate waste of corporate assets,
or gross and palpable overreaching are involved," and that in such cases the
Chancery Court would be free to fashion any form of appropriate relief.
FAILURE BY A STOCKHOLDER TO FOLLOW THE STEPS REQUIRED BY DELAWARE LAW
FOR PERFECTING RIGHTS OF APPRAISAL MAY RESULT IN THE LOSS OF SUCH RIGHTS. IN
VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF THE DELAWARE GENERAL CORPORATION
LAW, STOCKHOLDERS WHO ARE CONSIDERING DISSENTING FROM THE APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT AND EXERCISING THEIR RIGHTS UNDER SECTION 262 SHOULD
CONSULT THEIR LEGAL ADVISORS.
All written communications from stockholders with respect to the
exercise of appraisal rights should be mailed to Celadon Group, Inc., One
Celadon Drive, Indianapolis, Indiana 46235-4207, Attention: Secretary.
REGULATORY APPROVALS
The consummation of the Merger is subject to the expiration or
termination of the statutory waiting period under the HSR Act. Under the HSR Act
and the rules promulgated thereunder, the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division and the applicable statutory waiting period has
expired or been terminated. Celadon and Merger Sub will be filing notification
and report forms under the HSR Act with the FTC and the Antitrust Division.
CERTAIN RELATED AGREEMENTS
Certain related agreements will be entered into in connection with the
Merger Agreement. These agreements include a stockholder's agreement governing
certain aspects of the relationship between the holders
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of the Rollover Shares and Odyssey and an agreement granting Odyssey certain
registration rights relating to Surviving Corporation Common Stock. The terms of
such agreements are being negotiated.
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a brief summary of the material aspects of the Merger
Agreement, which appears as Annex A to this Proxy Statement and is incorporated
herein by reference. This summary is qualified in its entirety by reference to
the Merger Agreement.
GENERAL
The Merger Agreement provides that, following the approval of the
Merger and the adoption of the Merger Agreement by the vote of the holders of a
majority of the issued and outstanding shares of the Celadon Common Stock and
the satisfaction or waiver of the other conditions to the Merger, Merger Sub
will be merged with and into Celadon, and Celadon will continue as the Surviving
Corporation after the Merger.
Upon the terms and subject to the conditions of the Merger Agreement,
at the closing of the Merger the parties will cause the Certificate of Merger to
be executed and filed in accordance with the requirements of the DGCL. Unless
otherwise agreed between the Merger Sub and the Company and so stated in the
Certificate of Merger, the Merger will become effective upon the filing of the
Certificate of Merger with the Delaware Secretary of State in accordance with
the DGCL.
TREATMENT OF SECURITIES IN THE MERGER
At the Effective Time, the shares of Celadon Common Stock and Options
in respect thereof will be treated as follows:
Cash Merger Price. At the Effective Time, each share of Celadon Common
Stock held by the Company's stockholders (other than the Rollover Shares, the
Excluded Shares, and the Dissenting Shares) will be converted into the right to
receive the Cash Merger Price.
Payment of Cash Merger Price. The Cash Merger Price will be paid as
soon as practicable after the Effective Time upon receipt by the Paying Agent of
certificates representing the shares of Celadon Common Stock held by such
stockholders. No interest will be paid or accrued on the Cash Merger Price. As
of or at the Effective Time, Merger Sub will deposit with the Paying Agent for
the benefit of the holders of shares of Celadon Common Stock, the funds
necessary to pay the Cash Merger Price for each share payable pursuant to the
terms of the Merger Agreement. As soon as practicable after the Effective Time,
the Paying Agent will mail to each record holder of Celadon Common Stock a
notice and letter of transmittal advising the holder of the effectiveness of the
Merger and the procedure for surrendering certificates to the Paying Agent for
exchange into the Cash Merger Price. Stockholders should not forward stock
certificates to the Paying Agent until they have received transmittal forms.
Certificates should not be returned with the enclosed proxy cards. From and
after the Effective Time, the stock transfer books of the Company in place prior
to the Effective Time will be closed and thereafter there will be no transfers
on such books of the shares of Celadon Common Stock which were outstanding
immediately prior to the Effective Time.
Rollover Shares. At the Effective Time, the Rollover Shares will be
converted on a share-for-share basis into shares of the Surviving Corporation
Common Stock. The Rollover Shares represent approximately 4.1% of the
outstanding shares of Celadon Common Stock and will represent approximately 10%
of the total outstanding shares of Surviving Corporation Common Stock
immediately following the Effective Time. Stephen Russell (Chairman, Chief
Executive Officer, and President of Celadon) and Hanseatic own, respectively,
200,000 and 120,000 Rollover Shares, which represent approximately 2.6% and 1.5%
of the outstanding shares of Celadon Common Stock and which will represent
approximately 6.25% and 3.75%, respectively, of the total outstanding
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shares of Surviving Corporation Common Stock immediately following the
Effective Time. Paul Biddleman, President of Hanseatic, serves as Hanseatic's
designee to Celadon's Board of Directors. See "Special Factors--Interests of
Certain Persons in the Merger--Retention of Rollover Shares."
Excluded Shares. At the Effective Time, each share of Celadon Common
Stock held in the Company's treasury, if any, will be canceled and retired
without payment of any consideration therefor.
Issuance of Surviving Corporation Common Stock to Odyssey. At the
Effective Time, the issued and outstanding shares of Merger Sub will be
converted into 2,880,000 shares of Surviving Corporation Common Stock,
representing approximately 90% of the total outstanding shares of Surviving
Corporation Common Stock.
Payment for Options and Hanseatic Warrants. Except with respect to the
Rollover Options, the Company will cause each Option, whether or not then
exercisable or vested, to be canceled. In consideration of such cancellation,
the Company will pay to such holders of options an amount in cash in respect
thereof equal to the product of the excess, of the Cash Merger Price over the
exercise price of each such Option and the number of shares of Celadon Common
Stock previously subject to the Option immediately prior to its cancellation
(such payment to be net of withholding taxes). The Company will cause the
Hanseatic Warrants to be canceled. In consideration of such cancellation, the
Company will pay to Hanseatic an amount in cash in respect thereof equal to the
product of the excess of the Cash Merger Price over the exercise price of the
Hanseatic Warrants and the number of shares of Celadon Common Stock previously
subject to the Hanseatic Warrants immediately prior to cancellation (such
payment to be net of withholding taxes).
Rollover Options. At the Effective Time, each Rollover Option will be
converted, on a share-for-share basis, into an option to purchase shares of
Surviving Corporation Common Stock. Stephen Russell and _______ own,
respectively, _____ and _____ Rollover Options, which will represent the right
to purchase an additional ____% and _____%, respectively, of Surviving
Corporation Common Stock immediately following the Effective Time.
BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
The directors of Merger Sub immediately prior to the Effective Time
shall be the directors of the Surviving Corporation as of the Effective Time and
until their successors are duly appointed or elected in accordance with
applicable law. The officers of the Company immediately prior to the Effective
Time shall be the officers of the Surviving Corporation as of the Effective Time
and until their successors are duly appointed or elected in accordance with
applicable law. See "Directors and Executive Officers of the Surviving
Corporation."
CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION
Immediately following the Effective Time, the Certificate of
Incorporation of the Company in effect immediately prior to the Effective Time
shall be amended so as to read in its entirety in the form attached as Annex D
hereto and shall thereafter be the Certificate of Incorporation of the Surviving
Corporation, until duly changed or amended as provided therein or in accordance
with applicable law.
The bylaws of Merger Sub in effect immediately prior to the Effective
Time shall be the bylaws of the Surviving Corporation, until duly amended as
provided therein or in accordance with applicable law.
PAYMENT FOR SHARES
As of or after the Effective Time, the Company will deposit with the
Paying Agent for the benefit of the holders of shares of Celadon Common Stock
the funds necessary to pay the Cash Merger Price for each share payable pursuant
to the terms of the Merger Agreement. Holders of Dissenting Shares who meet the
qualification of and follow the requirements of Section 262 of the DGCL may
receive, in lieu of the Cash Merger Price, a cash
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payment equal to the "fair value" of their shares, pursuant to Section 262 of
the DGCL, as determined by the Delaware Court of Chancery.
As soon as practicable after the Effective Time the Paying Agent will
send to each record holder of Celadon Common Stock a notice and a letter of
transmittal advising the holder of the effectiveness of the Merger and the
procedure for surrendering to the Paying Agent certificates for exchange into
the Cash Merger Price and, with respect to the holders of Rollover Shares, the
shares of Surviving Corporation Common Stock into which the Rollover Shares will
be converted (the "Rollover Share Consideration").
STOCKHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES TO THE PAYING AGENT
UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS. STOCKHOLDERS SHOULD NOT RETURN STOCK
CERTIFICATES WITH THE ENCLOSED PROXY CARD.
As soon as practicable after the Effective Time (a) each holder of an
outstanding share certificate or certificates which prior to the Effective Time
represented shares of Celadon Common Stock (other than the Rollover Shares),
upon surrender to the Paying Agent of such certificate or certificates, and
acceptance thereof by the Paying Agent, shall be entitled to receive the Cash
Merger Price in respect of each share of Celadon Common Stock theretofore
evidenced by such certificate or certificates so surrendered and (b) each holder
of an outstanding certificate or certificates representing one share of the
Rollover Shares, upon surrender to the Paying Agent of such certificate or
certificates and acceptance thereof by the Paying Agent, shall be entitled to
receive a certificate or certificates representing one share of Surviving
Corporation Common Stock in respect of each share of Celadon Common Stock
theretofore evidenced by such certificate or certificates so surrendered. Upon
such surrender, the Paying Agent will, as promptly as practicable, pay the Cash
Merger Price or the Rollover Share Consideration, as the case may be. Until
surrendered, each such certificate (other than certificates representing
Excluded Shares and Dissenting Shares), will be deemed for all purposes to
evidence only the right to receive the Cash Merger Price for holders of Celadon
Common Stock (other than the Rollover Shares), or the Rollover Share
Consideration for holders of the Rollover Shares. In no event will the holder of
any surrendered certificate be entitled to receive interest on the Cash Merger
Price.
If the Cash Merger Price or Rollover Share Consideration (or any
portion thereof) is to be delivered to a person other than the person in whose
name the certificates surrendered in exchange therefor are registered, it will
be a condition to the payment of such consideration that the certificates so
surrendered are properly endorsed and otherwise are in proper form for transfer,
that such transfer otherwise is proper and that the person requesting such
transfer pay to the Paying Agent any transfer or other taxes payable by reason
of the foregoing or establish to the satisfaction of the Paying Agent that such
taxes have been paid or are not required to be paid.
From and after the Effective Time, the stock transfer books of the
Company in place prior to the Effective Time will be closed and thereafter there
will be no transfers on such books of the shares of Celadon Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, certificates are presented to the Surviving Corporation, they
will be canceled and exchanged for the Cash Merger Price or the Rollover Share
Consideration, as the case may be.
Any funds remaining with the Paying Agent one year following the
Effective Time will be delivered to the Surviving Corporation, after which any
holders of Celadon Common Stock (other than Rollover Shares) prior to the Merger
shall thereafter look only to the Surviving Corporation and only as general
unsecured creditors thereof for payment of their claims for cash, if any.
REPRESENTATIONS AND WARRANTIES
Representations and Warranties of the Company. The Merger Agreement
contains representations and warranties of the Company with respect to the
Company and its subsidiaries relating to, among other things, (a) organization
and capitalization; (b) the authorization, execution, delivery, performance, and
enforceability of the Merger Agreement and related matters; (c) subsidiaries;
(d) absence of certain changes or events; (e) title to assets and absence of
liens and encumbrances; (f) contracts and commitments; (g) absence of breaches
and
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defaults; (h) permits; (i) the non-contravention of organizational documents,
material contracts, indebtedness, leases, encumbrances, permits, or
authorizations, and applicable laws; (j) consents and approvals; (k) SEC
documents, financial statements, and other financial information; (l) the
absence of undisclosed liabilities; (m) litigation; (n) labor matters; (o)
compliance with applicable laws; (p) matters related to brokers, fees, and other
expenses; (q) proprietary rights; (r) benefit plans and other matters relating
to the Employee Retirement Income Security Act of 1974, as amended, and
employment matters; (s) taxes; (t) insurance matters; (u) customers and
suppliers; (v) environmental, health, and safety matters; (w) absence of other
agreements with respect to assets or capital stock of the Company or its
subsidiaries; (x) prohibited payments; (y) the receipt of an opinion of the
Company's financial advisor; (z) the recommendation of the Board of Directors of
the Company with respect to the Merger Agreement, the Merger, and related
transactions; (aa) the required vote of the Company's Stockholders; and (bb) the
accuracy of information contained in this Proxy Statement and the Transaction
Statement on Schedule 13E-3.
Representations and Warranties of Merger Sub. The Merger Agreement
contains representations and warranties of Merger Sub relating to, among other
things, (a) organization; (b) the authorization, execution, delivery,
performance, and enforceability of the Merger Agreement and related matters; (c)
consents and approvals; (d) the non-contravention of organizational documents
and certain material contracts; (e) the accuracy of information provided by
Merger Sub for use in this Proxy Statement and the Transaction Statement on
Schedule 13E-3; and (f) the financing of the Merger.
COVENANTS
Interim Operations. In general, the Company has agreed that prior to
the Effective Time, except as otherwise provided in the Merger Agreement or
unless Merger Sub has consented in writing thereto, the Company will, and will
cause its subsidiaries to, (a) conduct its business in the ordinary course
consistent with past practice; (b) use its best efforts to maintain its business
organizations, goodwill, relationships with officers and employees, and business
relationships; (c) promptly notify Merger Sub of any Material Adverse Change,
material litigation, or material government complaints or investigations and
breaches of any representation or warranty contained in the Merger Agreement;
and (d) deliver to Merger Sub all filings made with the Commission subsequent to
the date of the Merger Agreement . Furthermore, the Company has generally agreed
that, prior to the Effective Time, except as otherwise provided in the Merger
Agreement or unless Merger Sub has consented in writing thereto, the Company
will not, and will cause its subsidiaries not to, (a) amend any of its
organizational and governing instruments; (b) authorize, propose, or announce an
intention to authorize or propose, or enter into an agreement with respect to
any merger, consolidation, or business combination (other than the Merger) or
relinquish any material contract rights or acquire or dispose of assets or
securities other than in the ordinary course of business consistent with past
practice; (c) grant, confer, or award any options, warrants, conversion rights,
or other rights not existing on the date of the Merger Agreement to acquire
shares of the Company's Capital Stock or other securities of the Company or its
subsidiaries; modify, accelerate, or change the period of exercisability of
employee stock options or restricted stock; or authorize cash payments in
exchange for such employee stock options (except as contemplated by the Merger
Agreement); (d) amend any benefit plans existing on the date of the Merger
Agreement or adopt any new employee benefit plans; (e) increase or agree to
increase the compensation payable to any officer or, except in accordance with
past practice, any employee or enter into any collective bargaining agreement;
(f) incur any debt or other liabilities (except for borrowings under existing
credit facilities in the ordinary course) or make any loans or advances to any
person (except for advances consistent with past practice which are not
material); (g) change any practice with respect to taxes or a material tax
election or settle or compromise any material tax dispute; (h) declare, set
aside, or pay any dividend or distribution in respect of its capital stock or
other ownership interests; redeem, purchase, or otherwise acquire any shares of
its capital stock or capital stock of any of its subsidiaries; or split,
combine, or reclassify any of its capital stock or take steps to issue any other
securities in respect of shares of its capital stock; (i) issue, deliver, sell,
pledge, or otherwise encumber any shares of its capital stock or certain other
securities related to its capital stock; (j) make or agree to make any capital
expenditure or expenditures except in accordance with the Company's capital
expenditure plan for fiscal years 1998 and 1999; (k) change any accounting
principles or practices; (l) pay, discharge, settle, or satisfy any claims,
liabilities, or obligations other than the payment, in the ordinary course
consistent with past practice or in accordance with their terms, of liabilities
reflected or reserved against in the most recent consolidated financial
statements; (m) waive any material benefits of, or agree to modify in any
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material respect, any confidentiality, standstill, non-solicitation, or similar
agreement; or (n) agree to (in writing or otherwise), or resolve to take, any of
the prohibited actions described in this paragraph.
Investigation by Merger Sub. Under the Merger Agreement, the Company
has agreed to allow Merger Sub, its counsel, accountants and other
representatives (including, without limitation GE and BT and their counsel and
representatives, during regular business hours upon reasonable notice, to make
such reasonable inspection of the assets, facilities, business and operations of
the Company and its subsidiaries and to inspect and make copies of contracts,
books, and records and all other documents and information reasonably requested
by Merger Sub and related to the operations and business of the Company and its
subsidiaries and to meet with designated personnel of the Company or its
subsidiaries and/or their representatives. The Company and its subsidiaries
shall (a) furnish to Merger Sub promptly upon request all additional documents
and information with respect to the affairs of the Company and its subsidiaries'
as Merger Sub, or its counsel or accountants, may from time to time reasonably
request and (b) have instructed their personnel, accountants, and counsel to
cooperate with Merger Sub. Merger Sub has agreed to hold, and will use its
reasonable best efforts to cause its counsel, accountants, and other
representatives (including, without limitation, GE and BT and their counsel and
representatives) to hold any nonpublic information in confidence to the extent
required by, and in accordance with, a confidentiality letter between
Wasserstein Perella and Odyssey Investment Partners, LLC, dated April 9, 1998.
Additional Covenants. In addition to the foregoing, the Company and
Merger Sub have agreed to certain covenants regarding (a) convening of the
Special Meeting; (b) HSR filings and other governmental or regulatory filings;
(c) access of Merger Sub to the offices, records, files, correspondence, audits,
and properties of the Company; (d) publicity; (e) preparation and filing of this
Proxy Statement and a Transaction Statement on Schedule 13E-3; (f) the
performance of additional actions as may be necessary to effect the Merger; (g)
expenses related to the Merger Agreement; (h) insurance and indemnity; (i)
resignation of the Company's directors; (j) notice of changes with respect to
the Company and its subsidiaries; and (k) the Company supplying financial
information to Merger Sub.
Consents and Efforts. Each of the parties to the Merger Agreement has
agreed to (a) promptly make its respective filings under the HSR Act with
respect to the Merger and (b) use its reasonable best efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective, in the most expeditious manner practicable, the Merger and the other
transactions contemplated by the Merger Agreement. Merger Sub and the Company
have agreed to use their reasonable best efforts and cooperate with one another
(a) in promptly determining whether any filings are required to be made or
consents, approvals, waivers, licenses, permits, or authorizations are required
to be obtained (or, which if not obtained, would result in an event of default,
termination, or acceleration of any agreement or any put right under any
agreement) under any applicable law or regulation or from any governmental
authorities or third parties, including parties to loan agreements or other debt
instruments, in connection with the transactions contemplated by the Merger
Agreement, including the Merger and (b) in promptly making any such filings, in
furnishing information required in connection therewith and in timely seeking to
obtain any such consents, approvals, permits, or authorizations.
The Company has agreed to cooperate with any reasonable requests of
Merger Sub or the Commission related to the recording of the Merger as a
recapitalization for financial reporting purposes, and to provide and to cause
its subsidiaries and its and their respective officers, directors, employees,
and advisors to provide, all reasonable cooperation in connection with the
arrangement of any financing to be consummated contemporaneously with or at or
after the Closing. In addition, the Company agrees, at the request of Merger
Sub, to call for prepayment or redemption, as the case may be, of then existing
indebtedness of the Company; provided that such prepayment or redemption shall
only be made contemporaneously with or after the Effective Time. Merger Sub has
agreed to use its reasonable best efforts to arrange the financing pursuant to
the Financing Letters.
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CONDITIONS TO THE CONSUMMATION OF THE MERGER
Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each of the Company and Merger Sub to effect the
Merger are subject to the satisfaction at or prior to the closing date of the
Merger of the following conditions:
(a) The Merger Agreement and the transactions contemplated thereby
shall have been approved by a majority of the holders of the issued and
outstanding shares of the Celadon Common Stock in accordance with the DGCL;
(b) The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated; and
(c) No law or regulation, and no judgment order, decree, or injunction
shall prohibit or restrain the consummation of the Merger. In the event any such
order or injunction shall have been issued, each party agrees to use its
reasonable best efforts to have any such judgment, order, decree, or injunction
vacated.
Conditions to the Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger is subject to the following
conditions, any of which may be waived by the Company: (a) the representations
and warranties of Merger Sub contained in the Merger Agreement shall be true and
correct in all material respects at and as of the closing date (except to the
extent that any such representations and warranties were made as of a specified
date, which representations and warranties shall continue on the closing date to
be true as of such specified date) (b) Merger Sub shall have performed in all
material respects its obligations arising under the agreements and covenants
contained in the Merger Agreement required to be performed on or prior to the
closing date of the Merger, (c) the Company shall have received a certificate of
the President of Merger Sub certifying that, as of the closing date, the
conditions set forth in (a) and (b) have been satisfied.
Conditions to the Obligation of Merger Sub to Effect the Merger. The
obligation of Merger Sub to effect the Merger is subject to the satisfaction of
the following conditions, any of which may be waived by Merger Sub:
(a) (i) the representations and warranties of the Company contained in
the Merger Agreement shall be true and correct at and as of the closing date,
(except that to the extent that any such representations and warranties were
made as of a specific date, such representations and warranties shall continue
on the closing date to be true in all material respects as of such date), except
where the untruth or incorrectness of such representations and warranties would
not, singly, or in the aggregate, have a Material Adverse Effect (as defined in
the Merger Agreement) (for purposes of this condition, the representations and
warranties contained in the Merger Agreement shall be deemed to have been made
without any qualification as to knowledge or materiality), (ii) the Company
shall have performed in all material respects all obligations arising under the
agreements and covenants required to be performed by it on or prior to the
closing date, and (iii) Merger Sub shall have received a certificate of the
President and Chief Financial Officer of the Company, certifying that, as of the
Closing Date, the conditions set forth in clauses (i) and (ii) above have been
satisfied, that no actions described in clause (b) below have been commenced or
threatened, that no Material Adverse Change (as defined in the Merger Agreement)
has occurred, and that, to the knowledge of the Company, there is no potential
or threatened Material Adverse Change;
(b) No actions by any governmental authority or any other entity or
person shall have been instituted or threatened for the purpose of enjoining or
preventing, or which question the validity or legality of, the transactions
contemplated by the Merger Agreement and which could reasonably be expected to
damage Merger Sub or materially adversely affect the value of the Celadon Common
Stock or the Assets (as defined in the Merger Agreement), business, or
operations of the Company and its subsidiaries or Merger Sub's ability to own
and operate the Assets, business, or operations of the Company and its
subsidiaries, if the transactions contemplated by the Merger Agreement are
consummated;
(c) Merger Sub shall be reasonably satisfied that the transaction will
be recorded as a "recapitalization" for financial reporting purposes;
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(d) (i) All consents, approvals, and licenses of any governmental or
other regulatory body required in connection with the execution, delivery, and
performance of the Merger Agreement and for the Surviving Corporation to conduct
the business and operations of the Company in substantially the same manner as
it was conducted prior to the Effective Time shall have been obtained, unless
the failure to obtain such consents, authorizations, orders, or approvals would
not, individually or in the aggregate, have a Material Adverse Effect after
giving effect to the transactions contemplated by the Merger Agreement, and (ii)
all consents listed on the disclosure schedule to the Merger Agreement shall
have been obtained;
(e) From March 31, 1998, there shall not have occurred a Material
Adverse Change (as defined in the Merger Agreement) with respect to the Company
and to the knowledge of the Company, there shall have been no potential or
threatened Material Adverse Change;
(f) The funding contemplated by the Financing Letters shall have been
obtained;
(g) The New Employment Agreements between the Company, on the one
hand, and Stephen Russell, Robert Goldberg, Ronald S. Roman, Nancy L. Morris,
and Michael Archual, on the other hand, shall have been executed and delivered
and shall be in full force and effect. See "Special Factors--Interests of
Certain Persons in the Merger" and "--Certain Related Agreements";
(h) The stockholders party to the Voting Agreement shall have
performed their obligations thereunder in all material respects;
(i) The stockholders' agreement dated as of October 8,1992, and as
amended as of July 3, 1996, by between Stephen Russell and Hanseatic shall have
been terminated and of no further force and effect; and
(j) Ernst & Young LLP shall have completed its audit, in accordance
with generally accepted auditing standards, of the Company's financial
statements for the year ended June 30, 1998 and shall have issued an unqualified
report with respect thereto (indicating that such statements are in accordance
with GAAP).
NO SOLICITATION; FIDUCIARY OUT
Under the Merger Agreement, Celadon has agreed to immediately cease
any existing activities, discussions or negotiations with any parties (other
than Odyssey and Merger Sub) with respect to any Acquisition Proposal. Pursuant
to the Merger Agreement, Celadon has agreed that neither it nor its subsidiaries
(whether directly or indirectly through advisors, agents or other
intermediaries) will initiate, solicit, or encourage, directly or indirectly, or
take any other action to facilitate, any inquiries or the making or
implementation of any proposal or offer that constitutes an Acquisition
Proposal, or (a) agree to or endorse any Acquisition Proposal, (b) enter into or
participate in any discussions or negotiations regarding an Acquisition
Proposal, or otherwise cooperate in anyway with, or knowingly assist or
participate in facilitate or encourage, any effort or attempt by any person
(other than the Merger Sub) to do or seek any of the foregoing, (c) grant any
waiver or release under any standstill or similar agreement with respect to the
equity securities of the Company or any of its subsidiaries, or (d) authorize or
permit any of its officers, directors, employees, agents, or representatives do
any of the foregoing. Celadon is obligated to notify Merger Sub if any such
inquiries or proposals are received by, any such information is requested from,
the Company or any such negotiations or discussions are sought to be initiated
or continued with the Company. Nothing contained in the Merger Agreement
prohibits the Board of Directors of the Company from furnishing information to,
or entering into discussions or negotiations with, any person or entity that
makes a bona fide Acquisition Proposal if, and only to the extent that, (a) the
furnishing of such information is pursuant to a reasonable and customary
confidentiality agreement, (b) the Board of Directors of the Company determines
in good faith on the basis of written advice of outside counsel that such action
is required for the Board to comply with its fiduciary duties to stockholders
imposed by law, and (c) the Board determines in good faith after consultation
with its financial advisor that such Acquisition Proposal, if accepted, is
reasonably likely to be consummated, taking into account all legal, financial,
and regulatory aspects of the proposal and the person making the proposal, and
would, if consummated, result in a more favorable transaction than the
transaction contemplated by the Merger Agreement. Except as provided in the
Merger Agreement, the foregoing provisions
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do not permit the Company to (a) terminate the Merger Agreement, (b) enter into
any agreement with respect to an Acquisition Proposal during the term of the
Merger Agreement, or (c) affect any other obligation of the Company under the
Merger Agreement.
If the existence of an Acquisition Proposal results in the termination
of the Merger Agreement by the Company or Merger Sub, the Company may be
obligated to pay a fee of $6.5 million to Merger Sub, together with
reimbursement of Merger Sub's out-of-pocket expenses up to a maximum of $1.5
million.
If the Company fails to promptly pay any amount due in respect of the
fees and reimbursements described in the preceding sentence, and, in order to
obtain such payment, Merger Sub commences a suit which results in a judgment
against the Company for such fee or fees and expenses, the Company shall also
pay to Merger Sub its costs and expenses incurred in connection with such
litigation.
TERMINATION; EFFECTS OF TERMINATION
Termination by Mutual Written Consent. The Merger Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after approval of the Merger by the stockholders of the
Company by mutual written consent of Merger Sub and the Company.
Termination by the Company. The Merger Agreement may be terminated by
the Company at any time prior to the Effective Time, if the Board of Directors
of the Company, acting in good faith based upon written advice from outside
counsel and in order to prevent the Board of Directors from breaching its
fiduciary duty, shall have withdrawn or modified or amended, in a manner adverse
to Merger Sub, its approval or recommendation of the Merger Agreement and the
Merger or its recommendation that stockholders of the Company adopt and approve
the Merger Agreement and the Merger in order to permit the Company to execute a
definitive agreement providing for the acquisition of the Company or in order to
approve a tender or exchange offer for any or all of the Celadon Common Stock,
in either case, that is determined, by the Board of Directors of the Company to
be on financial terms more favorable to the Company's stockholders than the
Merger. In the event that the Merger Agreement is terminated by the Company
pursuant to the provision of the Merger Agreement described in this paragraph,
the Company shall pay Merger Sub a fee of $6.5 million and shall reimburse
Merger Sub for its out-of-pocket expenses in an amount not to exceed $1.5
million.
Termination by Merger Sub. The Merger Agreement may be terminated at
any time prior to the Effective Time by Merger Sub if the Board of Directors of
the Company shall have (i) withdrawn or modified or amended, in a manner adverse
to Merger Sub, its approval or recommendation of the Merger Agreement and the
Merger or its recommendation that stockholders of the Company adopt and approve
the Merger Agreement and the Merger, (ii) approved, recommended or endorsed an
Acquisition Proposal (including a tender or exchange offer for Celadon Common
Stock) or shall have failed to reconfirm its recommendation of the Merger
Agreement and the Merger within five business days of Merger Sub's request that
it do so, (iii) failed to call a stockholders meeting or failed as promptly as
practicable to mail the Proxy Statement to its stockholders or failed to include
in such statement the recommendation referred to above, (iv) in response to the
commencement of any tender offer or exchange offer for more than 20% of the
outstanding shares of Celadon Common Stock, not recommended rejection of such
tender offer or exchange offer, or (v) resolved to do any of the foregoing. In
the event that the Merger Agreement is terminated by the Company pursuant to the
provision of the Merger Agreement described in this paragraph, the Company shall
pay Merger Sub a fee of $6.5 million and shall reimburse Merger Sub for its
out-of-pocket expenses in an amount not to exceed $1.5 million.
Termination by Either Merger Sub or the Company. The Merger Agreement
may be terminated and the Merger may be abandoned at any time prior to the
Effective Time, whether before or after approval of the Merger by the
stockholders of the Company by either Merger Sub or the Company if:
(a) the Merger shall not have been consummated by November 30, 1998;
provided, that the terminating party shall not have breached in any material
respect its obligations under the Merger Agreement;
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(b) if any of the conditions to such party's obligation to consummate
the transactions contemplated by the Merger Agreement shall have become
impossible to satisfy;
(c) if there shall be any law or regulation that makes consummation of
the Merger illegal or otherwise prohibited or if any judgment, injunction,
order, or decree enjoining Merger Sub or the Company from consummating the
Merger is entered and such judgment, injunction, order or decree shall have
become final and non-appealable; or
(d) if, at the duly held stockholders meeting of the Company or any
adjournment thereof at which the Merger Agreement and the Merger are voted upon,
the requisite adoption and approval of the Company's stockholders shall not have
been obtained.
The Company shall pay Merger Sub a fee of $6.5 million in the event
that the Merger Agreement is terminated: (a) by Merger Sub due to the Company's
failure to satisfy any condition to Merger Sub's obligation to consummate the
Merger and the other transactions contemplated by the Merger Agreement, if the
failure to satisfy such condition arises from a breach of obligation or untruth
or incorrectness of any representation or warranty arising out of the bad faith
or willful misconduct of the Company; or (b) (i) by Merger Sub upon the
occurrence of any of the following: (1) the failure of the Company to obtain
stockholder approval of the Merger Agreement; (2) the failure of the
representations and warranties of the Company to be true and correct at and as
of the closing date (except to the extent that the failure of such
representations and warranties to be true and correct does not have a Material
Adverse Effect (as defined in the Merger Agreement excluding for such purposes
all materiality and knowledge qualifiers contained in the representations and
warranties); (3) the failure of the Company to perform its obligations under the
Merger Agreement in all material respects and perform all covenants required
thereby on or prior to the closing date; (4) failure of the Company to deliver
the officer's certificate required by the Merger Agreement certifying that (I)
the representations and warranties of the Company are true and correct at and as
of the closing date (except to the extent that the failure of such
representations and warranties to be true and correct does not have a Material
Adverse Effect (as defined in the Merger Agreement) (excluding for such purposes
all materiality and knowledge qualifiers contained in the representations and
warranties), (II) the Company performed its obligations under the Merger
Agreement in all material respects and performed all covenants required thereby
on or prior to the closing date (III) certain actions have not been instituted
or threatened; and (IV) no Material Adverse Change (as defined in the Merger
Agreement) shall have occurred and the Company knows of no potential or
threatened Material Adverse Change with respect to the Company; (5) a Material
Adverse Change or the existence of a potential or threatened Material Adverse
Change of which the Company has knowledge; (6) the failure of any member of the
Management Team to enter into the New Employment Agreements and agreements with
respect to their respective equity interests in the Company after the Effective
Time, on terms and conditions substantially similar to those set forth in the
Merger Agreement; (7) failure of the stockholders party to the Voting Agreement
to perform their obligations thereunder in all material respects; (8) failure of
the parties to the Stockholder's Agreement dated October 8, 1992 (as amended as
of July 3, 1996) to terminate such agreement; or (9) failure of Ernst & Young to
complete its audit of the Company for the fiscal year end June 30, 1998 and to
issue an unqualified report with respect thereto, but only, with respect to
clauses (1) through (9) hereof, if (x) any third party (other than Merger Sub,
its affiliates, or any party to the Voting Agreement) shall have become the
beneficial owner of more than 20% of the outstanding shares of Celadon Common
Stock or (y)(I) any third party (other than Merger Sub or any of its affiliates)
shall have made, or proposed, communicated or disclosed in a manner that is or
otherwise becomes public a bona fide intention to make an Acquisition Proposal
and (II) on or prior to the expiration of the twelve months from the date of
termination of the Merger Agreement, the Company consummates with a third party
an Acquisition Proposal or enters into a definitive agreement with respect to
such Acquisition Proposal, irrespective of whether the third party is the third
party referred to in clause (I) above; or (ii) by either party if the Merger is
not approved by the Company's stockholders or if the Merger is not consummated
prior to November 30, 1998, but only if one of the circumstances set forth in
clause (x) or (y) above is then existing or shall have occurred.
In the event that the Merger Agreement is terminated (a) by Merger Sub
upon the occurrence of any of the events set forth in clauses (b)(i)(1) -
(b)(i)(9) in the immediately preceding paragraph or (b) by the Company or Merger
Sub due to the failure of the stockholders to approve the Merger Agreement, the
Company shall reimburse
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Merger Sub, in an amount not to exceed $1.5 million, for the out-of-pocket
expenses incurred by Merger Sub in connection with the Merger Agreement and the
transactions contemplated thereby.
AMENDMENT
The Merger Agreement may be amended by the parties thereto at any time
before or after approval of matters presented in connection with the Merger by
the stockholders of the Company, but after any such stockholder approval, no
amendment shall be made which by law requires the further approval of
stockholders without obtaining such further approval. The Merger Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties thereto.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information set forth below is
qualified in its entirety by reference to, and should be read in conjunction
with, the consolidated financial statements and notes thereto included in the
documents incorporated by reference herein. The consolidated financial
information set forth below for and as of each of the years in the five-year
period ended June 30, 1997 has been derived from audited consolidated financial
statements of the Company. The consolidated financial information for and as of
the nine-month periods ended March 31, 1998 and 1997 has been derived from the
unaudited consolidated financial statements of the Company. The unaudited
financial statements include all adjustments, consisting of normal recurring
accruals, which the Company considers necessary for the fair presentation of the
financial position and results of operations for these periods. The results for
the nine-month period ended March 31, 1998 are not necessarily indicative of the
results to be expected for the year ended June 30, 1998. See "Incorporation of
Certain Documents by Reference."
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended June 30, March 31,
1993 1994 1995 1996 1997 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue $ 76,558 $ 94,746 $116,360 $166,544 $191,035 $140,759 $164,690
Operating income 5,162 8,330 9,179 1,737 12,435 9,509 11,680
Interest expense, net.................... 4,250 4,342 3,171 3,672 4,944 3,662 4,122
Equity loss in unconsolidated affiliate.. 343 -- -- -- -- -- --
Gain on sale of investment
in unconsolidated affiliate........... -- (189) -- -- -- -- --
Other (income) expense................... 21 (6) 103 72 (37) (37) (86)
Income (loss) from continuing operations
before income taxes................... 548 4,183 5,905 (2,007) 7,528 5,884 7,644
Provision for income taxes (benefit)..... 252 1,711 3,690 (411) 3,024 2,354 2,944
Income (loss) continuing operations 296 2,472 2,215 (1,596) 4,504 3,530 4,700
Income (loss) discontinued operations (288) 731 (2,606) (15,203) -- -- --
Net income (loss) ....................... 8 3,203 (391) (16,799) 4,504 3,530 4,700
Preferred stock dividends and redemption
premium (1) .......................... 317 262 -- -- -- -- --
Net income (loss) attributable to $(309) $2,941 $(391) $(16,799) $ 4,504 $3,530 $4,700
common stockholders .................
Earnings (loss per common share):
Continuing Operations ...................... $ (.01) $ .46 $ .31 $ (.20) $ .59 $ .46 $ .61
Discontinued Operations .................... (.09) .15 (.36) (1.93) -- -- --
Net income (loss) (2) ...................... $ (.10) $ .61 $ (.05) $(2.13) $ .59 $ .46 $ .61
Dividends per common share.................. $ (.02) $ -- $ -- $ -- $ -- $ -- $ --
Weighted average number of common shares
and common share equivalents outstanding 3,263 4,853 7,192 7,879 7,660 7,656 7,734
Nine Months Ended
Year Ended June 30, March 31,
1993 1994 1995 1996 1997 1997 1998
( IN THOUSANDS)
BALANCE SHEET
Working Capital (deficit) ............... $ (305) $ 17,491 $ 23,801 $ 17,039 $ 12,727 $ 11,420 $ 10,241
Total assets........................... 80,227 99,265 151,624 141,921 139,194 144,730 174,178
Long-term debt ........................ 44,028 29,234 39,557 50,025 54,361 55,918 75,182
Redeemable Preferred Stock............... 2,000 -- -- -- -- -- --
</TABLE>
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<TABLE>
<CAPTION>
Nine Months Ended
Year Ended June 30, March 31,
1993 1994 1995 1996 1997 1997 1998
( IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Redeemable Common Stock................ -- -- 3,614 -- -- -- --
Stockholders' Equity................... 1,538 42,079 (3) 57,839 (4) 41,962 45,794 44,651 54,002
- ------------------
</TABLE>
(1) Represents (i) dividends and redemption premium on the Series I Preferred
Stock which was redeemed in fiscal 1994, (ii) dividends on the Series F
12% Convertible Preferred Stock which was converted into Celadon Common
Stock in fiscal 1993, and (iii) dividends on previously redeemed
issuances of preferred stock.
(2) Calculation of fully-diluted net income (loss) per common share for all
periods prior to 1997 are anti-dilutive. All share and per shares amounts
have been adjusted to reflect the one-for-3.3 reverse stock split in
January 1994.
(3) Includes the effect of the net proceeds ($29.9 million) from the
Company's initial public offering and the conversion of the senior
subordinated debt ($7.6 million) to Celadon Common Stock.
(4) Includes the effect of the net proceeds ($15.9 million) from the
issuance of Celadon Common Stock in a public offering.
52
<PAGE>
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(in thousands; except per share data)
The accompanying unaudited pro forma condensed consolidated balance sheet
as of March 31, 1998 has been prepared to give effect to (i) the Merger and
related transactions contemplated by the Merger Agreement and (ii) the
acquisition of Gerth Transport of Ontario, Canada ("Gerth"), in each case as if
they had occurred as of the balance sheet date. The unaudited pro forma
condensed consolidated income statement for the year ended June 30, 1997 and for
the nine months ended March 31, 1998 have been prepared to give effect to (i)
the Merger and related transactions contemplated by the Merger Agreement and
(ii) the completion of the acquisition of the net assets of General Electric
Transportation Services ("GETS") and the acquisition of Gerth, in each case as
if it had occurred on July 1, 1996 and July 1, 1997, respectively. The
acquisitions of GETS and of Gerth were completed on September 3, 1997 and May
22, 1998, respectively, and were accounted for under the purchase method of
accounting. The recapitalization of the Company will be accounted for as a
recapitalization.
All adjustments necessary to fairly present this pro forma condensed
consolidated financial information have been made based on available information
and assumptions which, in the opinion of management, are reasonable. All such
pro forma adjustments and the assumptions on which they are based are described
in the accompanying notes to the pro forma condensed consolidated financial
statements. The unaudited pro forma condensed consolidated financial information
is based upon and should be read in conjunction with, the historical
consolidated financial statements of the Company and the notes thereto included
elsewhere in this Proxy Statement. The pro forma condensed consolidated
financial statements do not purport to represent what the Company's results of
operations or financial condition would actually have been had the Merger and
related transactions contemplated by the Merger Agreement, the acquisitions of
GETS and Gerth, and the other adjustments described below in fact occurred as of
such dates or to project the Company's results of operations or financial
condition for any future period or as of any date. In addition, there can be no
assurance that the assumptions used in the preparation of the pro forma
condensed consolidated financial statements will prove to be correct.
53
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Condensed Consolidated Income Statement for the
Year Ended June 30, 1997
(1) (2) (3)
Recent Pro Forma Recapitalization
Historical Acquisitions Adjustments Adjustments Pro Forma
<S> <C> <C> <C>
Operating revenue $191,035 $55,921 $246,956
Operating expenses 178,600 52,894 $(4,538)(A) 226,956
---------- ------------- ------------- --------------- ----------
Operating income 12,435 3,027 4,538 19,999
Other (income) expense:
Interest expense (net) 4,944 641 2,650(B) $15,690 (A) 23,926
Other (37) (37)
---------- ------------- ------------- ---------------- ------------
Income before taxes 7,528 2,385 1,888 (15,690) (3,889)
Provision for income taxes
(benefit) 3,024 954 755 (C) (6,276)(B) (1,543)
---------- ------------- -------------- --------------- -------------
Net income $ 4,504 $ 1,431 $1,133 ($ 9,414) ($ 2,346)
========== ============ =============== =============== =============
Per share data - net income:
Diluted EPS $ 0.59 $ 0.19 $ 0.15 ($ 0.73)
Basic EPS $ 0.59 $ 0.19 $ 0.15 ($ 0.73)
Average shares outstanding:
Diluted 7,660 7,660 7,660 3,200
Basic 7,628 7,628 7,628 3,200
Other data:
EBITDA (4) $ 22,570 $ 3,883 $6,976 $ 33,428
Depreciation and amortization $ 10,135 $ 856 $2,438 $ 13,429
</TABLE>
54
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Condensed Consolidated Income Statement for the
Nine Months Ended March 31, 1998
(1) (2) (3)
Recent Pro Forma Recapitalization
Historical Acquisitions Adjustments Adjustments Pro Forma
<S> <C> <C> <C> <C>
Operating revenue $164,690 $ 28,907 $193,597
Operating expenses 153,010 27,491 $(2,590)(A) 177,911
------------ --------- ---------- -------------------- ------------
Operating income 11,680 1,416 2,590 15,686
Other (income) expense:
Interest expense (net) 4,122 531 1,168(B) $ 11,728(A) 17,549
Other (86) (86)
------------ ---------- ---------- -------------------- ------------
Income before taxes 7,644 885 1,422 (11,728) (1,777)
Provision for income taxes
(benefit) 2,944 336 540(C) (4,457)(B) (636)
------------ ---------- ---------- -------------------- ------------
Net income $ 4,700 $ 549 $ 882 $ (7,272) ($ 1,141)
============ ========== ========== ==================== ===========
Per share data - net income:
Diluted EPS $ 0.61 $ 0.07 $ 0.11 ($ 0.36)
Basic EPS $ 0.61 $ 0.07 $ 0.12 ($ 0.36)
Average shares outstanding:
Diluted 7,734 7,734 7,734 3,200
Basic 7,647 7,647 7,647 3,200
Other data:
EBITDA (4) $ 21,190 $ 2,151 $ 3,744 $ 27,085
Depreciation and amortization $ 9,510 $ 735 $ 1,154 $ 11,399
</TABLE>
55
<PAGE>
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
(1) For the year ended June 30, 1997, this column reflects the results of
operations for GETS and Gerth for the entire year. For the nine months
ended March 31, 1998, this column reflects the results of operations
for GETS from July 1,1997 to September 3, 1997 (the date of its
acquisition by the Company) and the results of operations of Gerth
from July 1, 1997 to May 22, 1998 (the date of its acquisition by the
Company). The acquisitions of GETS and Gerth were accounted for by the
purchase method of accounting.
(2) This column reflects certain adjustments arising out of the
acquisition of GETS and the acquisition of Gerth and certain other
adjustments as follows:
<TABLE>
<CAPTION>
Year
Ended Nine Months
<S> <C> <C>
(A) The following are adjustments to operating expense: 6/30/97 Ended 3/31/98
Reflects the elimination of third-party maintenance expense for 480
trailers acquired in the acquisition of GETS. The Company's own
maintenance facilities have absorbed the costs of maintaining these
trailers. The savings were computed by comparing the difference
between the maintenance mileage charge paid by GETS to the
Company's internal variable cost for trailer maintenance. ($235) ($39)
Reflects the reduction in liability and cargo insurance and claims
expense due to incorporating the Gerth operations under the
Company's then existing insurance policies. The Company's
incremental insurance and claims expense as applied to Gerth was
determined based on the Company's historical cost structure under its
then existing policies. The coverages under both policies were
substantially similar. (939) (802)
Reflects the depreciation expense on 11 tractors and 52 trailers
acquired from a former affiliate of Gerth as part of the acquisition
of Gerth. These tractors and trailers had previously been leased by
Gerth from such affiliate. 161 120
Reflects the depreciation expense resulting from the refinancing of
355 trailers in connection with the acquisition of GETS. The Company
assumed existing operating leases for these trailers. These leases
were refinanced following the acquisition of GETS, and are currently
treated as capitalized leases. 426 142
Reflects depreciation expense associated with the conversion of
1,354 trailers from operating leases to capital leases that occurred
in January 1998. At that time, the Company declared that it would
exercise its end of lease option to purchase these trailers. Upon
declaration of this intent to purchase, the accounting treatment was
appropriately changed from operating lease to capital lease. 1,428 714
Reflects the elimination of the rental expense resulting from the
refinancing of 355 trailers (discussed above). (959) (320)
Reflects the elimination of rental expense associated with the
conversion of 1,354 trailers from operating leases to capital leases
(discussed above). (3,812) (1,906)
56
<PAGE>
<PAGE>
Reflects the expense savings associated with the turn-in of 100
short-term rental trailers. Due to the size of the combined trailer
pool resulting from the acquisition of Gerth, these trailers represent
excess capacity and will be returned to the lessors and not replaced
by the Company. (336) (252)
Reflects the elimination of intercompany rental expense on 11 tractors
and 52 trailers acquired from a former affiliate of Gerth as part of
the acquisition of Gerth. These tractors and trailers had previously
been leased by Gerth from such affiliate. (252) (189)
Reflects the reduction of third-party sales commission expense paid
by Gerth for one-half of Gerth's northbound Mexico loads. Gerth
utilizes a third-party agent to solicit shipments from Mexico to the
United States and Canada. The Company has its own sales force in
Mexico, which will assist in soliciting northbound business on behalf
of Gerth. The savings were calculated by comparing the incremental
difference between Gerth's third-party agent rate and the Company's
internal cost. (246) (204)
Reflects the elimination of intercompany charges previously allocated
to GETS by a subsidiary of General Electric Company. These
functions have been absorbed by the Company without an
incremental increase in costs. (198) (32)
Reflects the incremental goodwill amortization resulting from the
purchase accounting treatment of the acquisitions of GETS and
Gerth. 423 177
-------- ------
Operating expenses subtotal ($4,538) ($2,590)
(B) The following are adjustments to Interest expense:
Reflects the interest expense relating to the debt incurred to
purchase GETS and Gerth. $865 $321
Reflects the interest expense related to the refinancing of 355
trailers discussed above. 277 92
Reflects the interest expense associated with the conversion of 1,354
trailers from operating leases to capital leases (discussed above). 1,508 754
---------- ---------
Interest expense subtotal $2,650 $1,168
(C) Reflects the income tax effect of the pro forma adjustments at an
assumed rate of 40% for 1997 and 38% for 1998. 755 540
</TABLE>
(3) This column reflects certain effects of the recapitalization of the
Company as follows:
(A) Reflects the interest expense and amortization of financing fees
related to the Financing, the CTSI Senior Subordinated Notes,
and the Company Senior Discount Notes, and expenses, net of a
decrease in interest expense from the assumed repayment of
existing long-term debt as follows:
57
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
For Year For Nine Months
Ended Ended
June 30, 1997 March 31, 1998
<S> <C> <C>
Pro forma interest expense on new debt (a).............. $18,741 $14,032
Pro forma amortization of financing fees (b)............ 1,308 981
Fee for unused portion of the Financing (c)............. 843 632
Decrease from repayment of existing long-term debt...... (5,202) (3,917)
New pro forma interest adjustment................. $15,690 $11,728
========== =============
</TABLE>
(a) Pro forma adjustment to record interest expense on new debt is as
follows:
<TABLE>
<CAPTION>
Pro forma Pro Forma Interest
Assumed Interest Expense Expense for Nine
Assumed Outstanding for Year Ended Months Ended
Assumed New Debt Interest Rate Balance June 30, 1997 March 31, 1998
<S> <C> <C> <C> <C>
Revolver............................... 8.0% $6,485 $ 519 $ 389
CTSI Senior Subordinated Notes......... 10.0% 150,000 15,000 11,250
Company Senior Discount Notes.......... 12.5% 25,000 3,223 2,393
-------------- --------------------
$ 18,741 $14,032
============== ====================
</TABLE>
If the interest rate for the Revolver was to increase (decrease) by
1/8 of 1.0% net income would decrease (increase) by less than $100 for
the year ended June 30, 1997 and less than $100 for the nine months
ended March 31, 1998.
(b) Pro forma adjustment to reflect amortization of an estimated $9,300 of
financing fees related to the Financing, CTSI Senior Subordinated
Notes and Company Senior Discount Notes.
(c) Represents the commitment fee equal to 0.5% per annum of the undrawn
portion of the available commitment under the Financing. (B) Reflects
the income tax effect of the pro forma adjustments at an assumed rate
of 40% for 1997 and 38% for 1998. The actual tax benefit may be
limited as the Company is in a net operating loss carryforward
position and the tax benefit of additional losses may require the
recognition of a valuation allowance to reduce such benefit under FAS
No. 109. In addition, there can be no assurance that interest
accretion on the Company Senior Discount Notes will be tax deductible.
(4) "EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization. Although EBITDA is not a measure of performance calculated in
accordance with GAAP, the Company believes that EBITDA is accepted as a
generally recognized measure of performance in the truckload industry.
Nevertheless, this measure should not be considered in isolation or as a
substitute for operating income, net income, net cash provided by operating
activities or any other measure for determining the Company's operating
performance or liquidity which is calculated in accordance with GAAP.
58
<PAGE>
<PAGE>
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of March 31, 1998
<TABLE>
<CAPTION>
(1) (2) (3)
Company Gerth Gerth Recapitalization
Historical Historical Pro Forma Adjustments Pro Forma
Adjustments
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,657 $1,657
Trade receivables, net 31,533 $6,108 37,641
Other current assets 15,585 15,585
Total current assets 48,775 6,108 54,883
Fixed assets, net 111,650 7,023 $864 119,537
Goodwill and Intangibles 9,022 2,750 11,772
Fees and expenses $9,300 (A) 9,300
Other assets 4,731 386 5,117
Total assets $174,178 $13,518 $3,614 $9,300 $200,610
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable and accrued expenses $19,635 $3,095 $900 $23,630
Current maturities of debt 18,872 1,340 $(12,192)(B) 8,021
Total current liabilities 38,507 4,435 900 (12,192) 31,651
Financing 6,485 (B) 6,485
Capital lease obligations, less current maturities 64,099 5,361 (37,375)(B) 32,085
Existing long-term debt, less current maturities 11,083 2,603 3,833 (17,518)(B)
CTSI Subordinated Notes 150,000 (B) 150,000
Company Discount Notes 25,000 (B) 25,000
Total debt, less current maturities 75,182 7,964 3,833 126,592 213,570
Other liabilities 9,475 9,475
Total liabilities 123,164 12,399 4,733 114,400 254,696
Minority Interest 12 12
Stockholders' equity (deficit) 51,002 1,119 (1,119) (105,100)(C) (54,098)
Total liabilities and stockholders' equity
(deficit) $174,178 $13,518 $3,614 $9,300 $200,610
</TABLE>
59
<PAGE>
<PAGE>
(1) This column reflects the historical balances of assets acquired and
liabilities assumed pursuant to the Gerth acquisition.
(2) This column reflects the application of purchase accounting to the net
assets acquired in connection with the acquisition of Gerth.
(3) This column reflects certain effects of the recapitalization of the Company
as follows:
(A) Represents financing fees incurred in connection with the Financing
and the issuance of the CTSI Senior Subordinated Notes and Company
Senior Discount Notes and advisory fees incurred in connection with
raising such financing.
(B) Represents the Revolver, CTSI Senior Subordinated Notes and the
Company Senior Discount Notes used to fund the recapitalization and
refinance existing indebtedness and certain capital leases.
(C) Components of pro forma adjustments to stockholders' equity (deficit)
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Equity investment by Odyssey............................................. $57,600
Less:
Payment of cash consideration in recapitalization (including fees and
expenses)............................................................... (159,191)(1)
Payment to holders of options, net...................................... (3,397)(2)
Payment to holders of warrants, net..................................... (111)(3)
Subtotal................................................................. (162,700)
Net pro forma adjustment................................................. $(105,100)
</TABLE>
- ---------------------------------
1 Represents payments to stockholders for 7,401,989 shares of Celadon
Common Stock (other than 320,000 shares to be retained by an officer
and director and an entity affiliated with a director of the Company
and an affiliate of a director) at the Cash Merger Price at the
Effective Time and $11,151 of fees and expenses.
2 Represents payments to holders of options to purchaseapproximately
444,675 shares of Celadon Common Stock at the Cash Merger Price, net
of the aggregate option exercise price.
3 Represents payments to Hanseatic to purchase 12,121 shares of Celadon
Common Stock at the Cash Merger Price, net of the aggregate warrant
exercise price.
60
<PAGE>
<PAGE>
MARKET PRICES AND DIVIDENDS
Celadon Common Stock is traded on the Nasdaq National Market under the
symbol "CLDN." On June 22, 1998, the last trading day prior to the public
announcement that Celadon and Merger Sub had executed the Merger Agreement, the
high and low sale prices per share of Celadon Common Stock as reported on the
Nasdaq National Market were $15.00 and $14.25, respectively.
The following table sets forth the high and low sale prices per share
of Celadon Common Stock on the Nasdaq National Market with respect to each
quarterly period since January 1, 1996.
<TABLE>
<CAPTION>
HIGH LOW
FISCAL 1997
<S> <C> <C> <C> <C>
First Quarter (July 1 - September 30)................... $ 9.50 $ 5.75
Second Quarter (October 1 - December 31)................ $11.25 $ 8.47
Third Quarter (January 1 - March 31)................... $12.75 $10.00
Fourth Quarter (April 1 - June 30)...................... $11.75 $10.25
FISCAL 1998
First Quarter (July 1 - September 30)................... $15.75 $11.13
Second Quarter (October 1 - December 31)................ $17.00 $12.88
Third Quarter (January 1 - March 31).................... $16.00 $13.00
Fourth Quarter (April 1 - June 22)...................... $15.38 $12.75
Fourth Quarter (June 23 - June 30)...................... $19.25 $14.00
FISCAL 1999
First Quarter (July 1 - ).......................... $_____ $_____
</TABLE>
Although the Company has paid cash dividends on the Celadon Common
Stock from time to time, it has not paid any dividends on the Celadon Common
Stock in 1997 and 1998 and has no present intention of paying cash dividends on
its common stock in the foreseeable future. In addition, the payment of
dividends by the Company is subject to certain restrictions under the Company's
existing credit agreements, which will be refinanced in connection with the
Merger. Under the Merger Agreement, the Company has agreed not to pay any
dividends on the Celadon Common Stock prior to the Effective Time. Pursuant to
the terms of the agreements contemplated by the Financing Letters, the Surviving
Corporation's ability to pay certain dividends will be restricted.
FINANCING OF THE MERGER
Financing of the Merger will require approximately $239.1 million to
pay the Cash Merger Price, to pay the value of the Options, to refinance certain
existing indebtedness and capital leases of Celadon and its subsidiaries (the
"Refinancing"), and to pay the fees and expenses in connection with the Merger
and such financing. These funds are expected to be provided through (i) the
issuance by CTSI of $150 million of the CTSI Senior Subordinated Notes; (ii) the
issuance by the Company of the Company Senior Discount Notes for gross proceeds
of $25 million; (iii) drawings of up to $7.5 million under the $25 million
Revolver, and (iv) equity financing provided by Odyssey in the amount of $57.6
million through the purchase of the common stock of Merger Sub.
CTSI Senior Subordinated Notes. CTSI intends to issue $150 million
principal amount of CTSI Senior Subordinated Notes on or prior to the
consummation of the Merger. It is anticipated that the CTSI Senior
61
<PAGE>
<PAGE>
Subordinated Notes will be issued in a private placement exempt from
registration under the Securities Act pursuant to Rule 144A.
Terms of CTSI Senior Subordinated Notes.
Principal and Maturity. The CTSI Senior Subordinated Notes will
be limited in aggregate principal amount to $150 million and are expected to
mature ten years from the date of issuance.
Ranking. The CTSI Senior Subordinated Notes are expected to be
general unsecured obligations of CTSI and subordinated in right of payment to
all existing and future senior indebtedness of CTSI. The CTSI Senior
Subordinated Notes are expected to be effectively subordinated to all
indebtedness and other liabilities (including trade payables) of CTSI's
subsidiaries. The CTSI Senior Subordinated Notes are expected to rank pari passu
with any future senior subordinated indebtedness of CTSI and senior to all other
subordinated indebtedness of CTSI.
Redemption. The CTSI Senior Subordinated Notes are expected to be
redeemable, at the option of CTSI, in whole at any time or in part from time to
time, at the dates and redemption prices set forth in the indenture with respect
thereto (the "Senior Subordinated Indenture"). In addition, at any time or from
time to time, as described in the Senior Subordinated Indenture, CTSI may, at
its option, redeem the CTSI Senior Subordinated Notes with the net cash proceeds
of one or more Equity Offerings (as defined in the Senior Subordinated
Indenture).
Change of Control. The Senior Subordinated Indenture is expected
to provide that upon the occurrence of a Change of Control (as defined in the
Senior Subordinated Indenture), each Holder (as defined in the Senior
Subordinated Indenture) will have the right to require that CTSI purchase all or
a portion of such Holder's CTSI Senior Subordinated Notes at a purchase price
equal to 101% of the principal amount thereof plus accrued interest to the date
of purchase.
Certain Covenants. The Senior Subordinated Indenture is expected
to contain certain covenants with respect to CTSI and its subsidiaries that,
among other things and subject to certain exceptions, restrict (a) the
incurrence of additional indebtedness; (b) the payment of dividends and other
restricted payments; (c) the creation of certain liens; (d) the use of proceeds
from sales of assets and subsidiary stock; and (e) transactions with affiliates.
The Senior Subordinated Indenture will also restrict the ability of CTSI to
consolidate or merge with or into, or to transfer all or substantially all of
its assets to, another person. In addition, under certain circumstances, and,
subject to the terms and conditions of the Revolver and the CAPEX line, CTSI
will be required to offer to purchase the CTSI Senior Subordinated Notes, in
whole or in part, with the proceeds of certain Asset Sales (as defined in the
Senior Subordinated Indenture) at a purchase price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest to the repurchase
date.
Events of Default. The Senior Subordinated Indenture is expected
to provide that the events of default will include customary events of default,
including, without limitation, payment defaults, covenants defaults, bankruptcy
and insolvency, judgments, and cross acceleration of and failure to pay at final
maturity certain other indebtedness, subject to, in certain circumstances,
notice and grace provisions.
Company Senior Discount Notes. The Company intends to issue, for
gross proceeds of $25 million, the Company Senior Discount Notes on or prior to
the consummation of the Merger. It is anticipated that the Company Senior
Discount Notes will be issued in a private placement exempt from registration
under the Securities Act pursuant to Rule 144A.
Terms of Company Senior Discount Notes.
Principal and Maturity. The Company Senior Discount Notes will be
issued at a substantial discount from their principal amount at maturity so as
to generate gross proceeds to the Company of $25 million and are expected to
mature twelve years from the date of issuance.
62
<PAGE>
<PAGE>
Ranking. The Company Senior Discount Notes are expected to be
general unsecured obligations of the Company and to rank pari passu in right of
payment to all existing and future senior indebtedness of the Company and senior
in right of payment to all subordinated obligations of the Company. Since the
Company is a holding company and conducts its business through subsidiaries, the
Company Senior Discount Notes will be effectively subordinated to all
indebtedness and other liabilities (including trade payables) of the Company's
subsidiaries.
Redemption. The Company Senior Discount Notes are expected to be
redeemable, at the option of the Company, in whole at any time or in part from
time to time, at the dates and redemption prices set forth in the indenture with
respect thereto (the "Senior Discount Indenture"). In addition, at any time or
from time to time, as described in the Senior Discount Indenture, the Company
may, at its option, redeem the Company Senior Discount Notes with the net cash
proceeds of one or more Equity Offerings (as defined in the Senior Discount
Indenture).
Change of Control. The Senior Discount Indenture is expected to
provide that upon the occurrence of a Change of Control (as defined in the
Senior Discount Indenture), each Holder (as defined in the Senior Discount
Indenture) will have the right to require that the Company purchase all or a
portion of such Holder's Company Senior Discount Notes at a purchase price equal
to 101% of the Accreted Value (as defined in the Senior Discount Indenture)
thereof.
Certain Covenants. The Senior Discount Indenture is expected to
contain certain covenants with respect to the Company and its subsidiaries that,
among other things and subject to certain exceptions, restrict (a) the
incurrence of additional indebtedness; (b) the payment of dividends and other
restricted payments; (c) the creation of certain liens; (d) the use of proceeds
from sales of assets and subsidiary stock; and (e) transactions with affiliates.
The Senior Discount Indenture will also restrict the ability of the Company to
consolidate or merge with or into, or to transfer all or substantially all of
its assets to, another person. In addition, under certain circumstances, and,
subject to the terms and conditions of the Revolver and the CAPEX line, the
Company will be required to offer to purchase the Company Senior Discount Notes,
in whole or in part, with the proceeds of certain Asset Sales (as defined in the
Senior Discount Indenture) at a purchase price equal to 100% of the Accreted
Value thereof, plus accrued and unpaid interest, if any, to the repurchase date.
Events of Default. The Senior Discount Indenture is expected to
provide that the events of default will include customary events of default,
including, without limitation, payment defaults, covenant defaults, bankruptcy
and insolvency, judgments, and cross acceleration of and failure to pay at final
maturity certain other indebtedness, subject to, in certain circumstances,
notice and grace provisions.
Bridge Loans
In the event that the offering of the CTSI Senior Subordinated Notes
and the Company Senior Discount Notes are not consummated at or prior to the
Effective Time, CTSI and the Company intend to incur the Bridge Loans in an
amount aggregating $125 million. The Bridge Loans will be governed by definitive
loan and related agreements to be entered into by each of CTSI and the Company,
as borrower, and BT, as Lender.
In connection with the execution of the BT Financing Letter, Merger
Sub engaged BT Alex. Brown Incorporated (the "Take-Out Bank") to privately place
debt securities of CTSI and the Surviving Corporation (the "Take-Out
Securities"), the proceeds of which will be used to finance the Merger and the
Refinancing or to prepay the Bridge Loans and pay related fees and expenses.
CTSI and the Company will prepare an offering memorandum with respect to the
CTSI Senior Subordinated Notes and the Company Senior Discount Notes. Upon a
request from the Take-Out Bank, CTSI and the Surviving Corporation will be
required to take all commercially reasonable actions necessary or desirable to
privately place fixed rate debt securities on terms specified by the Take-Out
Bank, subject to certain conditions.
63
<PAGE>
<PAGE>
CTSI Bridge Loan ($100 million).
Guarantees. The CTSI Bridge Loan will be guaranteed on a senior
subordinated basis by each of CTSI's subsidiaries, if any, that guarantee the
Revolver and the CAPEX Line.
Maturity. The commitment to provide the CTSI Bridge Loan shall
automatically expire on November 30, 1998 if the Bridge Loan has not yet been
funded, except if the failure to fund the CTSI Bridge Loan was caused by the
failure of BT to fulfill its obligations under the BT Financing Letter. All
outstanding amounts under the CTSI Bridge Loan are required to be repaid on the
earlier of (i) one year following the initial funding date (the "Initial Funding
Date") of any portion of the CTSI Bridge Loan and (ii) the closing date of any
permanent financing. If CTSI fails to raise permanent financing before the first
anniversary of the Initial Funding Date, the CTSI Bridge Loan, subject to
certain exceptions, will be automatically converted into an unsecured senior
subordinated term loan facility (the "CTSI Converted Term Loan") with a maturity
of six months after the scheduled maturity of the Revolver and the CAPEX Line.
Fees. CTSI will be required to pay customary fees in connection
with the CTSI Bridge Loan.
Use of Proceeds. The CTSI Bridge Loan is expected to be made
available to the Company to finance in part the Merger and certain related costs
and expenses, and for the Refinancing.
Interest. The CTSI Bridge Loan and the CTSI Converted Term Loan
will bear interest at an annual rate equal to the greater of three-month LIBOR
and the ten-year Treasury rate, reset monthly, plus 5.5% per annum (the "CTSI
Interest Rate"). Such spread over LIBOR or the Treasury rate, as the case may
be, will automatically increase by 0.5% at the end of each three-month period
after the Initial Funding Date that the CTSI Bridge Loan or CTSI Converted Term
Loan remains outstanding. The CTSI Interest Rate will not exceed 16.0% per
annum. At any time on or after the CTSI Conversion Date, the interest rate on
the CTSI Converted Term Loan will, at the election of BT, be converted to a
fixed rate equal to the floating rate then in effect (the "CTSI Fixed Rate").
Interest on the CTSI Bridge Loan and the CTSI Converted Term Loan will
be payable in cash on a quarterly basis; provided, however, that interest on the
CTSI Converted Term Loan bearing interest at the CTSI Fixed Rate will be payable
on a semi-annual basis. Interest will be paid in cash to the extent that the
combined sum of interest on the CTSI Bridge Loan and the CTSI Converted Term
Loan is less than or equal to 14% per annum. To the extent that such combined
sum is not paid in cash, it will be paid in debt securities having provisions
identical to the CTSI Bridge Loan or the CTSI Converted Term Loan, as the case
may be; provided that such combined sum of interest (cash or otherwise) will not
exceed 16% per annum.
Ranking. The CTSI Bridge Loan and the guarantee thereof will be a
senior subordinated obligation of CTSI and each guarantor, respectively, and
will rank (i) pari passu with all other senior subordinated indebtedness of CTSI
or such guarantor, as the case may be, (ii) senior to any subordinated
indebtedness of CTSI or such guarantor, as the case may be, and (iii) junior in
right of payment to all senior indebtedness of CTSI or such guarantor, as the
case may be.
Prepayments. CTSI will be required to prepay the CTSI Bridge Loan
plus accrued interest and any other amounts payable thereon with the net
proceeds from the sale of any debt securities or equity securities in a public
offering or private placement by CTSI or any of its subsidiaries to the extent
that such proceeds are not used to retire bank debt. CTSI will be required to
make an offer to purchase all notes outstanding under the CTSI Bridge Loan or
the CTSI Converted Term Loan upon a change of control.
CTSI may prepay the CTSI Bridge Loan or the CTSI Converted Term
Loan, in whole or in part, at any time at a redemption price equal to 100% of
the principal amount thereof plus accrued interest thereon; provided, however,
that if the CTSI Converted Term Loan bears interest at the CTSI Fixed Rate, it
will be subject to redemption restrictions and premiums customary for high-yield
debt securities.
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<PAGE>
<PAGE>
Debt Security Exchange. BT will have the right to require CTSI to
exchange the CTSI Converted Term Loan for an equal principal amount of long-term
notes (the "CTSI Exchange Notes") bearing interest at the CTSI Fixed Rate with
terms and conditions similar to those for high-yield debt securities. BT will
have customary and mutually acceptable registration rights with respect to the
CTSI Exchange Notes, including a registered exchange offer, or if not permitted
by law to effect an exchange offer, demand registration rights.
Representations and Warranties, Conditions, and Covenants. The BT
Financing Letter provides that the documentation for the CTSI Bridge Loan will
contain customary representations and warranties by CTSI. In addition, such
documentation is expected to contain customary conditions to funding and
affirmative and negative covenants for high-yield transactions (with customary
carve-outs and exceptions), including, without limitation, restrictions on the
ability of CTSI and its subsidiaries to (i) incur additional indebtedness, (ii)
pay certain dividends and make certain other restricted payments and
investments, (iii) create liens, (iv) enter into transactions with affiliates,
and (v) merge, consolidate or transfer substantially all of their respective
assets. It is expected that during the term of the CTSI Bridge Loan, the
covenants applicable to the CTSI Bridge Loan may be more restrictive than the
covenants applicable to the CTSI Converted Term Loan, and it is expected that
such covenants will include additional prohibitions relating to asset sales,
certain acquisitions, certain debt incurrences and certain other corporate
transactions.
Events of Default. The BT financing Letter provides that the
events of default under the loan documentation will include customary events of
default, including, without limitation, payment defaults, covenant defaults,
bankruptcy and insolvency, judgments, and cross acceleration of and failure to
pay at final maturity certain other indebtedness aggregating $5 million or more,
subject to, in certain cases, notice and grace provisions.
Company Bridge Loan ($25 million).
Guarantees. The Company Bridge Loan will not be guaranteed.
Maturity. The commitment to provide the Company Bridge Loan shall
automatically expire on November 30, 1998 if the Company Bridge Loan has not yet
been funded, except if the failure to fund the Company Bridge Loan was caused by
the failure of BT to fulfill its obligations under the BT Financing Letter. All
outstanding amounts under the Company Bridge Loans are required to be repaid on
the earlier of (i) one year following the initial funding date (the "Initial
Funding Date") of any portion of the Company Bridge Loans and (ii) the closing
date of any permanent financing. If Company fails to raise permanent financing
before the first anniversary of the Initial Funding Date, the Company Bridge
Loan, subject to certain exceptions, will be automatically converted into an
unsecured senior subordinated term loan facility (the "Company Converted Term
Loan") with a maturity of twelve months after the scheduled maturity of the
Revolver and the CAPEX Line.
Fees. The Company will be required to pay customary fees in
connection with the Company Bridge Loan.
Use of Proceeds. The Company Bridge Loan is expected to be made
available to the Company to finance in part the Merger and the other
transactions contemplated by the Merger Agreement (including the Refinancing)
and to pay certain related costs and expenses.
Interest. The Company Bridge Loan and the Company Converted Term
Loan will bear interest at an annual rate equal to the greater of three-month
LIBOR and the ten-year Treasury rate, reset monthly, plus 8.0% per annum (the
"Company Interest Rate"). Such spread over LIBOR or the Treasury rate, as the
case may be, will automatically increase by 0.5% at the end of each three-month
period after the Initial Funding Date that the Company Bridge Loan or Company
Converted Term Loan remains outstanding. The Company Interest Rate will not
exceed 18.5% per annum. At any time on or after the Company Conversion Date, the
interest rate on the Company Converted Term Loan will, at the election of BT, be
converted to a fixed rate equal to the floating rate then in effect (the
"Company Fixed Rate").
65
<PAGE>
<PAGE>
Interest on the Company Bridge Loan and the Company Converted
Term Loan will he payable in cash on a quarterly basis; provided, however, that
interest on the Company Converted Term Loan bearing interest at the Company
Fixed Rate will be payable on a semi-annual basis. Interest will be paid in cash
to the extent that the combined sum of interest on the Company Bridge Loan and
the Company Converted Term Loan is less than or equal to 16.5% per annum. To the
extent that such combined sum is not paid in cash, it will be paid in debt
securities having provisions identical to the Company Bridge Loan or the Company
Converted Term Loan, as the case may be; provided that such combined sum of
interest (cash or otherwise) will not exceed 18.5% per annum. The Company shall
have the right to pay interest through the issuance of additional indebtedness
in lieu of cash at any time prior to the fifth anniversary of the Initial
Funding Date or, if later, so long as the CTSI Converted Term Loan remains
outstanding.
Ranking. The Company Bridge Loan will be a senior obligation of
the Company, and will rank (i) pari passu with all other senior indebtedness of
Company and (ii) senior to any subordinated indebtedness of the Company.
Prepayments. The Company will be required to prepay the Company
Bridge Loan plus accrued interest and any other amounts payable thereunder with
the net proceeds from the sale any debt securities or equity securities in a
public offering or private placement by Company or any of its subsidiaries to
the extent that such proceeds are not used to retire bank debt. The Company will
be required to make an offer to purchase all notes outstanding under the Company
Bridge Loan or the Company Converted Term Loan upon a change of control.
The Company may prepay the Company Bridge Loan or the Company
Converted Term Loan, in whole or in part, at any time at a redemption price
equal to 100% of the principal amount thereof plus accrued interest thereon;
provided, however, that if the Company Converted Term Loan bears interest at the
Company Fixed Rate, it will be subject to redemption restrictions and premiums
customary for high-yield debt securities.
Debt Security Exchange. BT will have the right to require the
Company to exchange the Company Converted Term Loan for an equal principal
amount of long-term notes (the "Company Exchange Notes") bearing interest at the
Company Fixed Rate with terms and conditions similar to those for high-yield
debt securities. BT will have customary and mutually acceptable registration
rights with respect to the Company Exchange Notes, including a registered
exchange offer, or if not permitted by law to effect an exchange offer, demand
registration rights.
Representations and Warranties, Conditions, and Covenants. The BT
Financing Letter provides that the documentation for the Company Bridge Loan
will contain customary representations and warranties by the Company. In
addition, such documentation is expected to contain customary conditions to
funding and affirmative and negative covenants for high-yield transactions (with
customary carve-outs and exceptions), including, without limitation,
restrictions on the ability of the Company and its subsidiaries to (i) incur
additional indebtedness, (ii) pay certain dividends and make certain other
restricted payments and investments, (iii) create liens, (iv) enter into
transactions with affiliates, and (v) merge, consolidate or transfer
substantially all of their respective assets. It is expected that during the
term of the Company Bridge Loan, the covenants applicable to the Company Bridge
Loan may be more restrictive than the covenants applicable to the Company
Converted Term Loan, and it is expected that such covenants will include
additional prohibitions relating to asset sales, certain acquisitions, certain
debt incurrences, and certain other corporate transactions.
Events of Default. The BT Financing Letter provides that the
events of default under the loan documentation will include customary events of
default, including, without limitation, payment defaults, covenant defaults,
bankruptcy and insolvency, judgments, and cross acceleration of and failure to
pay at final maturity certain other indebtedness aggregating $5 million or more,
subject to, in certain cases, notice and grace provisions.
66
<PAGE>
<PAGE>
Revolving Credit Facility ($25 million) and CAPEX Line ($150 million).
Merger Sub has obtained the GE Financing Letter pursuant to which GE
has agreed on the terms and conditions provided therein to the $25 million
Revolver and the $150 million CAPEX Line (the CAPEX Line together with the
Revolver, the "Financing"). The Revolver is to be used for working capital
purposes and other corporate purposes of CTSI (including to partially finance
the Refinancing in an amount not to exceed $7.5 million). Use of the CAPEX Line
is limited to certain permitted capital expenditures and permitted acquisitions.
Pursuant to the GE Financing Letter, GE reserves the right to
syndicate all or a portion of the Financing to one or more financial
institutions. The Company, CTSI, Odyssey and Merger Sub have each agreed to
assist GE in the syndication of the transaction by providing, among other
things, such information and cooperation of officers, directors, and employees
as is requested by GE in connection with such syndication.
Use of Proceeds; Maturity. Up to $7.5 million of the Revolver will be
made available to CTSI to finance, in part, the Refinancing on the date of
consummation of the Merger (the "Initial Borrowing Date"). The remainder of the
Revolver will be made available for loans ("Revolver Loans") after the Initial
Borrowing Date to be used for working capital requirements and general corporate
purposes of CTSI. Loans under the CAPEX Line ("CAPEX Loans", and together with
the Revolver Loans, the "Loans" and each a "Loan") will be used for certain
permitted capital expenditures and permitted acquisitions. No CAPEX Loans will
be made on the Initial Borrowing Date. Both the Revolver Loans and the CAPEX
Loans will mature on the fifth anniversary of the Initial Borrowing Date. If the
Revolver is terminated for any reason prior to maturity, the CAPEX Line will
immediately be due and payable in full. Borrowings under the Refinancing are
subject to borrowing base tests.
Prepayments. The GE Financing Letter contemplates that CTSI will be
required to make prepayments against principal in the following amounts: (a) all
net proceeds of any sale or other disposition of any of the assets of the
Surviving Corporation or any of its subsidiaries (other than the sale of
inventory in the ordinary course), (b) subject to exceptions for repairs and
replacements, all net insurance proceeds or other awards payable in connection
with the loss, destruction, or condemnation of any assets of the Surviving
Corporation or its subsidiaries, (c) 100% of the net proceeds from the issuance
or sale of debt which is used to refinance debt incurred under the CAPEX Line to
purchase tractors, trailers, and other equipment and (d) 50% of the net cash
proceeds from the sale or issuance of public equity which is not determined by
GE to be for permitted capital expenditures and permitted acquisitions.
Mandatory prepayments made pursuant to the preceding paragraph shall
be applied as follows: (a) net proceeds from the disposition of the Surviving
Corporation's or any of its subsidiaries tractors or trailers, any net insurance
proceeds related to the loss, destruction or condemnation of such assets, or any
net proceeds from the sale or issuance of public equity or debt securities shall
first be applied against outstanding CAPEX Loans until such Loans are repaid in
full, second against outstanding swing line advances until such advances are
repaid in full, and third against outstanding Revolving Loans; and (b) all other
such payments shall be applied first against outstanding swing line advances
until such advances are repaid in full, second against outstanding Revolving
Loans until such Loans are repaid in full, and third against outstanding CAPEX
Loans. In general, such payments will not require a permanent reduction in
availability; provided, that such net proceeds attributable to the sale or
issuance of debt or public equity and requiring prepayments above shall in an
amount equal to any such proceeds permanently reduce commitments under the CAPEX
Line. In addition to the foregoing and without requiring a mandatory prepayment
of outstanding Loans, the net proceeds from capital leases used to finance the
purchase of tractors, trailers, and other equipment which was not previously
financed with proceeds of the CAPEX Line will permanently reduce commitments
under the CAPEX Line in an amount equal to the lesser of (a) 100% of such
proceeds and (b) the excess of (i) the maximum CAPEX Line over (ii) outstanding
CAPEX Loans at the time of such issuance.
In addition, CTSI make voluntary prepayments of all, or any portion
of, the Loans and may voluntarily reduce the commitment under the Revolver and
/or CAPEX Line in minimum amounts to be agreed upon at any time, upon a minimum
of three days' (in the case of Loans bearing interest based on the LIBOR Rate
and otherwise one day's) prior written notice. In connection with any voluntary
prepayment or any mandatory
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<PAGE>
<PAGE>
prepayment pursuant to clause (d) of the first paragraph of this section, CTSI
will be obligated to pay a prepayment premium and LIBOR breakage costs, if any.
Interest. At CTSI's option, all Loans will bear interest at either (a)
a floating rate equal to the higher of (i) the prime rate as reported in the
Wall Street Journal or (ii) the overnight Federal funds rate plus 50 basis
points, in each case plus the applicable margin or (b) absent a default, a fixed
rate for periods of one, two, three or six months equal to the reserve adjusted
London Interbank Offered Rate ("LIBOR Rate"), plus the applicable margin.
Commencing upon the delivery to GE of the Surviving Corporation's quarterly
consolidated financial statements for the first fiscal quarter following the
first anniversary of the consummation of the Merger, the applicable margins
provided by GE are subject to adjustment (up or down), prospectively, based upon
the Surviving Corporation's consolidated financial performance for the trailing
four quarters most recently ended.
Fees. The GE Financing Letter contemplates that CTSI will be required
to pay the following fees: (a) a letter of credit fee equal to the applicable
letter of credit margin per annum (calculated on the basis of a 360 day year and
actual days elapsed) on the face amount of outstanding letters of credit under
the Revolver, plus any costs, expenses, and charges incurred by GE in arranging
for the issuance or guaranty of any letter of credit; (b) an unused Revolver
facility fee margin (calculated on the basis of a 360 day year and actual days
elapsed) on the average unused daily balance of the Revolver; (c) an unused
CAPEX facility fee margin (calculated on the basis of a 360 day year and actual
days elapsed) on the average unused daily balance of the CAPEX Line; and (d)
prepayment premiums with respect to each voluntary prepayment and each mandatory
prepayment required due to the sale or issuance by CTSI of public equity not
reasonably determined by the agent to be for permitted capital expenditures and
permitted acquisitions.
Representations and Warranties; Conditions; Covenants. The GE
Financing Letter provides that the loan documentation will include customary
representations and warranties and customary covenants restricting, among other
things, the ability of the Company to (a) declare dividends or make
distributions to equity holders; (b) make payments on the CTSI Subordinated
Notes, the Company Senior Notes, and other subordinated debt; (c) pay management
fees to affiliates; (d) redeem common or preferred stock; (e) incur additional
indebtedness; (f) engage in mergers, acquisitions, or asset sales; (g) effect a
change in control of the Surviving Corporation or CTSI; and (h) make capital
expenditures. In addition, the GE Financing Letter provides that CTSI, the
Company and the Surviving Corporation will be required to comply with certain
financial covenants and customary affirmative covenants.
Events of Default. The loan documentation is expected to provide for
customary events of default, including, without limitation, payment defaults,
covenant defaults, breaches of representations and warranties, bankruptcy and
insolvency, judgments, change of control and cross default with certain other
indebtedness and significant other contracts, subject to, in certain
circumstances, grace provisions.
Security Interest. GE, as Agent, will receive a fully perfected first
priority security interest in all of the existing and after acquired real and
personal, tangible and intangible assets of all the Surviving Corporation's
domestic subsidiaries including, without limitation, all cash, cash equivalents,
bank accounts, accounts, other receivables, chattel paper, contract rights,
inventory, instruments, documents, securities, equipment, fixtures, real
property interests, franchise rights, proprietary rights, general intangibles,
investment property, and all substitutions, accessions, and proceeds of the
foregoing (the "Collateral"). All Collateral will be free of liens and
encumbrances, except for existing capital leases and other permitted liens and
encumbrances. The Surviving Corporation will guarantee the obligations of CTSI
under the Financing documents and will pledge the capital stock of CTSI and its
other subsidiaries (but only 65% of such capital stock with respect to foreign
subsidiaries) to GE as Agent. All obligations of CTSI hereunder will be
cross-defaulted to each other and to all other material indebtedness of the
Surviving Corporation or any of its subsidiaries. All such obligations will be
cross- collateralized with each other and cross-collateralized and guaranteed by
all domestic subsidiaries of the Surviving Corporation (other than CTSI).
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<PAGE>
Equity Investment.
Odyssey's investment in the Surviving Corporation after the Effective
Time will consist of a cash contribution to Merger Sub in a aggregate amount of
approximately $57.6 million, which Merger Sub intends to contribute to Celadon
at the Effective Time.
The total investment in Celadon after the Effective Time will be
approximately $64.0 million, consisting of (a) approximately $57.6 million of
Celadon Common Stock, in the form of approximately $57.6 million contributed by
Odyssey through the Merger Sub; and (b) the approximately $6.4 million value of
the Rollover Shares.
SOURCES AND USES OF FUNDS
The estimated cash sources and uses of the financing for the
consummation of the Merger and the refinancing of certain indebtedness and
capital leases of the Company are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
SOURCES OF FUNDS:
<S> <C>
Revolver $ 6.5
CTSI Senior Subordinated Notes $ 150.0
Company Senior Discount Notes $ 25.0
Equity financing from Odyssey $ 57.6
Total................................................ $ 239.1
USES OF FUNDS:
Cash Merger Price (1) ....................................... $ 148.0
Payment to holders of Options and Hanseatic Warrants(2)....... $ 3.5
Repayment of certain indebtedness and capital leases.......... $ 67.1
Estimated fees and expenses and signing bonuses............... $ 20.5
Total................................................ $ 239.1
</TABLE>
It is a condition to the obligations of Merger Sub to affect the
Merger that sufficient funds have been received to finance the Merger and to
consummate the transactions contemplated by the Merger Agreement.
- ------------------
(1) Does not include the approximately $6.4 million value of the Rollover
Shares.
(2) Assumes all outstanding Options and the Hanseatic Warrants are canceled.
EXPENSES OF THE MERGER
The Merger Agreement provides that the Company and Merger Sub will
bear their respective expenses incurred in connection with the Merger Agreement
and the transactions contemplated thereby, whether or not the Merger is
consummated, except in certain circumstances specified in the Merger Agreement
relating to the termination thereof. See "Certain Provisions of the Merger
Agreement -- Termination; Effects of Termination." The estimated fees and
expenses incurred and to be incurred by the Company and Merger Sub in connection
with the Merger and the related transactions (assuming the consummation thereof)
are as follows:
69
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Financing and commitment fees (1).................. $ 11,888,000
Financial advisory fees............................ $ 5,700,000
Legal fees......................................... $ 1,000,000
Accounting fees.................................... $ 500,000
SEC filing fees.................................... $ 30,310
Printing and mailing............................... $ 85,000
Miscellaneous...................................... $ 147,690
Total..................................... $ 19,351,000
</TABLE>
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(1) Assuming the CTSI Senior Subordinated Notes and the Company Senior Discount
Notes are issued and the Company Bridge Loan and the CTSI Bridge Loan are
not incurred. Includes prepayment penalties incurred in connection with the
repayment of certain indebtedness and capital leases.
MERGER SUB AND ODYSSEY
GENERAL
Merger Sub was recently incorporated under the laws of the State of
Delaware for the purpose of consummating the Merger. Merger Sub has not
conducted any business other than the transactions described herein. Merger Sub
will not have any assets or liabilities other than those arising under the
Merger Agreement or in connection with the Merger, or engage in any activities
other than those incident to its formation and capitalization and the Merger.
Merger Sub is controlled by Odyssey and may issue equity to certain
institutional investors prior to the Effective Time. Odyssey is principally
engaged in the business of investing in companies. Odyssey is a Delaware limited
partnership, the general partner of which is Odyssey Capital Partners, LLC, a
Delaware limited liability company (the "General Partner") and the manager of
which is Odyssey Investment Partners, LLC, a Delaware limited liability company
( the "Manager"). The principal business office of each of Merger Sub and
Odyssey is c/o Odyssey Investment Partners, LLC, 280 Park Avenue, 38th Floor,
New York, New York 10017.
The managing members of the General Partner and the Manager are
Stephen Berger ("Senior Managing Member"), Brian Kwait, Muzzafar Mirza, Paul D.
Barnett, William Hopkins, and Brian F. Wruble. The officers of Merger Sub are as
of the date hereof: Mr. Kwait, President and Secretary; and Mr. Douglas
Hitchner, Vice President and Treasurer. Mr. Kwait and Mr. Hitchner are the
present directors of Merger Sub. Prior to the Effective Time, Mr. Berger is
expected to become a director of Merger Sub. The business address of Messrs.
Berger, Kwait, Mirza, Barnett, Hopkins, Wruble and Hitchner is c/o Odyssey
Investment Partners, LLC, 280 Park Avenue, 38th Floor, New York, New York 10017.
Each of Messrs. Berger, Kwait, Mirza, Barnett, Hopkins, Wruble and Hitchner is a
citizen of the United States.
For additional information regarding the directors and officers of
Merger Sub, see "Directors and Executive Officers of the Surviving Corporation."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Celadon Common Stock as of June 23, 1998 by (a) each
director of the Company, (b) each executive officer of the Company, (c) all of
the directors and executive officers as a group, and (d) each other person known
by the Company to be a beneficial owner of more than 5% of the outstanding
Celadon Common Stock. Unless otherwise indicated, each of the stockholders has
sole voting and investment power with respect to the shares beneficially owned.
70
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<PAGE>
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS
CELADON COMMON STOCK
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP(4) PERCENT OF SHARES
NAME (as of June 23, 1998) OUTSTANDING
<S> <C> <C> <C> <C> <C> <C>
Stephen Russell
President, Chief Executive Officer and Chairman 994,804(5)(6) 12.9
Ronald S. Roman
Senior Executive Vice President and Chief Operating Officer 24,333 *
Robert Goldberg
Executive Vice President and Chief Financial Officer 0 *
Michael Archual
Executive Vice President - Mexico 16,701 *
Nancy L. Morris
Executive Vice President - Operations 4,001 *
Michael W. Dunlap
Vice President - Treasurer 3,333 *
Paul A. Will
Vice President - Secretary and Controller 8,334 *
Paul A. Biddleman
Director of the Company 1,023,556 13.3
Joel E. Smilow
Director of the Company 131,200 1.7
Kilin To
Director of the Company 52,585 *
Michael Miller
Director of the Company 28,500 *
All executive officers and directors as a group (11 persons).. 1,292,291(7) 26.9
FIVE-PERCENT OWNERS
Brinson Partners 459,100 5.9
Citicorp Venture Capital, Lt(8)d.(9) 438,358 5.6
Dimensional Fund Advisors(6) 502,900 6.5
</TABLE>
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(4) Based upon 7,721,989 shares of Celadon Common Stock outstanding at June 23,
1998.
(5) Excludes 995,056 shares of Celadon Common Stock reported as beneficially
owned by Hanseatic in filings with the Commission, all of which may be
deemed to be beneficially owned by Mr. Russell by virtue of a stockholders
agreement among Mr. Russell, Hanseatic and the Company, which agreement
will be terminated prior to the Effective Time. Mr. Russell disclaims
beneficial ownership of such shares. Mr. Russell's address id One Celadon
Drive, Indianapolis, Indiana 46235-4207.
(6) Includes shares of Celadon Common Stock which the directors and executive
officers had the right acquire through the exercise of options within 60
days of June 23, 1998, as follows Steven Russell - 70,000 Ronald S. Roman -
11,668 shares, Michael Archual - 12,501 shares, Nancy Morris - 1,334
shares, Michael Dunlap -1,667 shares, Paul Will - 8,334 shares, Paul A.
Biddleman - 28,500 shares, Michael Miller - 24,500 shares, Joel Smilow -
12,000 shares, Kilin To - 24,500 shares . (7) Does not include 995,056
shares of Celadon Stock reported as beneficially owned by Hanseatic in
filings with the Commission, all of which are deemed to be beneficially
owned by Mr. Biddleman. Mr. Biddleman is the president of Hanseatic and
holds shared investment and voting power with respect to the shares held by
Hanseatic. (8) The address of Citicorp Venture Capital, Ltd. is 300 Park
Avenue, New York, New York. (9) Dimensional Fund Advisors Inc.
("Dimensional"), a registered investment advisor, is deemed to have
beneficial ownership of ________ shares of Celadon Common Stock as of June
23, 1998, all of which shares are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company, or in
series of the DFA Investment Trust Company, a Delaware business trust, or
the DFA Group Trust and DFA Participation Group Trust, investment vehicles
for qualified employee benefit plans, all of which Dimensional Fund
Advisors Inc. serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares. The address of Dimensional Fund
Advisors Inc. is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
71
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Hanseatic Corporation(10) 995,056 12.9
Wolfgang Traber(7) 995,056 12.9
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING CORPORATION
It is expected that the Board of the Surviving Corporation following
the Merger will be comprised of Stephen Russell and the directors of Merger Sub
as of the Effective Time and that the current officers of the Company
immediately prior to the Effective Time will be the officers of the Surviving
Corporation after the Merger. The directors and executive officers of the
Surviving Corporation following the Merger are expected to include:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C>
Stephen Russell 58 President, Chief Executive Officer and Chairman
Ronald S. Roman 53 Senior Executive Vice President and Chief Operating
Officer
Robert Goldberg 45 Executive Vice President and Chief Financial Officer
Michael Archual 47 Executive Vice President - Mexico
Nancy L. Morris 39 Executive Vice President - Operations
Michael W. Dunlap 36 Vice President - Treasurer
Paul A. Will 32 Vice President - Secretary and Controller
Stephen Berger 59 Director
Brian Kwait 37 Director
Douglas Hitchner 37 Director
</TABLE>
Mr. Russell has been Chairman of the Board and Chief Executive Officer
of the Company since its inception in July 1986. He is also a director of
Petroleum Heat and Power Co., Inc., a director of the Interstate Truckload
Carriers Conference, a director of the American Trucking Association ("ATA"), a
director of the Truckload Carriers Association ("TCA"), chairman of the
International committees of both the ATA and TCA, and a member of the North
American Transportation Alliance advisory board. Mr. Russell has been a member
of the Board of Advisors of the Cornell University Johnson Graduate School of
Management since 1983.
Mr. Roman has been Senior Executive Vice President -- Chief Operating
Officer of the Company since June 1997. He was Executive Vice President - Fleet
Management and Customer Service of Celadon Trucking Services, Inc. from July
1996 to June 1997. From October 1985 to July 1996, Mr. Roman was employed by
North American Van Lines, Inc., an over-the-road household goods and high value
product full truckload transportation company, holding executive positions,
primarily Vice President - Fleet Services, from October 1985 to August 1995.
Mr. Goldberg has been Executive Vice President and Chief Financial
Officer of the Company since February 1998. From November 1993 to December 1997,
Mr. Goldberg was President of Tran-Star, Inc, a refrigerated trucking company.
From October 1992 to October 1993, Mr. Goldberg was Vice President-Chief
Financial Officer of Proline Carriers, Inc., a van trucking company. --------
(10) Of such shares, _________ shares of Celadon Common Stock are held by
Hanseatic Americas LDC, a Bahamian limited duration company in which the sole
managing member is Hansabel Partners LLC, a Delaware limited liability company
in which Hanseatic is the sole managing member. The remaining shares are held by
Hanseatic for discretionary customer accounts, and include 12,121 shares of
Celadon Common Stock issuable upon exercise of the Hanseatic Warrants. Mr.
Biddelman is the President of Hanseatic and holds shared voting and investment
power with respect to the shares held by Hanseatic. In addition, Mr. Wolfgang
Traber is the holder of a majority of the shares of capital stock of Hanseatic.
Excludes 994,804 shares of Celadon Common Stock owned by Mr. Russell that are
subject to a stockholder agreement among Mr. Russell, Hanseatic and the Company,
which agreement is to be terminated prior to the Effective Time . The address of
Hanseatic, Mr. Traber and Mr. Biddelman is 450 Park Avenue, New York, New York
10022.
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Mr. Archual has been Executive Vice President -- Mexico of the Company
since July 1995, and oversees the Company's Mexico operations. From October 1982
to June 1995, Mr. Archual was employed by Schneider National, Inc., a trucking
and logistics company, holding various positions, including Regional Vice
President- Sales, overseeing that company's Western region sales and marketing.
Ms. Morris has been Executive Vice President-Operations of the Company
since July 1996. From 1984 to July 1996 Ms. Morris held various management
positions with North American Van Lines, Inc., an over-the-road household goods
and high value product full truckload transportation company, including
Director-Employee Relations and Support Services and Director-Customized
Logistics.
Mr. Dunlap has been Vice President - Treasurer of the Company since
July 1996. He served as Vice President of Finance for National Freight, Inc., a
regional truckload transportation company, from June 1992 to October 1993, and
Corporate Controller for Burlington Motor Carriers, Inc. from October 1990 to
June 1992.
Mr. Will has been Vice President-Secretary and Controller of the
Company since September 1996. He was Vice President-Controller for Celadon
Trucking Services, Inc. from January 1996 to September 1996 and Controller from
September 1993 to January 1996. He served as Controller for American Hi-Lift, a
company engaged in the business of renting aerial work platform equipment, from
February 1992 to September 1993. Mr. Will is a certified public accountant.
Mr. Berger will be a Director of the Surviving Corporation. He is
currently chairman of Odyssey Investment Partners, LLC. Prior to joining Odyssey
Investment Partners, LLC, Mr. Berger was a general partner of Odyssey Partners,
L.P. From 1990 to 1993, Mr. Berger served as Chairman and CEO of FGIC, a
wholly-owned subsidiary of GE Capital Corp. and subsequently become Executive
Vice President of GE Capital Corp. From 1985 to 1990, he was Executive Director
of the Port Authority of New York and New Jersey. Mr. Berger presently serves as
a member of the Board of Trustees of Brandeis University.
Mr. Kwait will be a Director of the Surviving Corporation. He is
currently a managing principal at Odyssey Investment Partners, LLC. From 1989 to
1997, he served as a principal in the private equity investment group at Odyssey
Partners, L.P.
Mr. Hitchner will be a Director of the Surviving Corporation. He is
currently a principal at Odyssey Investment Partners, LLC. Prior to joining the
firm, Mr. Hitchner was a Vice President in Goldman, Sachs & Co. From 1990 to
1996, he was a Senior Vice President in GE Capital Corp.'s leveraged lending
business.
DESCRIPTION OF CAPITAL STOCK
CELADON COMMON STOCK
The Company's Certificate of Incorporation authorizes the Company to
issue up to 17 million shares of Celadon Common Stock, par value $0.033 per
share. As of June 23, 1998 there were outstanding 7,721,989 shares of Celadon
Common Stock. Subject to the rights of the holders of any outstanding shares of
preferred stock and any restrictions that may be imposed by any lender to the
Company, holders of Celadon Common Stock are entitled to receive such dividends,
if any, as may be declared by the Board of Directors out of legally available
funds. For certain restrictions on the Company's ability to pay dividends, see
"Market Prices and Dividends." In the event of liquidation, dissolution or
winding up of the Company, holders of Celadon Common Stock are entitled to share
ratably in the assets, if any, remaining after payment of all of the Company's
debts and liabilities and the liquidation preference of any outstanding stock.
Holders of Celadon Common Stock are entitled to one vote per share on
any matter submitted to them. Because holders of Celadon Common Stock do not
have cumulative voting rights in the election of directors, the holders of a
majority of the shares of Celadon Common Stock represented at a meeting can
elect all of the directors. Holders of Celadon Common Stock do not have
preemptive rights to subscribe for or purchase any
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additional shares of capital stock issued by the Company. All outstanding shares
of the Celadon Common Stock are duly authorized, validly issued, fully paid and
nonassessable.
CELADON PREFERRED STOCK
The Company's Certificate of Incorporation authorize the issuance of
up to 179,985 shares of preferred stock. No shares of preferred stock are issued
and outstanding, but the Board of Directors is authorized to issue preferred
stock at any time without approval of holders of Celadon Common Stock. The Board
of Directors, without approval of the holders of Celadon Common Stock, can issue
preferred stock with voting rights which could adversely affect the voting power
of holders of the Celadon Common Stock. The issuance of preferred stock could
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present intention to issue any shares of preferred
stock.
Under the Company's Certificate of Incorporation, the Board of
Directors is authorized to divide the preferred stock into one or more series
with such designations, assigned values, preferences and relative,
participating, optional or other rights, qualifications, limitations or
restrictions thereof as stated and expressed in the resolution or resolutions
providing for the issue of such series as adopted by the Board of Directors.
AVAILABLE INFORMATION
Celadon has filed with the Commission a Rule 13e-3 Transaction
Statement (including any amendments thereto, the "Schedule 13E-3") under the
Exchange Act with respect to the Merger. This Proxy Statement does not contain
all of the information set forth in the Schedule 13E-3 and the exhibits thereto,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission.
Celadon is subject to the informational requirements of the Exchange
Act and in accordance therewith files periodic reports, proxy statements and
other information with the Commission. The Schedule 13E-3 proxy statements and
other information filed by Celadon can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at the
prescribed rates. The Commission maintains a Website that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. Such reports, proxy and
information statements and other information may be found on the Commission's
site address, http://www.sec.gov. Celadon Common Stock is quoted on the Nasdaq
National Market, and certain reports, proxy statements and other information can
also be inspected and copied at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Celadon are
incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the year ended June 30,
1997;
(2) The Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1998;
(3) The Company's Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 1997;
(4) The Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1997; and
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(5) The Company's Current Report on Form 8-K dated June 23, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14, or 15(d) of the Exchange Act subsequent to the date of this Proxy Statement
and prior to the date of the Special Meeting shall be deemed to be incorporated
by reference herein and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed documents that also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement. The
Company will provide, without charge, to each person to whom a copy of this
Proxy Statement has been delivered, on the written or oral request of such
person and by first class mail or other equally prompt means within one business
day of receipt of such request, a copy of any or all of the documents referred
to above that have been or may be incorporated by reference herein other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference herein). Requests for such copies should be made at least five
business days prior to the Special Meeting and should be directed to: Celadon
Group, Inc., One Celadon Drive, Indianapolis, Indiana.
INDEPENDENT AUDITORS
The consolidated financial statements included in the Company's
Schedule 13E-3 for the year ended June 30, 1997 and its Annual Report on Form
10-K for the year ended June 30, 1997, incorporated by reference in this Proxy
Statement, have been audited by Ernst & Young LLP, independent auditors, as
stated in their report, incorporated by reference herein. Representatives of
Ernst & Young LLP are expected to be present at the Special Meeting and will
have an opportunity to make a statement should they desire to do so. Such
representatives are also expected to be available to respond to questions.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, stockholders may
present proper proposals for inclusion in Celadon's proxy statement and for
consideration at the Annual Meeting of Stockholders by submitting such proposals
to Celadon in a timely manner. The 1999 Annual Meeting will be held only if the
Merger is not consummated.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the Company
knows of no other matters that will be presented for consideration at the
Special Meeting other than as described in this Proxy Statement. However, if any
other matter shall come before the Special Meeting or any adjournments or
postponements thereof and shall be voted upon, it is intended that the shares
represented by proxy will be voted with respect thereto in accordance with the
judgment of the persons voting them.
By Order of the Board of Directors,
Paul Will, Secretary
July ___, 1998
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS......................................1
SUMMARY ......................................................................1
THE PARTIES TO THE MERGER.................................................1
Celadon..............................................................1
Merger Sub and Odyssey...............................................1
THE SPECIAL MEETING.......................................................1
REASONS FOR THE MERGER....................................................2
TERMS OF THE MERGER.......................................................2
General ............................................................2
Cash Merger Price....................................................2
Payment of Cash Merger Price.........................................2
Rollover Shares......................................................2
Excluded Shares......................................................3
Issuance of Surviving Corporation Common Stock to Odyssey............3
Payment for Options and Hanseatic Warrants...........................3
EFFECTIVE TIME............................................................3
FINANCING ARRANGEMENTS....................................................3
Revolving Credit Facility............................................3
Senior Secured Capital Expenditure and Acquisition Line..............4
CTSI Senior Subordinated Notes.......................................4
Company Senior Discount Notes........................................4
Bridge Loans.........................................................4
Equity Investment....................................................4
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................4
RECOMMENDATION OF THE BOARD...............................................5
OPINION OF FINANCIAL ADVISOR..............................................5
CONDITIONS TO CONSUMMATION OF THE MERGER..................................5
CERTAIN RELATED AGREEMENTS................................................5
CERTAIN EFFECTS OF THE MERGER.............................................6
ACCOUNTING TREATMENT OF TRANSACTION.......................................6
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER.....................6
NO SOLICITATION; FIDUCIARY DUTIES.........................................6
REGULATORY APPROVALS......................................................7
TERMINATION; FEES AND EXPENSES............................................7
APPRAISAL RIGHTS..........................................................7
MARKET PRICES; DIVIDENDS..................................................8
THE SPECIAL MEETING...........................................................20
GENERAL ................................................................20
RECORD DATE, SOLICITATION, AND REVOCABILITY OF PROXIES...................20
QUORUM; REQUIRED VOTE....................................................21
SPECIAL FACTORS...............................................................21
BACKGROUND OF THE TRANSACTION............................................21
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS.........24
PURPOSES AND REASONS OF ODYSSEY AND MERGER SUB FOR THE MERGER............26
POSITION OF ODYSSEY AND MERGER SUB AS TO FAIRNESS OF THE MERGER..........26
OPINION OF WASSERSTEIN PERELLA, FINANCIAL ADVISOR TO CELADON.............26
Historical Financial Position.......................................27
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Page
Cash Merger Price Premium Over Historical Stock Price...............28
Analysis of Certain Other Publicly Traded Companies.................28
Analysis of Selected Precedent Transactions.........................29
Discounted Cash Flow Analysis.......................................29
Leveraged Equity Return Analysis....................................30
Relevant Market and Economic Factors................................30
CERTAIN PROJECTIONS......................................................31
INTERESTS OF CERTAIN PERSONS IN THE MERGER...............................33
Officers of the Surviving Corporation...............................33
Benefits Under Employment Agreements, Signing Bonuses,
and New Stock Option Plan.........................................33
Retention of Rollover Shares........................................34
Options and Warrants................................................34
Present Interests in Celadon Common Stock...........................35
Indemnification of Officers and Directors...........................36
Voting Agreement....................................................36
LITIGATION....................................................................37
CERTAIN EFFECTS OF THE MERGER.................................................37
ACCOUNTING TREATMENT OF TRANSACTION......................................38
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER....................38
The Merger..........................................................38
Backup Withholding..................................................38
APPRAISAL RIGHTS.........................................................39
REGULATORY APPROVALS.....................................................41
CERTAIN RELATED AGREEMENTS...............................................41
CERTAIN PROVISIONS OF THE MERGER AGREEMENT....................................42
GENERAL ................................................................42
TREATMENT OF SECURITIES IN THE MERGER....................................42
Cash Merger Price...................................................42
Payment of Cash Merger Price........................................42
Rollover Shares.....................................................42
Excluded Shares.....................................................43
Issuance of Surviving Corporation Common Stock to Odyssey...........43
Payment for Options and Hanseatic Warrants..........................43
Rollover Options....................................................43
BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION.............43
CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE
SURVIVING CORPORATION....................................................43
PAYMENT FOR SHARES.......................................................43
REPRESENTATIONS AND WARRANTIES...........................................44
Representations and Warranties of the Company...............44
Representations and Warranties of Merger Sub................45
COVENANTS................................................................45
Interim Operations..................................................45
Investigation by Merger Sub.........................................46
Additional Covenants................................................46
Consents and Efforts................................................46
CONDITIONS TO THE CONSUMMATION OF THE MERGER.............................47
Conditions to Each Party's Obligation to Effect the Merger..........47
Conditions to the Obligation of the Company to Effect
Effect the Merger ..................................................47
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Conditions to the Obligation of Merger Sub to
Effect the Merger...................................................47
NO SOLICITATION; FIDUCIARY OUT...........................................48
TERMINATION; EFFECTS OF TERMINATION......................................49
Termination by Mutual Written Consent...............................49
Termination by the Company..........................................49
Termination by Merger Sub...........................................49
Termination by Either Merger Sub or the Company.....................49
AMENDMENT................................................................51
MARKET PRICES AND DIVIDENDS...................................................54
FINANCING OF THE MERGER.......................................................54
CTSI Senior Subordinated Notes......................................54
Terms of CTSI Senior Subordinated Notes.............................55
Terms of Company Senior Discount Notes..............................55
Bridge Loans........................................................56
CTSI Bridge Loan ($100 million).....................................57
Company Bridge Loan ($25 million)...................................58
Revolving Credit Facility ($25 million)
and CAPEX Line ($150 million)......................................60
Use of Proceeds; Maturity...........................................60
Prepayments.........................................................60
Interest............................................................61
Fees................................................................61
Representations and Warranties; Conditions; Covenants...............61
Events of Default...................................................61
Security Interest. ................................................61
Equity Investment...................................................62
SOURCES AND USES OF FUNDS................................................62
EXPENSES OF THE MERGER...................................................62
MERGER SUB AND ODYSSEY........................................................63
GENERAL..................................................................63
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...........63
DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING CORPORATION.................65
DESCRIPTION OF CAPITAL STOCK..................................................66
CELADON COMMON STOCK.....................................................66
CELADON PREFERRED STOCK..................................................67
AVAILABLE INFORMATION.........................................................67
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................67
INDEPENDENT AUDITORS..........................................................68
STOCKHOLDER PROPOSALS.........................................................68
OTHER MATTERS.................................................................68
</TABLE>
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ANNEX A
EXECUTION COPY
================================================================================
AGREEMENT AND PLAN OF MERGER
by and between
CELADON GROUP, INC.
a Delaware corporation
and
LAREDO ACQUISITION CORP.,
a Delaware corporation
Dated: June 23, 1998
================================================================================
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated June 23,
1998, is by and between CELADON GROUP, INC., a Delaware corporation (the
"Company"), and LAREDO ACQUISITION CORP., a Delaware corporation ("Sub").
RECITALS
A. This Agreement provides for the merger (the "Merger") of Sub with
and into the Company, with the Company as the surviving corporation in such
merger, all in accordance with the provisions of this Agreement.
B. The respective Boards of Directors of Sub and the Company have
approved this Agreement, and deemed it advisable and in the best interests of
their respective companies and stockholders to consummate the Merger. The
Company intends promptly to submit to its Stockholders the approval of the
Merger and the approval and adoption of this Agreement.
C. Sub is unwilling to enter into this Agreement unless,
contemporaneously with the execution and delivery of this Agreement, the Company
and certain beneficial and record stockholders of the Company enter into an
agreement (the "Voting Agreement") providing for certain actions relating to the
shares of Company Common Stock owned by them; and the Board of Directors of the
Company has approved the entering into by the Company and such stockholders of
the Voting Agreement, and such stockholders have agreed to enter into, execute
and deliver the Voting Agreement.
D. The parties desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.
E. It is intended that the Merger be recorded as a recapitalization
for financial reporting purposes.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
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ARTICLE
DEFINITIONS
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0. 0. 1. Defined Terms.
As used herein, the terms below shall have the following meanings:
"Affiliate" shall mean, with respect to any person or entity (the
"referent person"), any person or entity which controls the referent person, any
person or entity which the referent person controls, or any person or entity
which is under common control with the referent person. For purposes of the
preceding sentence, the term "control" shall mean the power, direct or indirect,
to direct or cause the direction of the management and policies of a person or
entity through voting securities, by contract or otherwise.
"Assets" shall mean all of the Company's and its Subsidiaries' right,
title and interest in and to all properties, assets and rights of any kind,
whether tangible or intangible, real or personal, owned by the Company or its
Subsidiaries or in which the Company or any of its Subsidiaries has any interest
whatsoever.
"Benefit Arrangement" shall mean any employment, consulting, severance
or other similar contract, arrangement or policy (written or oral) and each
plan, arrangement, program, agreement or commitment (written or oral) providing
for insurance coverage (including, without limitation, any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life, health or
accident benefits (including, without limitation, any "voluntary employees'
beneficiary association" as defined in Section 501(c)(9) of the Code providing
for the same or other benefits) or for deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation rights, stock purchases or other
forms of incentive compensation or post-retirement insurance, compensation or
benefits which (a) is not a Welfare Plan, Pension Plan or Multiemployer Plan,
(b) is entered into, maintained, contributed to or required to be contributed
to, as the case may be, by the Company, its Subsidiaries or any ERISA Affiliate
or under which the Company, its Subsidiaries or any ERISA Affiliate may incur
any liability, and (c) covers any employee or former employee of the Company,
its Subsidiaries or any ERISA Affiliate (with respect to their relationship with
such any entity).
"Code" shall mean the Internal Revenue Code of 1986, as amended and
any successor statute.
"Company Common Stock" shall mean the Common Stock having a par value
of $0.033 per share of the Company.
"Contract" shall mean any agreement, contract, lease, note, loan,
evidence of indebtedness, purchase order, letter of credit, franchise agreement,
undertaking, covenant not to compete, employment agreement, license, instrument,
obligation, commitment, purchase and sales order, quotation and other executory
commitment to which the Company or its Subsidiaries is a party or which relates
to the Company's or its Subsidiaries' businesses or any of the Assets, whether
oral or written, express or implied, and which pursuant to its terms has not
expired, terminated or been fully performed by the parties thereto.
"DGCL" shall mean the General Corporation Law of the State of
Delaware.
"Dissenting Stockholders" shall mean those Stockholders who hold
Dissenting Shares.
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"Dissenting Shares" shall mean any shares held by Stockholders who are
entitled to an appraisal of their shares under the DGCL, and who have properly
exercised, perfected and not subsequently withdrawn or lost their appraisal
rights with respect to their Company Common Stock in accordance with the DGCL.
"Employee Plans" shall mean all Benefit Arrangements, Multiemployer
Plans, Pension Plans, and Welfare Plans.
"Encumbrance" shall mean any claim, lien, pledge, option, charge,
easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, encumbrance or other right of third
parties, whether voluntarily incurred or arising by operation of law, and
includes, without limitation, any agreement to give any of the foregoing in the
future, and any contingent or conditional sale agreement or other title
retention agreement or lease in the nature thereof.
"Environmental Claims" shall mean all accusations, allegations,
notices of violation, liens, claims, demands, suits, or causes of action for any
damage, including, without limitation, personal injury, property damage
(including, without limitation, any depreciation or diminution of property
values), lost use of property or consequential damages, arising directly or
indirectly out of Environmental Conditions or Environmental Laws. By way of
example only (and not by way of limitation), Environmental Claims include (i)
violations of or obligations under any contract related to Environmental Laws or
Environmental Conditions between the Company or its Subsidiaries and any other
person, (ii) actual or threatened damages to natural resources, (iii) claims for
nuisance or its statutory equivalent, (iv) claims for the recovery of response
costs, or administrative or judicial orders directing the performance of
investigations, responses or remedial actions under any Environmental Laws, (v)
requirements to implement "corrective action" pursuant to any order or permit
issued pursuant to the Resource Conservation and Recovery Act, as amended, or
similar provisions of applicable state law, (vi) claims related to Environmental
Laws or Environmental Conditions for restitution, contribution, or indemnity,
(vii) fines, penalties or liens of any kind against property related to
Environmental Laws or Environmental Conditions, (viii) claims related to
Environmental Laws or Environmental Conditions for injunctive relief or other
orders or notices of violation from federal, state or local agencies or courts,
and (ix) with regard to any present or former employees, claims relating to
exposure to or injury from Environmental Conditions.
"Environmental Conditions" shall mean the state of the environment,
including natural resources (e.g., flora and fauna), soil, surface water, ground
water, any present or potential drinking water supply, subsurface strata or
ambient air.
"Environmental Laws" shall mean all applicable foreign, federal,
state, district and local laws, all rules or regulations promulgated thereunder,
and all orders, consent orders, judgments, notices, permits or demand letters
issued, promulgated or entered pursuant thereto, relating to pollution or
protection of the environment (including, without limitation, ambient air,
surface water, ground water, land surface, or subsurface strata), including,
without limitation, (i) laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals, industrial
materials, wastes or other substances into the environment and (ii) laws
relating to the identification, generation, manufacture, processing,
distribution, use, treatment, storage, disposal, recovery, transport or other
handling of pollutants,
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contaminants, chemicals, industrial materials, wastes or other substances.
Environmental Laws shall include, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Toxic Substances Control Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Resource Conservation and Recovery
Act, as amended ("RCRA"), the Clean Water Act, as amended, the Safe Drinking
Water Act, as amended, the Clean Air Act, as amended, the Occupational Safety
and Health Act, as amended, and all analogous laws promulgated or issued by any
state or other governmental authority.
"Environmental Reports" shall mean any and all written analyses,
summaries or explanations, in the possession or control of the Company or its
Subsidiaries, of (a) any Environmental Conditions in, on or about the properties
of the Company or its Subsidiaries or (b) the Company's or its Subsidiaries'
compliance with Environmental Laws.
"Equity Securities" shall mean (i) shares of capital stock or other
equity securities, (ii) subscriptions, calls, warrants, options or commitments
of any kind or character relating to, or entitling any person or entity to
purchase or otherwise acquire, any capital stock or other equity securities and
(iii) securities convertible into or exercisable or exchangeable for shares of
capital stock or other equity securities.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall mean any entity which is (or at any relevant
time was) a member of a "controlled group of corporations" with, under "common
control" with, or a member of an "affiliated service group" with, or otherwise
required to be aggregated with, the Company or its Subsidiaries as set forth in
Section 414(b), (c), (m) or (o) of the Code.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Facilities" shall mean all plants, offices, manufacturing facilities,
stores, warehouses, administration buildings and all real property and related
facilities owned or leased by the Company or its Subsidiaries.
"Fixtures and Equipment" shall mean all of the furniture, fixtures,
furnishings, machinery, equipment, spare parts, appliances and vehicles owned by
the Company or its Subsidiaries, wherever located, including all warranty rights
with respect thereto.
"GAAP" shall mean, with respect to any person, generally accepted
accounting principles in the United States of America, as in effect from time to
time, consistently applied.
"Hazardous Substances" shall mean all pollutants, contaminants,
chemicals, wastes, and any other carcinogenic, ignitable, corrosive, reactive,
toxic or otherwise hazardous substances or materials (whether solids, liquids or
gases) subject to regulation, control or remediation under Environmental Laws.
By way of example only, the term Hazardous Substances includes petroleum, urea
formaldehyde, flammable,
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explosive and radioactive materials, PCBs, pesticides, herbicides, asbestos,
sludge, slag, acids, metals, solvents and waste waters.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder.
"Leases" shall mean all of the leases or subleases for personal or
real property to which the Company or its Subsidiaries is a party or by which
the Company or its Subsidiaries is bound.
"Material Adverse Effect" or "Material Adverse Change" or a similar
phrase shall mean, with respect to any person, any material adverse effect on or
change with respect to (i) the business, operations, assets (taken as a whole),
liabilities (taken as a whole), condition (financial or otherwise), results of
operations or prospects of such person and its Subsidiaries, taken as a whole,
(ii) the relations with customers, suppliers, distributor or employees of such
person and its Subsidiaries, taken as a whole, or (iii) the right or ability of
such person or its Subsidiaries to consummate any of the transactions
contemplated hereby.
"Multiemployer Plan" shall mean any "multiemployer plan," as defined
in Section 4001(a)(3) or 3(37) of ERISA, which (a) the Company, its Subsidiaries
or any ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or, after September 25, 1980, maintained, administered,
contributed to or was required to contribute to, or under which the Company, its
Subsidiaries or any ERISA Affiliate may incur any liability and (b) covers any
employee or former employee of the Company, its Subsidiaries or any ERISA
Affiliate (with respect to their relationship with any such entity).
"Options" shall mean the options to purchase in the aggregate 444,675
shares of Company Common Stock issued to certain executive employees and
non-employee directors of the Company pursuant to the Stock Option Plans.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pension Plan" shall mean any "employee pension benefit plan" as
defined in Section 3(2) of ERISA (other than a Multiemployer Plan) (a) which the
Company, its Subsidiaries or any ERISA Affiliate maintains, administers,
contributes to or is required to contribute to, or, within the five years prior
to the Closing Date, maintained, administered, contributed to or was required to
contribute to, or under which the Company, its Subsidiaries or any ERISA
Affiliate may incur any liability (including, without limitation, any contingent
liability) and (b) which covers any employee or former employee of the Company,
its Subsidiaries or any ERISA Affiliate (with respect to their relationship with
any such entity).
"Permits" shall mean all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, or notifications to, any
governmental authority, whether foreign, federal, state or local, or any other
person, necessary or desirable for the past, present or currently anticipated
conduct of, or relating to the operation of the business of, the Company or its
Subsidiaries.
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"Permitted Encumbrances" shall mean (a) liens for Taxes or
governmental charges or claims (i) not yet due and payable or (ii) being
contested in good faith, if a reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made therefor, (b) statutory liens of
landlords, liens of carriers, warehouse persons, mechanics and material persons
and other liens imposed by law incurred in the ordinary course of business for
sums (i) not yet due and payable or (ii) being contested in good faith, if a
reserve or other appropriate provision, if any, as shall be required by GAAP
shall have been made therefor, (c) liens incurred or deposits made in connection
with workers' compensation, unemployment insurance and other similar types of
social security programs or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return of money bonds and similar obligations, in each case in
the ordinary course of business, consistent with past practice, (d) purchase
money liens incurred in the ordinary course of business, consistent with past
practice, and (e) easements, rights-of-way, restrictions and other similar
charges or encumbrances, in each case, which do not interfere with the ordinary
conduct of business of the Company or its Subsidiaries and do not materially
detract from the value of the property to which such encumbrance relates.
"Personnel" shall mean all directors, officers and employees of the
Company or its Subsidiaries.
"Returns" shall mean any and all returns, reports, declarations and
information statements with respect to Taxes required to be filed by or on
behalf of the Company or its Subsidiaries with any governmental authority or Tax
authority or agency, whether domestic or foreign, including, without limitation,
consolidated, combined and unitary returns and all amendments thereto or
thereof.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stock Option Plans" shall mean the 1994 Celadon Stock Option Plan and
the 1996 Non- Employee Director Stock Option Plan.
"Stockholders" shall mean the record holders of Company Common Stock.
"Subsidiary" shall mean, with respect to any of the parties of this
Agreement, any corporation or other business entity, whether or not
incorporated, of which at least 50% of the securities or interests having, by
their terms, ordinary voting power to elect members of the board of directors,
or other persons performing similar functions with respect to such entity, are
held, directly or indirectly, by such party.
"Tax(es)" shall mean all taxes, estimated taxes, withholding taxes,
assessments, levies, imposts, fees and other charges, including, without
limitation, any interest, penalties, additions to tax or additional amounts that
may become payable in respect thereof, imposed by any foreign, federal, state or
local government or taxing authority, which taxes shall include, without
limitation, all income taxes, payroll and employee withholding taxes,
unemployment insurance, social security, sales and use taxes, value-added
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taxes, excise taxes, franchise taxes, gross receipts taxes, occupation taxes,
real and personal property taxes, stamp taxes, transfer taxes, workers'
compensation and other obligations of the same or of a similar nature.
"Treasury Securities" shall mean Company Common Stock, Options and
Warrants owned by Sub, the Company and/or any Subsidiary of Sub or the Company.
"Warrant Agreement" shall mean that certain Warrant Agreement, dated
October 8, 1992, between the Company and Deltec Asset Management Corp. as a
custodian for Hanseatic Corp.
"Warrants" shall mean the warrants held by Hanseatic Corp. pursuant to
which the holders are entitled to purchase for $10.82 per share an aggregate of
12,121 shares of Company Common Stock.
"Welfare Plan" shall mean any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA, (a) which the Company, its Subsidiaries or any
ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or under which the Company, its Subsidiaries or any ERISA
Affiliate may incur any liability and (b) which covers any employee or former
employee of the Company, its Subsidiaries or any ERISA Affiliate (with respect
to their relationship with any such entity).
0. 0. 2. Other Defined Terms.
In addition to the terms defined in the Recitals to this Agreement and
Section 1.1, the following terms shall have the meanings defined for such terms
in the Sections set forth below:
Term Section
---- -------
"Acquisition Proposal" .............................6.4(a)
"Actions" ..........................................4.12
"Closing" ..........................................2.3
"Closing Date" .....................................2.3
"Company Reports" ..................................4.10
"Company Restricted Stock" ........................3.3(b)
"Confidentiality Letter" ...........................6.2
"Disclosure Schedule" ..............................Article IV Preamble
"Effective Time" ...................................2.2
"Exchange Fund" ....................................3.5(f)
"Financing" ........................................5.6
"Financing Letters" ................................5.6
"Jaguar" ...........................................4.6
"Laws" .............................................4.14
"Leased Property" ..................................4.5(b)(ii)
"Merger" ...........................................Recitals
"Merger Consideration" .............................3.1(a)
"Paying Agent ......................................3.5(a)
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"Permitted Party" ..................................6.4(b)
"Proxy Statement" ..................................6.6a)
"Roll-Over Share" ..................................3.1(b)
"Roll-Over Share Consideration" ....................3.1(b)
"Schedule 13E-3" ...................................6.7
"Servicios" ........................................4.6
"Special Meeting" ..................................4.27
"Subject Litigation" ...............................6.8
"Surviving Corporation" ............................2.1
"Surviving Corporation Common Stock" ...............3.2
"Third Party" ......................................6.4
ARTICLE
I.
THE merger
1...................................................The Merger.
Upon the terms and subject to the satisfaction or waiver, if
permissible, of the conditions hereof, and in accordance with the DGCL, at the
Effective Time, Sub shall be merged with and into the Company. Upon the
effectiveness of the Merger, the separate corporate existence of Sub shall cease
and the Company, under the name Celadon Group, Inc., shall continue as the
surviving corporation (the "Surviving Corporation"). The Merger shall have the
effects specified under the DGCL.
2...................................................Effective Time.
On the Closing Date, the parties shall cause the Merger to be
consummated by causing a certificate of merger with respect to the Merger to be
executed and filed in accordance with the relevant provisions of the DGCL and
shall make all other filings or recordings required under the DGCL. The Merger
shall become effective at the time of filing of the certificate of merger or at
such later time as is specified therein (the "Effective Time").
3...................................................Closing.
Upon the terms and subject to the conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place (a) at the offices of
Latham & Watkins, 885 Third Avenue, New York, New York at 10:00 a.m., local
time, on the first business day immediately following the day on which the last
to be satisfied or waived of the conditions set forth in Article VII (other than
those conditions that by their
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nature are to be satisfied at the Closing, but subject to the satisfaction or
waiver of those conditions) shall be satisfied or waived in accordance herewith
or (b) at such other time, date or place as Sub and the Company may agree. The
date on which the Closing occurs is herein referred to as the "Closing Date."
4...................................................Certificate of
Incorporation and By-Laws.
I..........................................At the Effective Time,
and without any further action on the part of the Company or Sub, the
certificate of incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be amended so as to read in its entirety in the form
set forth as Exhibit A hereto, and, as so amended, until thereafter further
amended as provided therein and under the DGCL, it shall be the certificate of
incorporation of the Surviving Corporation following the Merger.
II.........................................At the Effective Time,
and without any further action on the part of the Company or Sub, the by-laws of
Sub as in effect immediately prior to the Effective Time shall be the by-laws of
the Surviving Corporation following the Merger until thereafter changed or
amended as provided therein or by applicable law.
1...................................................Directors.
The directors of Sub immediately prior to the Effective Time shall be
the initial directors of the Surviving Corporation and shall hold such positions
until their respective successors are duly elected and qualified, or their
earlier death, resignation or removal.
2...................................................Officers.
The officers of the Company immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation and shall hold office
until their respective successors are duly elected and qualified, or their
earlier death, resignation or removal.
ARTICLE
I.
Effect of merger on securities of sub and the company
1...................................................Conversion of Sub
Common Stock.
At the Effective Time, by virtue of the Merger and without any action
on the part of the holder thereof, the shares of common stock, par value $0.01
per share, of Sub issued and outstanding immediately prior to the Effective Time
shall automatically be converted into and thereafter represent 2,880,000 validly
issued, fully paid and non-assessable share(s) of common stock, par value $0.033
per
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share, of the Surviving Corporation (the "Surviving Corporation Common Stock").
2...................................................Conversion of
Company Common Stock.
I..........................................At the Effective Time,
by virtue of the Merger and without any action on the part of the holder
thereof, each share of Company Common Stock outstanding immediately prior to the
Effective Time (other than Roll-Over Shares, Treasury Securities and Dissenting
Shares, if any) shall automatically be converted into the right to receive, and
each certificate which immediately prior to the Effective Time represented a
share of Company Common Stock shall evidence solely the right to receive, $20.00
in cash (the "Merger Consideration") upon surrender of the certificate formerly
representing Company Common Stock as provided in Section 3.5.
II.........................................At the Effective Time,
by virtue of the Merger and without any action on the part of the holder
thereof, each share of Company Common Stock held by certain officers and key
employees of the Company as set forth on Schedule A hereto (each, a "Roll-Over
Share") shall be converted into the right to receive one share of Surviving
Corporation Common Stock (the "Roll-Over Share Consideration").
III........................................All Treasury
Securities shall, by virtue of the Merger and without any action on the part of
the holder thereof, automatically be canceled and cease to exist at and after
the Effective Time and no consideration shall be paid with respect thereto.
IV.........................................Immediately prior to
the Effective Time, at Sub's election, the Company shall effect a
recapitalization, to be effective as of the Effective Time, of the securities of
the Surviving Corporation, and the number of outstanding shares and options of
the Surviving Corporation shall be appropriately adjusted.
1...................................................Options.
I..........................................Except as otherwise
agreed to in writing between the Company and the holder of any Option, and as
consented to by Sub, immediately prior to the Effective Time, each outstanding
Option granted under the Stock Option Plans whether or not then exercisable,
shall be canceled by the Company, and at the Effective Time, or as soon as
practicable thereafter, the former holder thereof shall be entitled to receive
from the Company in consideration for such cancellation an amount in cash equal
to the product of (i) the number of shares of Company Common Stock previously
subject to such Option and (ii) the excess, if any, of the Merger Consideration
per share over the exercise price per share, if any, previously subject to such
Option, reduced by the amount of withholding or other taxes required by law to
be withheld.
II.........................................Except as provided
herein or as otherwise agreed by the parties, the Stock Option Plans and any
other plan, program or arrangement providing for the issuance or grant of any
other interest in respect of the capital stock of the Company or any Subsidiary
shall terminate as of the Effective Time, and the Company shall exercise its
best efforts to ensure
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that following the Effective Time, no current or former employee or director
shall have any Option to purchase shares of the Company Common Stock or any
other equity interest in the Company under any Stock Option Plan.
III........................................Prior to the Effective
Time, the Board of Directors (or, if appropriate, any committee administering
the Stock Option Plans) shall adopt such resolutions or take such actions as are
necessary, subject if necessary, to obtaining consents of the holders thereof,
to carry out the terms of this Section 3.3.
1...................................................Warrants.
I..........................................Immediately prior to
the Effective Time, each outstanding Warrant granted under the Warrant Agreement
whether or not then exercisable, shall be canceled by the Company, and at the
Effective Time or as soon as practicable thereafter, the former holder thereof
shall be entitled to receive from the Company in consideration for such
cancellation an amount in cash equal to (i) the product of (A) the Merger
Consideration, multiplied by (B) the aggregate number of shares of Company
Common Stock issuable upon exercise in full of all Warrants held by such holder
immediately prior to the Effective Time, minus (ii) the aggregate cash exercise
price payable upon exercise of all Warrants held by such holder.
II.........................................The Warrant Agreement
shall terminate as of the Effective Time. Prior to the Effective Time, the Board
of Directors shall adopt such resolutions or take such actions as are necessary,
subject if necessary, to obtaining consents of the holders thereof, to carry out
the terms of this Section 3.4.
1...................................................Exchange of
Certificates.
I..........................................As of or promptly
after the Effective Time, the Company shall deposit with a paying agent to be
selected by Sub (the "Paying Agent"), as necessary, for the benefit of the
holders of shares of Company Common Stock, for payment in accordance with this
Article III, the funds necessary to pay the Merger Consideration for each share.
II.........................................As soon as practicable
after the Effective Time, (i) each holder of an outstanding certificate or
certificates which pursuant to Section 3.2 represent the right to receive shares
of the Surviving Corporation, upon surrender to the Paying Agent of such
certificate or certificates and acceptance thereof by the Paying Agent, shall be
entitled to a certificate or certificates representing the Roll-Over Share
Consideration into which the number of Roll-Over Shares previously represented
by such certificate or certificates surrendered shall have been converted
pursuant to this Agreement and (ii) each other holder of an outstanding
certificate or certificates which immediately prior to the Effective Time
represented shares of the Company Common Stock (other than Roll-Over Shares),
upon surrender to the Paying Agent of such certificate or certificates and
acceptance thereof by the Paying Agent, shall be entitled to receive in exchange
therefor the Merger Consideration multiplied by the number of shares of Company
Common Stock formerly represented by such certificate. No interest will be paid
on or accrue on the Merger Consideration. The Paying Agent shall accept such
certificates upon compliance
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with such reasonable terms and conditions as the Paying Agent may impose to
effect an orderly exchange thereof in accordance with customary exchange
practices. After the Effective Time, there shall be no further transfer on the
records of the Company or its transfer agent of certificates formerly
representing shares of Company Common Stock which have been converted, in whole
or in part, pursuant to this Agreement, into the right to receive cash, and if
such certificates are presented to the Company for transfer, they shall be
canceled against delivery of such cash. Until surrendered as contemplated by
this Section 3.5(b), (i) each certificate formerly representing Roll-Over Shares
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender a new certificate or certificates representing
Surviving Corporation Common Stock, as contemplated by Section 3.2(b), and (ii)
each certificate formerly representing shares of Company Common Stock (other
than the Roll-Over Shares) shall be deemed at any time after the Effective Time
to represent only the right to receive upon such surrender the Merger
Consideration for each share of Company Common Stock.
III........................................No dividends or other
distributions with respect to Surviving Corporation Common Stock with a record
date after the Effective Time shall be paid to the holder of any certificate
formerly representing shares of Company Common Stock not surrendered with
respect to the Roll-Over Shares formerly represented thereby. Subject to
applicable law, following surrender of any such certificate, there shall be paid
to the holder of the certificate or certificates representing shares issued for
the Roll-Over Share Consideration without interest, at the appropriate payment
date, the proportionate amount of dividends or other distributions with a record
date after the Effective Time but prior to such surrender and a payment date
subsequent to such surrender payable with respect to such shares representing
the Roll-Over Share Consideration.
IV.........................................All cash paid upon the
surrender for exchange of certificates formerly representing shares of Company
Common Stock in accordance with the terms of this Article III shall be deemed to
have been paid in full satisfaction of all rights pertaining to the shares
exchanged for cash theretofore represented by such certificates.
V..........................................Any cash deposited
with the Paying Agent pursuant to this Section 3.5 (the "Exchange Fund") which
remains undistributed to the holders of the certificates formerly representing
shares of Company Common Stock one year after the Effective Time shall be
delivered to the Surviving Corporation at such time and any former holders of
shares of Company Common Stock (other than Roll-Over Shares) prior to the Merger
who have not theretofore complied with this Article III shall thereafter look
only to the Surviving Corporation and only as general unsecured creditors
thereof for payment of their claim for cash, if any.
VI.........................................None of Sub, the
Company or the Paying Agent shall be liable to any person in respect of any cash
from the Exchange Fund delivered to a public office pursuant to any applicable
abandoned property, escheat or similar law. If any certificates representing
shares of Company Common Stock shall not have been surrendered prior to one year
after the Effective Time (or immediately prior to such earlier date on which any
cash in respect of such certificate would otherwise escheat to or become the
property of any federal, state, local, or municipal, foreign or other government
or subdivision, branch, department or agency thereof and any governmental or
quasi-governmental authority of any nature, including any court or other
tribunal), any such cash in respect of such
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certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
VII........................................In the event any
certificate formerly representing Company Common Stock shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such certificate to be lost, stolen or destroyed and, if required by
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as Surviving Corporation may direct as indemnity against any claim that
may be made against it with respect to such certificate, the Paying Agent will
issue in exchange for such lost, stolen or destroyed certificate the shares
representing the Roll-Over Share Consideration, and unpaid dividends and
distributions on shares representing the Roll-Over Share Consideration
deliverable in respect thereof pursuant to this Agreement, or the Merger
Consideration, as the case may be.
1...................................................Dissenting Shares.
Notwithstanding Section 3.2 hereof, Dissenting Shares shall not be
converted into a right to receive the Merger Consideration. The holders thereof
shall be entitled only to such rights as are granted by Section 262 of the DGCL.
Each holder of Dissenting Shares who becomes entitled to payment for such shares
pursuant to Section 262 of the DGCL shall receive payment therefor from the
Surviving Corporation in accordance with the DGCL; provided, however, that (i)
if any such holder of Dissenting Shares shall have failed to establish his
entitlement to appraisal rights as provided in Section 262 of the DGCL, (ii) if
any such holder of Dissenting Shares shall have effectively withdrawn his demand
for appraisal of such shares or lost his right to appraisal and payment for his
shares under Section 262 of the DGCL, or (iii) if neither any holder of
Dissenting Shares nor the Surviving Corporation shall have filed a petition
demanding a determination of the value of all Dissenting Shares within the time
provided in Section 262 of the DGCL, such holder shall forfeit the right to
appraisal of such shares and each such share shall be treated as if it had been
converted, as of the Effective Time, into a right to receive the Merger
Consideration, without interest thereon, from the Surviving Corporation as
provided in Section 3.2 hereof. The Company shall give Sub prompt notice of any
demands received by the Company for appraisal of shares, and Sub shall have the
right to participate in all negotiations and proceedings with respect to such
demands. The Company shall not, except with the prior written consent of Sub,
make any payment with respect to, or settle or offer to settle, any such
demands.
ARTICLE
I.
representations and warranties of the company
As an inducement to Sub to enter into this Agreement, the Company
hereby makes, as of the date hereof and as of the Closing Date, the following
representations and warranties to Sub, except as otherwise set forth in a
written disclosure schedule (the "Disclosure Schedule") delivered by the Company
to Sub prior to the date hereof, a copy of which is attached hereto. Unless
otherwise specified, (1) each reference in this Agreement to any numbered
schedule is a reference to that numbered schedule which is included in the
Disclosure Schedule and (2) no disclosure made in any particular numbered
schedule of the
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Disclosure Schedule shall be deemed made in any other numbered schedule of the
Disclosure Schedule unless expressly made therein (by cross-reference or
otherwise) or unless, and only to the extent that, it is apparent on the face of
such disclosure that such disclosure contains information which also modifies
another representation and warranty therein.
1...................................................Organization and
Capitalization.
I..........................................Organization. The
Company is duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to conduct
its business as it is presently being conducted and to own and lease its Assets.
The Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which such qualification is necessary
under applicable law except where the failure to be so qualified and in good
standing would not reasonably be expected to have a Material Adverse Effect on
the Company. The Company has delivered to Sub true, correct and complete copies
of its certificate of incorporation and by-laws (in each case, as amended to
date). The Company is not in default under or in violation of any provision of
its certificate of incorporation or by-laws.
II.........................................Capitalization. The
authorized capital stock of the Company consists of 12,000,000 shares of Company
Common Stock. As of June 23, 1998, there were 7,721,989 shares of Company Common
Stock issued and outstanding. Since such date, no additional shares of capital
stock of the Company have been issued, except shares of Company Common Stock
issued upon the exercise of Options outstanding under any Stock Option Plan. As
of June 23, 1998, options to acquire 444,675 shares of Company Common Stock
pursuant to the Stock Option Plans were outstanding. Schedule 4.1(b) includes a
complete and correct list of outstanding Options under such Stock Option Plans
(including the number of Options and exercise price of each such Option) held by
each employee or director. As of June 23, 1998, warrants to acquire 12,121
shares of Company Common Stock pursuant to the Warrant Agreement were
outstanding. Schedule 4.1(b) includes a complete and correct list of outstanding
Warrants under such Warrant Agreement. The Company has no outstanding bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or which are convertible into or exercisable for securities having the
right to vote) with the stockholders of the Company on any matter. All issued
and outstanding shares of Company Common Stock are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. After the
Effective Time, the Surviving Corporation will have no obligation to issue,
transfer or sell any shares of capital stock or other securities of the Company
or the Surviving Corporation. Schedule 4.1(b) sets forth the total amount of
indebtedness for borrowed money and the total amount of cash on hand of the
Company and its Subsidiaries on a consolidated basis as of June 23, 1998. Except
as provided in Schedule 4.1(b), all such indebtedness is prepayable without more
than two business days notice and without the payment of any penalty. Except as
set forth in this Section 4.1(b), there are no (i) outstanding Equity Securities
of the Company or (ii) commitments or obligations of any kind or character for
(A) the issuance of Equity Securities of the Company or (B) the repurchase,
redemption or other acquisition of any Equity Securities of the Company.
III........................................Voting Trusts,
Proxies, Etc. There are no stockholder agreements, voting trusts, proxies or
other agreements or understandings with respect to or concerning the purchase,
sale or voting of the Equity Securities of the Company.
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1...................................................Authorization.
The Company has all necessary corporate power and authority to execute
and deliver this Agreement and all agreements and documents contemplated hereby.
Subject only to the approval of this Agreement and the transactions contemplated
hereby by the majority of all the votes entitled to be cast on the Merger by the
holders of the Company Common Stock, the consummation by the Company of the
transactions contemplated hereby has been duly authorized by all requisite
corporate action. This Agreement has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
the enforceability thereof may be limited by (a) applicable bankruptcy,
insolvency, moratorium, reorganization, fraudulent conveyance or similar laws in
effect which affect the enforcement of creditors' rights generally or (b)
general principles of equity, whether considered in a proceeding at law or in
equity.
2...................................................Subsidiaries.
I..........................................Ownership;
Capitalization. The Company owns, directly or indirectly, each of the
outstanding capital stock (or other ownership interests) of each of the
Company's Subsidiaries as set forth on Schedule 4.3(a), and the Company has no
investments (whether through the acquisition of an equity interest, the making
of a loan or advance or otherwise) in any other person, corporation,
partnership, joint venture, business, or trust or entity. The Company is the
beneficial owner of all of the outstanding shares of capital stock of each
Subsidiary, free and clear of any and all Encumbrances. The authorized, issued
and outstanding capital stock, and the record ownership of all such shares of
capital stock, of each Subsidiary is as set forth on part (a) of Schedule 4.3.
All of the shares of capital stock of each Subsidiary have been duly authorized
and validly issued and are fully paid and non-assessable, were issued and sold
in accordance with federal and applicable state securities laws and were not
issued in violation of any preemptive or other similar rights. Except as set
forth in this Section 4.3(a), there are no (i) outstanding Equity Securities of
its Subsidiaries or (ii) commitments or obligations of any kind or character for
(A) the issuance of Equity Securities of its Subsidiaries or (B) the repurchase,
redemption or other acquisition of any Equity Securities of its Subsidiaries.
There are no stockholder agreements, voting trusts, proxies or other agreements
or understandings with respect to or concerning the purchase, sale or voting of
the Equity Securities of its Subsidiaries.
II.........................................Organization. Each of
the Company's Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has full
corporate power and authority to conduct its business as it is presently being
conducted and to own and lease its Assets. Each of the Company's Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which such qualification is necessary under applicable
law except whether the failure to be so qualified and in good standing would not
reasonably be expected to have a Material Adverse Effect on the Company. The
Company has delivered to Sub true, correct and complete copies of each of its
Subsidiaries' certificate of incorporation and by-laws (in each case, as amended
to date). None of the Company's Subsidiaries is in default under or in violation
of any provision of its certificate of incorporation or by-laws.
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1...................................................Absence of Certain
Changes or Events.
Since March 31, 1998, (x) the Company and its Subsidiaries have been
operated in the ordinary course of business, consistent with past practice,
(iii) there has been no Material Adverse Change in or with respect to the
Company or its Subsidiaries and (z) to the best knowledge of the Company, (i)
there has been no threatened Material Adverse Change, and (ii) no events or
developments have occurred that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Change, with respect to
the Company. Without limiting the generality of the foregoing, since March 31,
1998, neither the Company nor its Subsidiaries has (i) taken any action of the
type contemplated by Section 6.1(c) and (f) - (p) hereof or (ii) failed to take
any action of the type contemplated by Section 6.1(a) and (b) hereof.
2...................................................Title to Assets;
Absence of Liens and Encumbrances, etc.
I..........................................General. Each of the
Company and its Subsidiaries owns or leases all Assets necessary for the conduct
of its business as presently conducted, and the Assets in the aggregate are in
such operating condition and repair (subject to normal wear and tear) as is
necessary for the conduct of its business as presently conducted.
II.........................................Real Property
III........................................Owned Real Property.
Schedule 4.5(b) hereto sets forth all Facilities owned by the Company and its
Subsidiaries. With respect to each parcel of owned real property (A) the Company
or its Subsidiaries has good and marketable fee simple title to such parcel of
real property, free and clear of any and all Encumbrances other than Permitted
Encumbrances, (B) there are no leases, subleases, licenses, options, rights,
concessions or other agreements, written or oral, granting to any party or
parties the right of use or occupancy of any portion of such parcel of real
property, (C) there are no outstanding options or rights of first refusal in
favor of any other party to purchase any such parcel of real property or any
portion thereof or interest therein, (D) there are no parties (other than the
Company and its Subsidiaries) who are in possession of or who are using any such
parcel of real property and (E) there is no (1) pending or, to the best
knowledge of the Company, threatened condemnation proceeding relating to such
parcel of real property (2) pending or, to the best knowledge of the Company,
threatened Action relating to such parcel of real property, or (3) other matter
affecting the current or currently proposed use, occupancy or value of, such
parcel of real property in any material respect.
IV.........................................Leased Real Property.
Schedule 4.5 sets forth all leases pursuant to which Facilities are leased by
the Company or its Subsidiaries (as lessee), true and correct copies of which
have been delivered to Sub. Schedule 4.5(b) indicates with respect to each such
Lease a general description of the leased items, term, annual rent, renewal
options and number of square feet leased, as applicable. Such leases constitute
all leases, subleases or other occupancy agreements pursuant to which the
Company or its Subsidiaries occupies or uses Facilities. The Company and its
Subsidiaries have good and valid leasehold title to, and enjoy peaceful and
undisturbed possession of, all leased property described in
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such leases (the "Leased Property"), free and clear of any and all Encumbrances
other than any Permitted Encumbrances which would not permit the termination of
the Lease therefor by the lessor. With respect to each such parcel of Leased
Property (A) there are no pending or, to the best knowledge of the Company,
threatened condemnation proceedings relating to, or any pending or, to the best
knowledge of the Company, threatened Actions relating to, such Leased Property
or any portion thereof, (B) none of the Company or its Subsidiaries or, to the
best knowledge of the Company, any third party has entered into any sublease,
license, option, right, concession or other agreement or arrangement, written or
oral, granting to any person the right to use or occupy such Leased Property or
any portion thereof or interest therein and (C) neither the Company nor its
Subsidiaries have received notice of any pending or threatened special
assessment relating to such Leased Property or otherwise have any knowledge of
any pending or threatened special assessment relating thereto. Each leased
Facility is supplied with utilities necessary for the operation of such
Facility.
V..........................................Personal Property.
Schedule 4.5(c) identifies all Fixtures and Equipment, vehicles and other
similar tangible personal property Assets with a book value or replacement cost
of at least $50,000 owned or leased by the Company or its Subsidiaries as of
June 23, 1998.
VI.........................................Owned Personal
Property. Each of the Company and its Subsidiaries has good and marketable title
to all such personal property owned by it, free and clear of any and all
Encumbrances other than Permitted Encumbrances. With respect to each such items
of personal property (A) there are no leases, subleases, licenses, options,
rights, concessions or other agreements, written or oral, granting to any party
or parties the right of use of any portion of such item of personal property,
(B) there are no outstanding options or rights of first refusal in favor of any
other party to purchase any such item of personal property or any portion
thereof or interest therein and (C) there are no parties (other than the Company
and its Subsidiaries) who are in possession of or who are using any such item of
personal property;
VII........................................Leased Personal
Property. Each of the Company and its Subsidiaries has good and valid leasehold
title to all of such Fixtures and Equipment, vehicles and other tangible
personal property Assets leased by it from third parties, free and clear of any
and all Encumbrances other than Permitted Encumbrances which would not permit
the termination of the lease therefor by the lessor. Schedule 4.5(c) sets forth
all Leases for personal property involving annual payments in excess of $50,000
and includes a general description of the leased items, term and annual rent,
true and correct copies of which have been delivered or made available to Sub.
VIII.......................................With respect to each
Lease listed on Schedule 4.5(b) and Schedule 4.5(c) and each Lease for tractors
and trailers, (A) there has been no material default under any such Lease by the
Company or its Subsidiaries, to the best knowledge of the Company, by any other
party, (B) such Lease is a valid and binding obligation of the Company and/or
its Subsidiaries, is in full force and effect with respect to the Company and/or
its Subsidiaries and is enforceable against the Company and/or its Subsidiaries
in accordance with its terms, except as the enforceability thereof may be
limited by (1) applicable bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance or similar laws in effect which affect the enforcement of
creditors' rights generally or (2) general principles of equity, whether
considered in a proceeding at law or in equity, and (C) no action has been taken
by the Company and no event has occurred which, with notice or lapse of time or
both, would permit termination,
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modification or acceleration by a party thereto other than the Company and/or
its Subsidiaries, without the consent of the Company and/or its Subsidiaries,
under any such Lease that is material to the Company and/or its Subsidiaries.
1...................................................Contracts and
Commitments.
I..........................................Schedule 4.6 sets
forth a complete and accurate list of all Contracts in the following categories
as of the date hereof (except to the extent that any such category specifies a
different date, in which case such corresponding list is made as of such
specified date):
II.........................................each Contract (or
group of related Contracts) for the furnishing of services by the Company and/or
its Subsidiaries involving annual revenues of more than $100,000 to the Company
and its Subsidiaries;
III........................................each Contract (or
group of related Contracts) concerning a partnership or joint venture with, or
any other investment in (whether through the acquisition of an equity interest,
the making of a loan or advance or otherwise), any other person;
IV.........................................each Contract (or
group of related Contracts) (A) under which the Company or its Subsidiaries has
created, incurred, assumed or guaranteed (or may create, incur, assume or
guarantee) indebtedness for borrowed money, (B) constituting capital lease
obligations, (C) under which the Company or its Subsidiaries has granted (or may
grant) a security interest or lien on any of the Assets or (D) under which the
Company or its Subsidiaries has incurred any obligations for any performance
bonds, payment bonds, bid bonds, surety bonds, letters of credit, guarantees or
similar instruments;
V..........................................each Contract (or
group of related Contracts) with any of the Personnel, any Affiliate of the
Company or any member of any such person's immediate family, including, without
limitation, Contracts (A) to employ or terminate executive officers or other
Personnel and other Contracts with present or former officers, directors or
stockholders or other corporate Personnel or (B) that will result in the payment
by, or the creation of any commitment or obligation (absolute or contingent,
matured or unmatured) to pay on behalf of the Company or its Subsidiaries or any
Affiliate of the Company or its Subsidiaries, any severance, termination,
"golden parachute" or other similar payments to any present or former Personnel
following termination of employment or otherwise as a result of the consummation
of the transactions contemplated hereby;
VI.........................................each Contract (or
group of related Contracts), other than Contracts covered by clause (vii) of
this Section 4.6, providing for payments in excess of $100,000 over the life of
such Contract (or group of related Contracts), except for such Contracts that
are cancelable on not more than 30 days' notice by the Company or its
Subsidiaries without penalty or increased cost;
VII........................................each distribution,
franchise, license, sales, commission, consulting agency or advertising Contract
related to the Assets or the business, except for such Contracts that are
cancelable on not more than 30 days' notice by the Company or its Subsidiaries
without penalty
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or increased cost;
VIII.......................................each Contract (or
group of related Contracts) containing covenants restraining or limiting the
freedom of the Company or its Subsidiaries or any officer, director, stockholder
or Affiliate thereof to engage in any line of business or compete with any
person including, without limitation, by restraining or limiting the right to
solicit customers;
IX.........................................each Contract (or
group of related Contracts) with the United States, state or local government or
any agency or department thereof;
X..........................................each Contract (or
group of related Contracts) relating to the arrangements (A) between the Company
or its Subsidiaries, on the one hand, and Servicio de Transportacion Jaguar,
S.A. de C.V. ("Jaguar") and the persons owning any Equity Interest in Jaguar, on
the other hand and (B) the Company or its Subsidiaries, on the one hand, and
Servicio Corporativos, S.A. de C.V. ("Servicios") and the persons owning any
Equity Interest in Servicios, on the other hand;
XI.........................................each Contract (or
group of related Contracts) pursuant to which the Company or its Subsidiaries
have sold any Assets and have created any obligation to indemnify anyone with
respect thereto; and
XII........................................any other material
Contract.
The Company and its Subsidiaries have delivered to Sub a true and
correct copy of each written Contract listed in Schedule 4.6 and has included as
part of Schedule 4.6 a brief summary of the material terms of each oral
Contract.
XIII.......................................Absence of Breaches or
Defaults in General. With respect to each Contract set forth on or described in
Schedule 4.6, (i) there is no material default by the Company or its
Subsidiaries or, to the knowledge of the Company, any other party to any
Contract, (ii) the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby and thereby will not cause
a material default hereunder or thereunder; (iii) such Contract is a legal,
valid and binding obligation of the Company or its Subsidiaries party thereto,
is in full force and effect and is enforceable against the Company or its
Subsidiaries and, to the knowledge of the Company, against each other party
thereto in accordance with its terms, except as the enforceability thereof may
be limited by (A) applicable bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance or similar laws in effect which affect the enforcement of
creditors' rights generally or (B) general principles of equity, whether
considered in a proceeding at law or in equity; and (iv) no action has been
taken by the Company or its Subsidiaries and no event has occurred which, with
notice or lapse of time or both and/or the occurrence, nonoccurrence, or
existence or nonexistence of any other event or condition would permit
termination, modification or acceleration by a party thereto other than the
Company or its Subsidiaries under any such Contract.
1...................................................Permits.
The Company and its Subsidiaries have all material Permits required to
own and lease their properties, the Assets and the Facilities and to conduct
their business as currently being conducted. All such Permits are valid and in
full force and effect and are listed on Schedule 4.7. The Company and its
Subsidiaries have not violated any such Permits in any material respect, and
each is in compliance with all such Permits in all material respects. Neither
the Company nor its Subsidiaries has received any notice to the effect that, or
otherwise has any knowledge that, (a) the Company and its Subsidiaries are not
currently in compliance with, or are in violation of, any such Permits in any
material respect or (b) any currently existing circumstances are likely to
result in a failure of the Company and its Subsidiaries to comply with, or in a
violation by the Company and its Subsidiaries of, any such Permits in any
material respect. No representation or warranty is made in this Section 4.7 with
respect to the matters covered in Section 4.21 (Compliance with Environmental
Laws).
2...................................................No Conflict or
Violation.
Neither the execution, delivery and performance of this Agreement, nor
the consummation of the transactions contemplated hereby, by the Company or its
Subsidiaries will result in (a) a violation of or a conflict with any provision
of the certificate of incorporation or by-laws of the Company or its
Subsidiaries, (b) a breach of, or a default under, or the creation of any right
of any party to accelerate, terminate or cancel pursuant to (including, without
limitation, by reason of the failure to obtain a consent or approval under any
such Contract), any term or provision of any Contract, indebtedness, Lease,
Encumbrance, Permit, authorization or concession to which the Company or its
Subsidiaries is a party or by which any of the Assets are bound, (c) a violation
by the Company or its Subsidiaries of any statute, rule, regulation, ordinance,
code, order, judgment, writ, injunction, decree or award applicable to the
Company or its Subsidiaries, (d) an impairment of any right of the Company or
its Subsidiaries under any Contract to which it is a party or by which its
Assets are bound or under any Permit relating to the operation of its business,
or (e) an imposition of any Encumbrance (other than Permitted Encumbrances),
restriction or charge on the business of the Company or its Subsidiaries or on
any of the Assets, except in the case of clauses (b), (d) and (e), where such
breach, default, creation of any right, impairment or imposition would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
3...................................................Consents and
Approvals.
No consent, waiver, agreement, approval, Permit or authorization of,
or declaration, filing, notice or registration to or with, any federal, state,
local or foreign governmental or regulatory authority or body or other person or
entity is required to be made or obtained by the Company or its Subsidiaries in
connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby other than (a) filings
required in connection with or in compliance with the provisions of the HSR Act,
the Securities Act, the Exchange Act or applicable state securities and "Blue
Sky" laws (collectively, the "Regulatory Filings"), (b) the filing of the Merger
Certificate under the DGCL,
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or (c) those consents, waivers, agreements, approvals, authorizations,
declarations, filings, notices or registrations, that have been, or will be
prior to the Closing Date, obtained or made, as set forth on Schedule 4.9.
4...................................................SEC Documents;
Financial Statements, etc.
The Company has filed all forms, reports and documents required to be
filed by it with the SEC since June 30, 1994 through the date of this Agreement
(collectively, the "Company Reports"). As of their respective dates, the Company
Reports (i) complied in all material respects with the applicable requirements
of the Securities Act, the Exchange Act, and the rules and regulations
thereunder and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading. The consolidated financial statements of the Company
included in or incorporated by reference in the Company Reports (the "Financial
Statements") (i) comply as to form in all material respects with applicable
accounts requirements and the published rules and regulations of the SEC with
respect thereto; (ii) have been prepared in accordance with GAAP, consistently
applied throughout the periods covered thereby, and sound bookkeeping practices
and (iii) present fairly in accordance with GAAP, consistently applied
throughout the periods covered, the financial condition of the Company and its
Subsidiaries as of the respective dates thereof and the results of operations,
stockholders' equity and cash flows for the periods covered thereby. The
accounting and financial records of the Company and its Subsidiaries have been
prepared and maintained in accordance with GAAP, consistently applied throughout
the periods indicated, and sound bookkeeping practices.
5...................................................Undisclosed
Liabilities.
Neither the Company nor its Subsidiaries has any liabilities,
obligations or commitments of any nature (whether direct or indirect, known or
unknown, absolute or contingent, liquidated or unliquidated, due or to become
due, accrued or unaccrued, matured or unmatured) and, to the knowledge of the
Company, there is no basis for any present or future charge, complaint, action,
suit, proceeding, hearing, investigation, claim or demand against the Company or
its Subsidiaries giving rise to any such liability, other than (a) liabilities
which are reflected and reserved against on the most recent balance sheet
contained in the Financial Statements (including, without limitation, in the
notes thereto) which have not been paid or discharged since the date thereof,
(b) liabilities which arose prior to the date of the most recent balance sheet
contained in the Financial Statements and not required under GAAP to be
reflected thereon, (c) liabilities and obligations disclosed on the Disclosure
Schedule and liabilities and obligations which are not required to be disclosed
on the Disclosure Schedule and (d) liabilities incurred since March 31, 1998 in
the ordinary course of business, consistent with past practice (none of which
liabilities incurred since March 31, 1998 relates to any material breach of
Contract, breach of warranty, tort, infringement or violation of law or which
arose out of any Action). None of the liabilities described in clauses (b), (c)
and (d) of the preceding sentence has or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
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6...................................................Litigation.
Except as set forth on Schedule 4.12 and other than Actions which are
reflected and reserved against on the face of the most recent balance sheet
contained in the Financial Statements (including, without limitation, in the
notes thereto), there are no outstanding actions, orders, writs, injunctions,
judgments or decrees or any claims, suits, charges, proceedings, labor disputes,
arbitrations, governmental audits or investigations (collectively, "Actions")
pending or, to the knowledge of the Company and its Subsidiaries, threatened or
anticipated, (a) against, related to or affecting (i) the Company and its
Subsidiaries, their business or operations or the Assets, (ii) any officers or
directors of the Company and its Subsidiaries, as such, (iii) any stockholder of
the Company and its Subsidiaries, as such, or (iv) other than routine claims for
benefits, any Employee Plan of the Company and its Subsidiaries or any trust or
funding instrument, fiduciary or administrator thereof; (b) relating to the
transactions contemplated hereby; or (c) in which Company or its Subsidiaries is
a plaintiff, including, without limitation, any derivative suits brought by or
on behalf of the Company or its Subsidiaries, except for those Actions under
clauses (a), (b) or (c) that would not have, individually or in the aggregate, a
Material Adverse Effect on the Company.
7...................................................Labor Matters.
Neither the Company nor its Subsidiaries is a party to, or a
participant in any negotiation of, any labor agreement with respect to any of
their employees with any labor organization, union, group or association and
there are no employee unions (nor any other similar labor or employee
organizations) under local statutes, custom or practice. In the past five years,
neither the Company nor its Subsidiaries has been approached by organized labor
or its representatives making an effort to cause the Company or its Subsidiaries
to conform to demands of organized labor relating to any of their employees or
to enter into a binding agreement with organized labor that would cover any of
their employees. There is no labor strike, slow-down or other work stoppage or
labor disturbance pending or, to the knowledge of the Company, threatened
against the Company or its Subsidiaries nor is any grievance currently being
asserted, and in the past five years the Company and its Subsidiaries have not
experienced a strike, slow-down or other work stoppage or other labor
disturbance or difficulty. The Company and its Subsidiaries are in compliance in
all material respects with all applicable laws respecting employment practices,
employee documentation, terms and conditions of employment and wages and hours
and are not and have not engaged in any unfair labor practice. There is no
unfair labor practice charge or complaint against the Company and its
Subsidiaries pending before or, to the knowledge of the Company, threatened by
the National Labor Relations Board or any other domestic or foreign governmental
agency arising out of the conduct of their businesses, and, to the knowledge of
the Company, there are no facts or information which would give rise thereto,
and in the past five years there have not been any unfair labor practice charges
or complaints against the Company or its Subsidiaries which could have a
Material Adverse Effect on the Company.
8...................................................Compliance with
Law
The Company and its Subsidiaries have not violated and are in
compliance with (a) all applicable laws, statutes, ordinances, regulations,
rules and orders of every federal, state, local or foreign government and every
federal, state, local or foreign court or other governmental or regulatory
agency, department, authority, body or instrumentality and (b) any judgment,
decision, decree or order of any court or governmental or regulatory agency,
department, authority, body or instrumentality (collectively, "Laws"), relating
to the Assets, business or operations of the Company or its Subsidiaries, except
to the extent that any such violation or failure to comply is not reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect on
the Company. Neither the Company nor its Subsidiaries has received any written
notice to the effect that, or otherwise has any knowledge that, (i) the Company
is not currently in compliance with, or is in violation of, any applicable Laws
or (ii) any currently existing circumstances are likely to result in a failure
of the Company to comply with, or a violation by the Company of, any Laws, in
either case which such failure to comply or violation would be reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect on
the Company. No representation or warranty is made in this Section 4.14 with
respect to compliance with Laws relating to the matters covered in Sections 4.13
(Labor Matters), 4.17 (Employee Plans), 4.18 (Tax Matters) and 4.21 (Compliance
with Environmental Laws).
9...................................................No Brokers.
Other than Wasserstein Perella & Co., the arrangements with which have
been disclosed in writing to Sub prior to the date hereof, none of the Company,
its Subsidiaries or any of their officers, directors, employees, stockholders or
other Affiliates has employed or made any agreement with any broker, finder or
similar agent or any person or firm to pay any finder's fee, brokerage fee or
commission or similar payment in connection with the transactions contemplated
hereby
10..................................................Proprietary
Rights.
Schedule 4.16 lists all federal, state and foreign registrations of
patents, trademarks, trade names, servicemarks or other trade rights and
copyrights and all pending applications for any such registrations that are
owned by the Company or its Subsidiaries, or that are being or have been used in
connection with, or relate to, the Assets, the business or operations, products
or processes of the Company or its Subsidiaries (whether or not presently used
in connection with the Assets, business or operations of the Company or its
Subsidiaries) or in which the Company or its Subsidiaries have any interest
(collectively, the "Proprietary Rights"). No person has a right to receive a
royalty or similar payment in respect of any Proprietary Rights whether or not
pursuant to any contractual arrangements entered into by the Company or its
Subsidiaries. Neither the Company nor its Subsidiaries has any licenses granted,
sold or otherwise transferred by or to it or other agreements to which it is a
party, relating in whole or in part to any of the Proprietary Rights. Each of
the Company and its Subsidiaries owns, or possesses valid and enforceable
licenses or other rights to use, all Proprietary Rights used in or necessary for
its business as it is currently conducted, and such ownership and licenses will
not cease to be valid and in full force and effect by reason of the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby, except where the failure to own or possess
such licenses or rights would not be reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on the Company. No
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other firm, corporation, association or person (a) has notified the Company or
its Subsidiaries that it is claiming any ownership of or right to use such
Proprietary Rights or (b) to the best of the Company's and its Subsidiaries'
knowledge, has interfered with, infringed upon or otherwise come into conflict
with any such Proprietary Rights in any material respect.
11..................................................Employee Plans.
I..........................................Schedule 4.17 contains
a complete list of Employee Plans. With respect to each such Employee Plan, the
Company has provided to Sub true and complete copies of (i) all plan documents
and related trust agreements, annuity contracts or other funding instruments,
(ii) all summary plan descriptions, summary of material modifications, all
material employee communications, the number of and a general description of the
level of employees covered by each Benefit Arrangement and a complete
description of any Employee Plan which is not in writing, (iii) the most recent
determination letter issued by the Internal Revenue Service and any opinion
letter issued by the Department of Labor with respect to each Pension Plan and
each voluntary employees' beneficiary association as defined under Section
501(c)(9) of the Code (other than a Multiemployer Plan), (iv) for the three most
recent plan years, the Internal Revenue Service Form 5500 including all
schedules and attachments thereto for each Pension Plan and Welfare Plan, (v)
all actuarial reports prepared for the last three plan years for each Pension
Plan, and (vi) a description setting forth the amount of any liability of the
Company and its Subsidiaries as of the Closing Date for payments more than
thirty (30) calendar days past due with respect to any Welfare Plan.
II.........................................(i) Each Employee Plan
including any related trust agreement, annuity contract or other funding
instrument is legal, valid and binding and in full force and effect. (ii)Each
Pension Plan and each related trust agreement, annuity contract or other funding
instrument which has been operated as a qualified plan has received a favorable
determination letter from the Internal Revenue Service stating that such Pension
Plan and each related trust is qualified and tax-exempt under the provisions of
Code Sections 401(a) and 501(a) and has been so qualified during the period from
its adoption to the date of such determination letter. (iii) Each Employee Plan
is subject only to the laws of the United States or a political subdivision
thereof. (iv) Each Employee Plan has been maintained in compliance in all
material respect to its terms and operation, with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to such
Employment Plan, including, without limitation, ERISA and the Code. (v)Except as
provided by law or in any employment agreement set forth on Schedule 4.17, the
employment of all persons presently employed or retained by the Company or its
Subsidiaries is terminable at will.
III........................................(i) None of the
Employee Plans is a plan that is or has ever been subject to Title IV of ERISA,
Section 302 of ERISA or Section 412 of the Code. (ii) None of the Employee Plans
is a plan or arrangement described under Section 4(b)(5) or 401(a)(1) of ERISA,
or a plan maintained in connection with a trust described in Section 501(c)(9)
of the Code. (iii)Neither the Company nor any ERISA affiliate has, at any time,
maintained, contributed to or had any obligation to maintain or contribute to
any Multiemployer Plan.
IV.........................................(i) Neither the
Company nor any
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ERISA Affiliate has engaged in, or is a successor or parent corporation to an
entity that has engaged in, a transaction described in Section 4212(c) of ERISA.
(ii)None of the Company, or its Subsidiaries or any plan fiduciary of any
Employee Plan has engaged in, or has any liability in respect of, any
transaction in violation of Sections 404 or 406 of ERISA or any "prohibited
transaction," as defined in Section 4975(c)(1) of the Code, for which no
exemption exists under Section 408 of ERISA or Section 4975(c)(2) or (d) of the
Code, or has otherwise materially violated or participated in a violation of the
provisions of Part 4 of Title I, Subtitle B of ERISA. (iii)The Company and its
Subsidiaries have not been assessed any civil penalty under Section 502(l) of
ERISA. (iv)No Employee Plan (or trust or other funding vehicle pursuant thereto)
has incurred any liability under Code Section 511.
V..........................................Except as required by
Section 4980B of the Code or Part 6 of Title 1, Subtitle B of ERISA, neither the
Company nor any ERISA Affiliate or any Welfare Plan has any present or future
obligation to make any payment to, or with respect to any present or former
employee of the Company or any ERISA Affiliate pursuant to any retiree medical
benefit plan, or other retiree Welfare Plan, and no condition exists which would
prevent the Company or an ERISA affiliate from amending or terminating any such
benefit plan or such Welfare Plan.
VI.........................................There is no contract,
agreement, plan or arrangement covering any employee or former employee of the
Company or its Subsidiaries that, individually or collectively, requires the
payment by the Company or its Subsidiaries of any amount (i) that is not
deductible under Section 162(a)(1) or 404 of the Code or (ii) that is an "excess
parachute payment" pursuant to Section 280G of the Code.
VII........................................Neither the Company
nor any ERISA Affiliate has announced to employees, former employees or
directors an intention to create, or has otherwise created, a legally binding
commitment to adopt any additional Employee Plans which are intended to cover
employees or former employees of the Company or any subsidiary or to amend or
modify any existing Employee Plan which covers or has covered employees or
former employees of the Company or any subsidiary.
VIII.......................................Neither the Company
nor any Employee Plan holds as an asset any interest in any annuity contract,
guaranteed investment contract or any other investment or insurance contract
issued by an insurance company that is the subject of bankruptcy,
conservatorship or rehabilitation proceedings. The insurance policies or other
funding instruments, if any, for each Welfare Plan provide coverage for each
employee, consultant, independent contractor or retiree of the Company or its
Subsidiaries (and, if applicable, their respective dependents) who has been
advised by the Company or its Subsidiaries, whether through an Employee Plan or
otherwise, that he or she is covered by such Welfare Plan.
IX.........................................Neither the execution
and delivery of this Agreement or other related agreements by the Company nor
the consummation of the transactions contemplated hereby or the related
transactions will result in the acceleration or creation of any rights of any
person to benefits under any Employee Plan (including, without limitation, the
acceleration of the vesting or exercisability of any share options, the
acceleration of the vesting of any restricted stock, the acceleration
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of the accrual or vesting of any benefits under any Pension Plan or the
acceleration or creation of any rights under any severance, parachute or change
in control agreement).
X..........................................No event has occurred
in connection with which the Company or any Employee Plan, directly or
indirectly, could be subject to any material liability (A) under any statute,
regulation or governmental order relating to any Employee Plan or (B) pursuant
to any obligation of the Company to indemnify any person against liability
incurred under any such statute, regulation or order as they relate to the
Employee Plans.
XI.........................................The Company is not a
party to any severance or similar arrangement in respect of any of the Personnel
that will result in any obligation (absolute or contingent) of the Company or
Sub after the Closing to make any payment to any of such Personnel following
termination of employment.
1...................................................Tax Matters.
I..........................................Filing of Tax Returns.
The Company and its Subsidiaries have timely filed with the appropriate taxing
authorities all Returns (including, without limitation, information returns and
other material information) in respect of Taxes required to be filed through the
date hereof and will timely file any such returns required to be filed on or
prior to the Closing Date. All Returns and other information filed are complete
and accurate in all material respects. The Company and its Subsidiaries have not
requested any extension of time within which to file Returns (including, without
limitation, information Returns) in respect of any Taxes. The Company and its
Subsidiaries have delivered to Sub complete and accurate copies of the federal,
state and local income tax Returns for the years 1995, 1996 and 1997.
II.........................................Payment of Taxes. All
Taxes for which the Company and its Subsidiaries are or may be liable, in
respect of periods (or portions thereof) ending on or before the Closing Date,
have been timely paid, or an adequate reserve (in conformity with GAAP) has been
established therefor, as set forth in the Financial Statements. There are no
Taxes for which the Company and its Subsidiaries are or may become liable that
will apply in a period or a portion thereof beginning on or after the Closing
Date and that are attributable to income earned or activities of the Company and
its Subsidiaries occurring before the Closing Date.
III........................................Audits, Investigations
or Claims. No deficiencies for Taxes have been claimed, proposed or assessed in
writing by any taxing or other governmental authority against the Company or its
Subsidiaries which have not been paid or reserved on the Financial Statements.
There are no pending or, to the Company's knowledge, threatened audits,
investigations or claims for or relating to any liability in respect of Taxes
that in the reasonable judgment of the Company or its counsel are likely to
result in an additional amount of Taxes, and there is no matter under discussion
with any taxing or other governmental authority with respect to Taxes that in
the reasonable judgment of the Company or its counsel is likely to result in an
additional liability for Taxes with respect to the Company or its Subsidiaries.
Audits of federal, state, and local returns for Taxes by the relevant taxing or
other governmental authorities have been completed for the periods set forth on
Schedule 4.18(c) and none
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of the Company or its Subsidiaries has been notified that any taxing or other
governmental authority intends to audit any other Return for any period. No
extension of any statute of limitations relating to Taxes is in effect with
respect to the Company or its Subsidiaries. No power of attorney has been
executed by the Company or its Subsidiaries with respect to any matters relating
to Taxes which is currently in force.
IV.........................................Liens. There are no
liens for Taxes (other than for current Taxes not yet due and payable) on the
Assets.
V..........................................Safe Harbor Lease
Property. None of the Assets is property that is required to be treated as being
owned by any other person pursuant to the so-called safe harbor lease provisions
of former Section 168(f)(8) of the Code.
VI.........................................Security for
Tax-Exempt Obligations. None of the Assets directly or indirectly secures any
debt the interest on which is tax-exempt under Section 103(a) of the Code.
VII........................................Tax-Exempt Use
Property. None of the Assets is "tax-exempt use property" within the meaning of
Section 168(h) of the Code.
VIII.......................................No Withholding. The
transaction contemplated herein is not subject to the tax withholding provisions
of Section 3406 of the Code, of Subchapter A of Chapter 3 of the Code or of any
other provision of law.
IX.........................................Tax Election. All
material elections with respect to Taxes affecting the Company or its
Subsidiaries as of the date hereof are set forth on Schedule 4.18(i). Neither
the Company nor its Subsidiaries has consented at any time under Section
341(f)(1) of the Code to have the provisions of Section 341(f)(2) of the Code
(or similar provisions under state or local law) apply to any disposition of the
Assets. The Company and its Subsidiaries have not agreed to make, or are not
required to make, any adjustment under Section 481(a) of the Code (or similar
provisions under state or local law) by reason of a change in accounting method
or otherwise.
X..........................................Tax Sharing
Agreements. There are no tax sharing agreements or similar arrangements (whether
written or unwritten) with respect to or involving the Company or its
Subsidiaries.
XI.........................................Partnerships. The
Company and its Subsidiaries are not a party to any joint venture, partnership
or other arrangement or contract which is treated as a partnership for federal
income tax purposes.
XII........................................Parachute Payments.
The Company and its Subsidiaries are not a party to any agreement or arrangement
that would result, separately or in the aggregate, in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code, including,
without limitation, as a result of any event connected with the Merger or any
other transaction contemplated herein.
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XIII.......................................Affiliated Group. The
Company and its Subsidiaries have not been a member of an affiliated group that
has filed a consolidated return or any group that has filed a combined,
consolidated or unitary state or local return, other than the group of which the
Company is currently the parent.
1...................................................Insurance.
Schedule 4.19 contains a complete and accurate list of all policies or
binders for business interruption, fire, liability, title, worker's
compensation, product liability, errors and omissions and other forms of
insurance (showing as to each policy or binder the carrier, policy number,
coverage limits, expiration date, annual premium and a general description of
the type of coverage provided) maintained by the Company and its Subsidiaries.
Such insurance provides, and during its term has provided, coverage to the
extent and in the manner (a) adequate for the Company and its Subsidiaries and
their Assets, businesses and operations and the risks insured against in
connection therewith and (b) as may be or may have been required by law and by
any and all Contracts to which the Company and/or its Subsidiaries are or have
been a party. The Company and its Subsidiaries are not in any material default
under any of such policies or binders, and the Company and its Subsidiaries have
not failed to give any notice or to present any material claim under any such
policy or binder in a due and timely fashion. No insurer has refused, denied or
disputed coverage of any material claim made thereunder. No insurer has advised
the Company and/or its Subsidiaries that it intends to reduce coverage,
materially increase any premium or fail to renew any existing policy or binder.
All such policies and binders are in full force and effect on the date hereof
and shall be kept in full force and effect through the Closing Date.
2...................................................Customers and
Suppliers.
Schedule 4.20 sets forth a true and correct list of (a) the 25 largest
customers of the Company and its Subsidiaries, on a consolidated basis, in terms
of sales during each of the fiscal year ended June 30,1997 and the nine months
ended March 31, 1998, setting forth the total sales to each such customer during
such period and (b) the 10 largest suppliers of the Company and its
Subsidiaries, on a consolidated basis, in terms of purchases during each of the
fiscal year ended June 30, 1997 and the nine months ended March 31, 1998,
setting forth for each such supplier the total purchases from each such supplier
during such period. There has not been any adverse change in the business
relationship of the Company or its Subsidiaries with any customer or supplier
named in Schedule 4.20.
3...................................................Compliance with
Environmental Laws.
I..........................................The Company and its
Subsidiaries are in material compliance with all Environmental Laws, including,
without limitation, all Permits required thereunder to conduct their business as
currently being conducted or proposed to be conducted. All such Permits are
listed on Schedule 4.21. Neither the Company nor its Subsidiaries has received
any notice to the effect that, or otherwise has knowledge that, (i) the Company
and its Subsidiaries are not currently in
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compliance in any material respect with, or are in violation of, any such
Environmental Laws or Permits required thereunder or (ii) any currently existing
circumstances are likely to result in a failure of the Company or its
Subsidiaries to comply with, or a violation by the Company or its Subsidiaries
of, any such Environmental Laws or Permits required thereunder. The Company and
its Subsidiaries at all times during the previous five years have been in
material compliance with all Environmental Laws.
II.........................................There are no existing
or, to the knowledge of the Company, potential Environmental Claims against the
Company or its Subsidiaries, nor have any of them received any written
notification or otherwise has any knowledge, of any allegation of any actual, or
potential responsibility for, or any inquiry or investigation regarding, any
disposal, release or threatened release at any location of any Hazardous
Substance generated or transported by the Company or its Subsidiaries.
III........................................(i) No underground
tank or other underground storage receptacle for Hazardous Substances is
currently located on the Facilities and there have been no releases of any
Hazardous Substances from any such underground tank or related piping and (ii)
there have been no releases (i.e., any past or present releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping) of Hazardous Substances on, upon or into the
Facilities other than those authorized by Environmental Laws including, without
limitation, the Permits required thereunder. In addition, to the best knowledge
of the Company, there have been no such releases by the Company's or its
Subsidiaries' corporate predecessors and no releases on, upon, or into any real
property in the vicinity of any of the real properties of the Company or its
Subsidiaries other than those authorized by Environmental Laws which, through
soil or ground water contamination, may have come to be located on the
properties of the Company or its Subsidiaries.
IV.........................................Except as would not
have a Material Adverse Effect on the Company, there are no PCBs or
asbestos-containing materials located at or on the Facilities.
V..........................................The Company and its
Subsidiaries are not a party, whether as a direct signatory or as successor,
assign or third-party beneficiary, or otherwise bound, to any Lease or other
Contract (excluding insurance policies disclosed on the Disclosure Schedule)
under which the Company or its Subsidiaries are obligated by or entitled to the
benefits of, directly or indirectly, any representation, warranty,
indemnification, covenant, restriction or other undertaking concerning
Environmental Conditions or compliance with Environmental Laws.
VI.........................................The Company and its
Subsidiaries have not released any other person from any claim under any
Environmental Law or waived any rights concerning any Environmental Condition.
VII........................................There are no consent
decrees, consent orders, judgments, judicial or administrative orders or
agreements (other than Permits) with or liens by, any governmental authority or
quasi-governmental entity relating to any Environmental Law which regulate,
obligate or bind the Company or its Subsidiaries.
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VIII.......................................True and correct
copies of the Environmental Reports, as well as all other written environmental
reports, audits or assessments which have been conducted, either by the Company
or its Subsidiaries or any person engaged by the Company or its Subsidiaries for
such purpose, at any facility owned or formerly owned by the Company or its
Subsidiaries have been made available to Sub and a list of all such reports,
audits and assessments is set forth on Schedule 4.21(h).
1...................................................No Other
Agreements to Sell the Assets or Shares of the Company or its Subsidiaries.
Other than sales of inventory or product in the ordinary course of
business, consistent with past practice, neither the Company nor its
Subsidiaries has any legal obligation, absolute or contingent, to any other
person or firm to (a) sell or effect a sale of any or all of the Assets, (b)
sell or effect a sale of any Equity Securities of the Company or its
Subsidiaries, (c) effect any merger, consolidation or other reorganization of
the Company or its Subsidiaries or (d) enter into any Contract or cause the
entering into a Contract with respect to any of the foregoing.
2...................................................Prohibited
Payments.
The Company and its Subsidiaries have not, directly or indirectly, (a)
made or agreed to make any contribution, payment or gift to any government
official, employee or agent where either the contribution, payment or gift or
the purpose thereof was illegal under the laws of any federal, state, local or
foreign jurisdiction, (b) established or maintained any unrecorded fund or asset
for any purpose or made any false entries on the books and records of the
Company and its Subsidiaries for any reason, (c) made or agreed to make any
contribution, or reimbursed any political gift or contribution made by any other
person, to any candidate for federal, state, local or foreign public office or
(d) paid or delivered any fee, commission or any other sum of money or item of
property, however characterized, to any finder, agent, government official or
other party, in the United States or any other country, which in any manner
relates to the Assets, business or operations of the Company or its
Subsidiaries, which the Company or its Subsidiaries knows or has reason to
believe to have been illegal under any federal, state or local laws (or any
rules or regulations thereunder) of the United States or any other country
having jurisdiction.
3...................................................Opinion of
Financial Advisor.
The Company has received the opinion of Wasserstein Perella & Co.,
dated the date of this Agreement, to the effect that, as of such date, the
consideration to be received in the Merger by the Company's stockholders is fair
to such holders of the Company Common Stock from a financial point of view, a
signed copy of which opinion has been delivered to Sub.
4...................................................Board
Recommendation.
The Board of Directors of the Company, at a meeting duly called and
held, has by unanimous vote (i) determined that this Agreement and the
transactions contemplated hereby, including the Merger, taken together are fair
to and in the best interests of the stockholders of the Company and has taken
all actions necessary on the part of the Company to render the restrictions on
business combinations contained in Section 203 of the DGCL inapplicable to this
Agreement, the Merger and the Voting Agreement and (ii) resolved to recommend
that the holders of the shares of the Company Common Stock approve this
Agreement and the transactions contemplated herein, including the Merger.
5...................................................Required Company
Vote.
The affirmative vote of a majority of the outstanding shares of the
Company Common Stock is the only vote of the holders of any class or series of
the Company's securities necessary to approve this Agreement, the Merger and the
other transactions contemplated hereby. There is no vote of the holders of any
class or series of the Company's securities necessary to approve the Voting
Agreement.
6...................................................Proxy Statement;
Schedule 13E-3.
The Proxy Statement to be mailed to the stockholders of the Company in
connection with the special meeting of the stockholders of the Company (the
"Special Meeting") and the Schedule 13E-3, if filed, and any amendment thereof
or supplement thereto, when, in the case of the Proxy Statement, mailed and at
the time of the Special Meeting, and in the case of the Schedule 13E-3, when and
if filed, shall not contain any untrue statement of a material fact, or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not false or misleading, and shall comply with all requirements of the
Securities Act and the Exchange Act. Notwithstanding the foregoing, the Company
makes no representation or warranty with respect to any information furnished in
writing by Sub or its representatives specifically for inclusion in any of the
foregoing documents.
ARTICLE
I.
REPRESENTATIONS AND WARRANTIES OF SUB
As an inducement to the Company to enter into this Agreement, Sub
hereby makes the following representations and warranties as of the date hereof
and as of the Closing Date to the Company:
1...................................................Organization.
Sub is duly organized, validly existing and in good standing under the
laws of the State of ------------ Delaware.
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2...................................................Authorization.
Sub has all necessary corporate power and authority to, and has taken
all corporate action necessary on its part to, execute and deliver this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by Sub and is a legal, valid and binding
obligation of Sub, enforceable against Sub in accordance with its terms, except
as the enforceability thereof may be limited by (a) applicable bankruptcy,
insolvency, moratorium, reorganization, fraudulent conveyance or similar laws in
effect which affect the enforcement of creditors' rights generally or (b)
general principles of equity, whether considered in a proceeding at law or in
equity.
3...................................................Consents and
Approvals.
No consent, waiver, agreement, approval, Permit or authorization of,
or declaration, filing, notice or registration to or with, any federal, state,
local or foreign governmental or regulatory authority or body is required to be
made or obtained by Sub in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby other than any Regulatory Filings and pursuant to the DGCL.
4...................................................No Conflict or
Violation.
Neither the execution, delivery and performance of this Agreement, nor
the consummation of the transactions contemplated hereby, by Sub will result in
(a) a violation of or a conflict with any provision of the certificate of
incorporation or by-laws of Sub, (b) a breach of, or a default under, or the
creation of any right of any party to accelerate, terminate or cancel pursuant
to (including, without limitation, by reason of the failure to obtain a consent
or approval under any such contract), any term or provision of any contract,
encumbrance or permit to which Sub is a party or by which any of its assets are
bound, which breach, default or creation of any such right would reasonably be
expected to have a Material Adverse Effect on Sub.
5...................................................Proxy Statement.
The information concerning Sub, its officers, directors, employees and
shareholders furnished in writing to the Company by Sub specifically for use in
the Proxy Statement will not, when mailed to the stockholders of the Company or
at the time of the Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Notwithstanding the
foregoing, Sub makes no representation or warranty with respect to any
information supplied by the Company or any of its representatives which is
contained in or incorporated by reference in any of the foregoing documents or
in the Schedule 13E-3.
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6................................................... Financing.
Sub has delivered to the Company complete and correct executed copies
of letters (the "Financing Letters") issued in connection with the financing of
the transactions contemplated hereby (the "Financing"). Assuming satisfaction of
all applicable conditions set forth in the Financing Letters and full funding
thereunder, Sub at Closing shall be capitalized with an equity contribution in
an amount up to $60,000,000 and such funds, together with the proceeds from the
Financing, will provide sufficient funds to consummate the transactions
contemplated hereby.
ARTICLE
I. COVENANTS OF THE COMPANY and Sub
The Company and Sub covenant and agree with each other that from the
date hereof through the Closing:
1...................................................Maintenance of
Business Prior to Closing.
Prior to the Effective Time, except as set forth in the Disclosure
Schedule or as contemplated by any other provision of this Agreement, unless Sub
has consented in writing thereto, the Company:
I..........................................shall, and shall cause
each of its Subsidiaries to, conduct its operations and business according to
their usual, regular and ordinary course consistent with past practice;
II.........................................shall use its best
efforts, and shall cause each of its Subsidiaries to use its best efforts, to
preserve intact their business organizations and goodwill, keep available the
services of their respective officers and employees and maintain satisfactory
relationships with those persons having business relationships with them;
III........................................shall not, and shall
cause its Subsidiaries not to, amend their respective certificates of
incorporation or by-laws or comparable governing instruments;
IV.........................................shall promptly notify
Sub of (i) any Material Adverse Change, (ii) any material litigation or material
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or (iii) the breach of any
representation or warranty contained herein;
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V..........................................shall promptly deliver
to Sub correct and complete copies of any report, statement or schedule filed
with the SEC subsequent to the date of this Agreement;
VI.........................................shall not, and shall
not permit any of its Subsidiaries to, authorize, propose or announce an
intention to authorize or propose, or enter into an agreement with respect to,
any merger, consolidation or business combination (other than the Merger),
release or relinquishment of any material contract rights, or any acquisition or
disposition of Assets or securities other than in the ordinary course of
business consistent with past practice;
VII........................................shall not, and shall
not permit any of its Subsidiaries to, (i) grant, confer or award any options,
warrants, conversion rights or other rights or Equity Securities, not existing
on the date hereof, to acquire any shares of its capital stock or other
securities of the Company or its Subsidiaries or (ii) accelerate, amend or
change the period of exercisability of options or restricted stock granted under
any employee stock plan or, except as contemplated by Section 3.3, authorize
cash payments in exchange for any options granted under any of such plans;
VIII.......................................shall not, and shall
not permit any of its Subsidiaries to, amend the terms of the Benefit Plans,
including, without limitation, any employment, severance or similar agreements
or arrangements in existence on the date hereof, or adopt any new employee
benefit plans, programs or arrangements or any employment, severance or similar
agreements or arrangements;
IX.........................................shall not, and shall
not permit any of its Subsidiaries to, (i) increase or agree to increase the
compensation payable or to become payable to its officers or, other than
increases in accordance with past practice which are not material, to its
employees or (ii) enter into any collective bargaining agreement;
X..........................................shall not, and shall
not permit any of its Subsidiaries to, (i) incur, create, assume or otherwise
become liable for borrowed money or assume, guarantee, endorse or otherwise
become responsible or liable for the obligations of any other individual,
corporation or other entity or (ii) make any loans or advances to any other
person, except in the case of clause (i) for borrowings under existing credit
facilities in the ordinary course of business and, except in the case of clause
(ii) for advances consistent with past practice which are not material;
XI.........................................shall not, and shall
not permit any of its Subsidiaries to, (i) materially change any practice with
respect to Taxes, (ii) make, change or revoke any material Tax election, or
(iii) settle or compromise any material dispute involving a Tax liability;
XII........................................shall not, and shall
not permit any of its Subsidiaries to, (i) declare, set aside or pay any
dividend or make any other distribution or payment with respect to any shares of
its capital stock or other ownership interests or (ii) directly or indirectly
redeem, purchase or otherwise acquire any shares of its capital stock or capital
stock of any of its Subsidiaries, or make any commitment for any such action or
(iii) split, combine or reclassify any of its capital stock or issue
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or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for share of its capital stock;
XIII.......................................shall not, and shall
not permit any of its Subsidiaries to, issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock, any other securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, securities or convertible securities (other than the issuance or shares
of Company Common Stock upon the exercise of Options outstanding on the date
hereof in accordance with their present terms);
XIV........................................shall not, and shall
not permit any of its Subsidiaries to, make or agree to make any capital
expenditure except in accordance with the Company's capital expenditure plan for
fiscal years 1998 and 1999, a true, correct and complete copy of which has been
delivered to Sub;
XV.........................................shall not, and shall
not permit any of its Subsidiaries to, change any accounting principles or
practices;
XVI........................................shall not, and shall
not permit any of its Subsidiaries to, pay, discharge, settle or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in the most
recent consolidated financial statements (or the notes thereto) of the Company
included in the Company Reports or incurred thereafter in the ordinary course of
business consistent with past practice, or waive any material benefits of, or
agree to modify in any material respect, any confidentiality, standstill,
non-solicitation or similar agreement to which the Company or any Subsidiary is
a party; and
XVII.......................................shall not, and shall
not permit any of its Subsidiaries to take, or agree (in writing or otherwise)
or resolve to take, any of the foregoing actions.
1...................................................Investigation by
Sub.
The Company shall allow Sub, its counsel, accountants and other
representatives and the financial institutions (and their counsel and
representatives) providing or proposed to provide financing in connection with
this Agreement and the transactions contemplated hereby, during regular business
hours upon reasonable notice, to make such reasonable inspection of the Assets,
Facilities, business and operations of the Company and its Subsidiaries and to
inspect and make copies of Contracts, books and records and all other documents
and information reasonably requested by Sub and related to the operations and
business of the Company and its Subsidiaries including, without limitation,
historical financial information concerning the business of the Company and its
Subsidiaries and to meet with designated Personnel of the Company or its
Subsidiaries and/or their representatives. The Company and its Subsidiaries
shall furnish to Sub promptly upon request (a) all additional documents and
information with respect to the affairs of the Company and its Subsidiaries
relating to their businesses and (b) access to the Personnel and to the
Company's and its
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Subsidiaries' accountants and counsel as Sub, or its counsel or accountants, may
from time to time reasonably request and the Company and its Subsidiaries shall
instruct their Personnel, accountants and counsel to cooperate with Sub, and to
provide such documents and information as Sub and its representatives may
request. Sub will hold, and will use its reasonable best efforts to cause its
counsel, accountants and other representatives and the financial institutions
(and their counsel and representatives) providing or proposed to provide
financing in connection herewith, any nonpublic information in confidence to the
extent required by, and in accordance with, that certain confidentiality letter,
dated April 9, 1998, between Wasserstein Perella & Co., Inc. and Odyssey
Investment Partners, LLC (the "Confidentiality Letter").
2...................................................Consents and
Efforts.
I..........................................Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
agrees to (A) promptly make its respective filings under the HSR Act with
respect to the Merger and (B) use its reasonable best efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective, in the most expeditious manner practicable, the Merger and the other
transactions contemplated by this Agreement. Sub and the Company will use their
reasonable best efforts and cooperate with one another (i) in promptly
determining whether any filings are required to be made or consents, approvals,
waivers, licenses, permits or authorizations are required to be obtained (or,
which if not obtained, would result in an event of default, termination or
acceleration of any agreement or any put right under any agreement) under any
applicable law or regulation or from any governmental authorities or third
parties, including parties to loan agreements or other debt instruments, in
connection with the transactions contemplated by this Agreement, including the
Merger, and (ii) in promptly making any such filings, in furnishing information
required in connection therewith and in timely seeking to obtain any such
consents, approvals, permits or authorizations.
II.........................................The Company shall
cooperate with any reasonable requests of Sub or the SEC related to the
recording of the Merger as a recapitalization for financial reporting purposes,
including, without limitation, to assist Sub and its Affiliates with any
presentation to the SEC with regard to such recording and to include appropriate
disclosure with regard to such recording in all filings with the SEC and all
mailings to stockholders made in connection with the Merger. In furtherance of
the foregoing, the Company shall provide to Sub for the prior review of Sub's
advisors any description of the transactions contemplated by this Agreement
which is meant to be disseminated.
III........................................The Company will
provide, and will cause its Subsidiaries and its and their respective officers,
employees and advisors to provide, all reasonable cooperation in connection with
the arrangement of any financing (including the Financing) to be consummated
contemporaneous with or at or after the Closing in respect of the transactions
contemplated by this Agreement, including without limitation, (x) participation
in meetings, due diligence sessions and road shows, (y) the preparation of
offering memoranda, private placement memoranda, prospectuses and similar
documents, and (z) the execution and delivery of any commitment letters,
underwriting or placement agreements, pledge and security documents, other
definitive financing documents, or other requested
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certificates or documents, including a certificate of the chief financial
officer of the Company with respect to solvency matters, comfort letters of
accountants and legal opinions as may be requested by Sub; provided that the
form and substance of any of the material documents referred to in clause (y),
and the terms and conditions of any of the material agreements and other
documents referred to in clause (z), shall be substantially consistent with the
terms and conditions of the financing required to satisfy the condition
precedent set forth in Section 7.3(f). In addition, in conjunction with the
obtaining of any such financing, the Company agrees, at the request of Sub, to
call for prepayment or redemption, as the case may be, any then existing
indebtedness of the Company; provided that such prepayment or redemption shall
only be made comteporaneously with or after the Effective Time.
IV.........................................Sub shall use its
reasonable best efforts to arrange the Financing pursuant to the Financing
Letters.
1...................................................Other Offers.
I..........................................Neither the Company
nor any of its Subsidiaries shall (whether directly or indirectly through
advisors, agents or other intermediaries), nor shall the Company or any of its
Subsidiaries authorize or permit any of its or their officers, directors,
agents, representatives, advisors or Subsidiaries to, (x) solicit, initiate or
take any action knowingly to facilitate the submission of inquiries, proposals
or offers from any corporation, partnership, person or other entity or group,
other than Sub and its representatives and affiliates, relating to (i) any
acquisition or purchase of 20% or more of the assets or of over 20% of any class
of Equity Securities of the Company and its Subsidiaries, (ii) any tender offer
(including a self tender offer) or exchange offer that if consummated would
result in any person beneficially owning 20% or more of any class of Equity
Securities of the Company or any of its Subsidiaries, (iii) any merger,
consolidation, recapitalization, sale of all or substantially all of the assets,
liquidation, dissolution or similar transaction involving the Company or any of
its Subsidiaries whose assets, individually or in the aggregate, constitute more
than 20% of the assets other than the transactions contemplated by this
Agreement or (iv) any other transaction the consummation of which could
reasonably be expected to impede, interfere with, prevent or materially delay
the Merger or which could reasonably be expected to materially dilute the
benefits to Sub of the transactions contemplated hereby (each such transaction
being referred to herein as an "Acquisition Proposal"), or agree to or endorse
any Acquisition Proposal, (y) enter into or participate in any discussions or
negotiations regarding any of the foregoing, or otherwise cooperate in any way
with, or knowingly assist or participate in, facilitate or encourage, any effort
or attempt by any other person (other than Sub and its representatives and
affiliates) to do or seek any of the foregoing, (z) grant any waiver or release
under any standstill or similar agreement with respect to any Equity Securities
of the Company or any of its Subsidiaries; provided, however, that the foregoing
shall not prohibit the Company (either directly or indirectly through advisors,
agents or other intermediaries) from (i) furnishing information pursuant to an
appropriate confidentiality letter (which letter shall not be less favorable to
the Company in any material respect than the Confidentiality Letter, and a copy
of which shall be provided for informational purposes only to Sub) concerning
the Company and its businesses, properties or Assets to any person, corporation,
entity or "group," as defined in Section 13(d) of the Exchange Act, other than
Sub or any of its Affiliates (a "Third Party") who has made a bona fide
Acquisition Proposal, (ii) engaging in discussions or negotiations with such a
Third Party who has made a bona fide Acquisition Proposal, (iii) following
receipt of a bona fide Acquisition Proposal, taking and disclosing to its
stockholders
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a position contemplated by Rule 14e-2(a) under the Exchange Act or otherwise
making disclosure to its stockholders, (iv) following receipt of a bona fide
Acquisition Proposal, failing to make or withdrawing or modifying its
recommendation referred to in Section 4.25 hereof and/or (v) taking any
non-appealable, final action ordered to be taken by the Company by any court of
competent jurisdiction but in each case referred to in the foregoing clauses (i)
through (iv), only to the extent that (A) the Board of Directors of the Company
shall have concluded in good faith on the basis of written advice from outside
counsel that such action is required to prevent the Board of Directors of the
Company from breaching its fiduciary duties to the stockholders of the Company
under applicable law and (B) the Board of Directors of the Company shall have
concluded in good faith after consultation with its financial advisor that such
Acquisition Proposal, if accepted, is reasonably likely to be consummated,
taking into account all legal, financial and regulatory aspects of the proposal
and the person or entity making the proposal and would, if consummated, result
in a more favorable transaction than the transaction contemplated by this
Agreement; provided, further, that the Board of Directors of the Company shall
not take any of the foregoing actions referred to in clauses (i) through (iv)
until after giving reasonable notice to Sub with respect to its intent to take
such action and informing Sub of the terms and conditions of such proposal and
the identity of the person making it. The Company shall immediately cease and
cause its advisors, agents and other intermediaries to cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. The Company and its
Subsidiaries hereby represent that they are not now engaged in discussions or
negotiations with any party other than Sub with respect to any proposed
Acquisition Transaction.
II.........................................If a Payment Event (as
hereinafter defined) occurs, the Company shall pay to Sub, within one business
day following such event, a fee of $6,500,000. "Payment Event" means (1) the
termination of this Agreement pursuant to Section 8.1(a)(v); (2) the termination
of this Agreement pursuant to Section 8.1(a)(vi); (III) the termination of this
Agreement by Sub pursuant to Section 8.1(a)(iii) but only if the failure of a
condition arises from a breach of obligation or untruth or incorrectness of any
representation or warranty which breach or untruth or incorrectness arises out
of the bad faith or willful misconduct of the Company; or (IV) the occurrence of
any of the following events if this Agreement shall have been terminated (1) by
Sub pursuant to Section 8.1(a)(iii) due to a failure of any of the conditions
set forth in Sections 7.1(a), 7.3(a), 7.3(e), 7.3(g) or 7.3(h) to be satisfied,
or (2) pursuant to Sections 8.1(a)(ii) or (vii), or (3) by the Company pursuant
to Section 8.1(a)(iii) due to a failure of any of the conditions set forth in
Section 7.1(a) to be satisfied: (A) any Third Party other than Sub or any of its
Affiliates or any party to the Voting Agreement (a "Permitted Party") (so long
as no such party to the Voting Agreement is a member of a "group" (as defined in
Section 13(d) of the Exchange Act) which includes any other person) shall have
become the beneficial owner of more than 20% of the outstanding shares of
Company Common Stock; or (B)(x) any Third Party (other than Sub or any of its
Affiliates) shall have made, or proposed, communicated or disclosed in a manner
which is or otherwise becomes public (including being known by stockholders of
the Company owning of record or beneficially in the aggregate 5% or more of the
outstanding shares of Company Common Stock) a bona fide intention to make an
Acquisition Proposal (including by making such an Acquisition Proposal) and (y)
on or prior to the date that is within 12 months of the termination of this
Agreement, the Company either consummates with a Third Party a transaction the
proposal of which would otherwise qualify as an Acquisition Proposal under
Section 6.4(a) or enters into a definitive agreement with a Third Party with
respect to a transaction the proposal of which would otherwise qualify as an
Acquisition Proposal under Section 6.4 (whether or not such Third
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Party is the Third Party referred to in clause (x) above).
III........................................Upon termination of
this Agreement (I) by Sub pursuant to Section 8.1(a)(iii) due to a failure of
any of the conditions set forth in Sections 7.1(a), 7.3(a), 7.3(e), 7.3(g) or
7.3(h) to be satisfied, or (II) pursuant to Sections 8.1(a)(v), (vi) or (vii),
or (III) by the Company pursuant to Section 8.1(a)(iii) due to a failure of any
of the conditions set forth in Section 7.1(a) to be satisfied, the Company shall
reimburse Sub and its Affiliates not later than two business days after
submission of reasonable documentation thereof for all of their documented
out-of-pocket fees and expenses (including, without limitation, the reasonable
fees and expenses for their counsel (billed at standard billing rates for Sub)
and investment banking fees), actually incurred by any of them or on their
behalf in connection with this Agreement and the transactions contemplated
hereby and the arrangement of, obtaining the commitment to provide or obtaining
the financing for transactions contemplated by this Agreement (including any
fees payable to the entities providing for such financing and their respective
counsel billed at standard rates for Sub); provided that the aggregate amount
payable pursuant to this Section 6.4(c) shall not exceed $1,500,000.
IV.........................................The Company
acknowledges that the agreements contained in this Section 6.4 are an integral
part of the transactions contemplated by this Agreement, and that, without these
agreements, Sub would not enter into this Agreement; accordingly, if the Company
fails to promptly pay any amount due pursuant to this Section 6.4, and, in order
to obtain such payment, the other party commences a suit which results in a
judgment against the Company for the fee or fees and expenses set forth in this
Section 6.4, the Company shall also pay to Sub its costs and expenses incurred
in connection with such litigation.
V..........................................The Company and its
Subsidiaries shall (i) immediately notify Sub (orally and in writing) if any
offer is made, any discussions or negotiations are sought to be initiated, any
inquiry, proposal or contact is made or any information is requested with
respect to any Acquisition Proposal, (ii) promptly notify Sub of the terms of
any proposal which it may receive in respect of any such Acquisition Proposal,
including, without limitation, the identity of the prospective purchaser or
soliciting party, (iii) promptly provide Sub with a copy of any such offer, if
written, or a written summary (in reasonable detail) of such offer, if not in
writing, and (iv) keep Sub informed of the status of such offer and the
offeror's efforts and activities with respect thereto.
VI.........................................This Section 6.4 shall
survive any termination of this Agreement, however caused.
1...................................................Meeting of
Stockholders.
The Company shall take all action necessary in accordance with
applicable law and its certificate of incorporation and by-laws, including the
timely mailing of the Proxy Statement, to convene the Special Meeting of its
stockholders as promptly as practicable to consider and vote upon the approval
of this Agreement and the transactions contemplated hereby. The Board of
Directors of the Company shall recommend such approval, shall not withdraw or
modify such recommendation and shall take all lawful
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action to solicit such approval; provided that the Board of Directors of the
Company may fail to make or withdraw or modify such recommendation, but only to
the extent that the Board of Directors of the Company shall have concluded in
good faith on the basis of written advice from outside counsel that such action
is required to prevent the Board of Directors of the Company from breaching its
fiduciary duties to the stockholders of the Company under applicable law. The
Company will use its best efforts to hold such meeting as soon as practicable
after the date hereof.
2...................................................Proxy Statement.
I..........................................Sub and the Company
shall cooperate and prepare, and the Company shall file with the SEC as soon as
practicable, a proxy statement with respect to the Special Meeting of the
stockholders of the Company in connection with the Merger (the "Proxy
Statement"), respond to comments of the staff of the SEC, clear the Proxy
Statement with the staff of the SEC and promptly thereafter mail the Proxy
Statement to all holders of record of Company Common Stock. The Company shall
comply in all respect with the requirements of the Exchange Act and the
Securities Act and the rules and regulations of the SEC thereunder applicable to
the Proxy Statement and the solicitation of proxies for the Special Meeting
(including any requirement to amend or supplement the Proxy Statement) and each
party shall furnish to the other such information relating to it and its
Affiliates and the transactions contemplated by this Agreement and such further
and supplemental information as may be reasonably requested by the other party.
The Proxy Statement shall include the recommendation of the Company's Board of
Directors in favor of the Merger, unless otherwise required by the fiduciary
duties of the directors under applicable law as contemplated hereby. The Company
shall use all reasonable efforts, and Sub will cooperate with the Company, to
have all necessary state securities law or "Blue Sky" permits or approvals
required to carry out the transactions contemplated by this Agreement and will
pay all expenses incident thereto.
II.........................................No amendment or
supplement to the Proxy Statement shall be made by Sub or the Company without
the approval of the other party. The Company shall advise Sub of any request by
the SEC for amendment of the Proxy Statement or comments thereon and responses
thereto or requests by the SEC for additional information.
1...................................................Schedule 13E-3.
If, in the opinion of the Company's counsel after consultation with
counsel to Sub, the filing with the SEC of a Transaction Statement on Schedule
13E-3 (the "Schedule 13E-3") in connection with the Merger is required by Rule
13e-3 under the Exchange Act, the Company shall file the Schedule 13E-3 with the
SEC at the time of filing of the Proxy Statement. If the Schedule 13E-3 is
filed, at the time of any amendment to the Proxy Statement, the parties shall
cause to be file with the SEC an appropriate amendment to the Schedule 13E-3.
2...................................................Director and
Officer Liability.
(a)..................................................For a period of 6
years after the Effective Time, Sub will cause the Surviving Corporation to
indemnify and hold harmless the present and former officers and directors of the
Company in respect of acts or omissions occurring prior to the Effective Time to
the extent provided under the Company's certificate of incorporation and by-laws
in effect on the date hereof; provided that such indemnification shall be
subject to any limitation imposed from time to time under applicable law. To the
maximum extent permitted by the DGCL, such indemnification shall be mandatory
rather than permissive and the Surviving Corporation shall advance expenses in
connection with such indemnification. The by-laws of the Surviving Corporation
shall contain provisions substantially similar in terms of the rights granted to
the provisions with respect to indemnification and insurance set forth in the
Company's certificate of incorporation, which provisions shall not be amended in
any manner that would adversely affect the rights under those by-laws of the
Company's employees, agents, directors or officers for acts or omissions on or
prior to the Effective Time, except if such amendment is required by law. For a
period of 6 years after the Effective Time, Sub will cause the Surviving
Corporation to use its best efforts to provide officers' and directors'
liability insurance in respect of acts or omissions occurring prior to the
Effective Time covering each such person currently covered by the Company's
officers' and directors' liability insurance policy on terms with respect to
coverage and amount no less favorable than those of such policy in effect on the
date hereof, provided that in satisfying its obligation under this Section 6.8,
Sub shall not be obligated to cause the Surviving Corporation to pay premiums in
excess of 125% of the amount per annum the Company paid in its last full fiscal
year, which amount has been disclosed to Sub.
(b)..................................................In furtherance of
and not in limitation of the preceding paragraph, Sub agrees that the officers
and directors of the Company that are defendants in all litigation commenced by
stockholders of the Company with respect to (x) the performance of their duties
as such officers and/or directors under federal or state law (including
litigation under federal and state securities laws) and (y) the Merger,
including, without limitation, any and all such litigation commenced on or after
the date of this Agreement (the "Subject Litigation") shall be entitled to be
represented, at the reasonable expense of the Company, in the Subject Litigation
by one counsel (and Delaware counsel if appropriate and one local counsel in
each jurisdiction in which a case is pending) each of which such counsel shall
be selected by a plurality of such director defendants; provided that the
Company shall not be liable for any settlement effected without its prior
written consent (which consent shall not be unreasonably withheld) and that a
condition to the indemnification payments provided in Section 6.8(a) shall be
that such officer/director defendant not have settled any Subject Litigation
without the consent of the Company (such consent not to be unreasonably
withheld) and, prior to the Closing, Sub; and provided further that neither Sub
nor the Company shall have any obligation hereunder to any officer/director
defendant when and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and non-appealable,
that indemnification of such officer/director defendant in the manner
contemplated hereby is prohibited by applicable law.
(c)..................................................In the event the
Surviving Corporation or any of its successors or assigns (i) consolidates with
or merges into any other person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any person, then, and in each
such case, proper provisions
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shall be made so that the successors and assigns of the Surviving Corporation
shall assume its obligations set forth in this Section 6.8.
3...................................................Notices of Certain
Events.
The Company shall promptly notify Sub of:
I..........................................any notice or other
communication from any person alleging that the consent of such person is or may
be required in connection with the transactions contemplated by this Agreement;
II.........................................any notice or other
communication from any governmental or regulatory agency or authority in
connection with the transactions contemplated by this Agreement; and
III........................................any Actions commenced
or, to the best of its knowledge threatened against, relating to or involving or
otherwise affecting the Company or any Subsidiary which, if pending on the date
of this Agreement, would have been required to have been disclosed pursuant to
Section 4.12 or which relate to the consummation of the transactions
contemplated by this Agreement.
1...................................................Further
Assurances.
At and after the Effective Time, the officers and directors of the
Surviving Corporation will be authorized to execute and deliver, in the name and
on behalf of the Company or Sub, any deeds, bills of sale, assignments or
assurances and to take and do, in the name and on behalf of the Company or Sub,
any other actions and things to vest, perfect or confirm of record or otherwise
in the Surviving Corporation any and all right, title and interest in, to and
under any of the rights, properties or assets of the Company acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger.
2 ...........................................Resignation of Directors.
At the Closing, the Company shall deliver to Sub evidence satisfactory
to Sub of the resignation of all directors of the Company, effective at the
Effective Time.
3 .........................................Financial Statements, Etc.
Within 30 days after the end of each calendar month, the Company and
its Subsidiaries shall provide Sub with the interim financial statements
relating to such calendar month. Such interim
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financial statements shall (a) be in accordance with the books and records of
the Company and its Subsidiaries, (b) be prepared in accordance with GAAP
consistently applied throughout the periods covered thereby (except for the
absence of footnotes) and present fairly and accurately in accordance with GAAP
the Assets, liabilities (including, without limitation, all reserves) and
financial condition of the Company and its Subsidiaries as of the respective
dates thereof and the results of operations, stockholders' equity and cash flows
for the periods covered thereby.
ARTICLE
I.
CONDITIONS TO THE MERGER
1...................................................Conditions to the
Obligations of Each Party.
The obligations of the Company and Sub to consummate the transactions
contemplated hereby on the Closing Date are subject to the satisfaction, on or
prior to the Closing Date, of each of the following conditions:
I..........................................This Agreement shall
have been adopted by the stockholders of the Company in accordance with the
DGCL;
II.........................................Any applicable waiting
period under the HSR Act relating to the Merger shall have expired or been
terminated; and
III........................................No provision of any
applicable law or regulation and no judgment, order, decree or injunction shall
prohibit or restrain the consummation of the Merger; provided, however, that the
Company and Sub shall each use its reasonable best efforts to have any such
judgment, order, decree or injunction vacated.
1...................................................Conditions to the
Obligations of the Company.
The obligations of the Company to consummate the transactions
contemplated hereby on the Closing Date are subject, in the sole discretion of
the Company, to the satisfaction, on or prior to the Closing Date, of the
following conditions, which may be waived by the Company in accordance with
Section 8.4: (a) all representations and warranties of Sub contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date, as if such representations and warranties were made at and as of
the Closing Date (except to the extent that any such representations and
warranties were made as of a specified date, which representations and
warranties shall continue on the Closing Date to be true as of such specified
date), (b) Sub shall have performed in all material respects all obligations
arising under the agreements and covenants required hereby to be performed by it
prior to or on the Closing Date and (c) the
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Company shall have received, at or prior to the Closing, a certificate executed
by the President of Sub certifying that, as of the Closing Date, the conditions
set forth in Section 7.2(a) and (b) have been satisfied.
2...................................................Conditions to the
Obligations of Sub.
The obligations of Sub to consummate the transactions contemplated
hereby on the Closing Date are subject, in the sole discretion of Sub, to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived by Sub in accordance with Section 8.4:
I..........................................Representations,
Warranties and Covenants.
II.........................................All representations
and warranties of the Company contained in this Agreement shall be true and
correct at and as of the Closing Date as if such representations and warranties
were made at and as of the Closing Date (except to the extent that any such
representations and warranties were made as of a specified date, such
representations and warranties shall continue on the Closing Date to have been
true in all material respects as of such specified date), except where the
untruth or incorrectness of such representations and warranties would not,
singly or in the aggregate, have a Material Adverse Effect on the Company. For
purposes of this Section 7.3(a)(i), the representations and warranties of the
Company contained in this Agreement shall be deemed to have been made without
any qualification as to knowledge or materiality and, accordingly, all
references in such representations and warranties to "material," "Material
Adverse Effect," "in all material respects," "Material Adverse Change,"
"knowledge," "best knowledge" and similar terms and phrases (including, without
limitation, references to the dollar thresholds therein) shall be deemed to be
deleted therefrom, provided that the foregoing clause shall not apply solely for
the purpose of determining the truth and correctness of the lists set forth in
certain informational representations and warranties that require disclosure of
lists of items of a material nature or above a specified threshold.
III........................................The Company shall have
performed in all material respects all obligations arising under the agreements
and covenants required hereby to be performed by it prior to or on the Closing
Date.
IV.........................................Sub shall have
received, at or prior to the Closing, a certificate executed by the President
and the Chief Financial Officer of the Company certifying that, as of the
Closing Date, the conditions set forth in Sections 7.3(a), (b) and (e) have been
satisfied.
V..........................................No Proceedings or
Litigation.
No Actions by any governmental authority or any other entity or person
shall have been instituted or threatened for the purpose of enjoining or
preventing, or which question the validity or legality of, the transactions
contemplated hereby and which could reasonably be expected to damage Sub or
materially adversely affect the value of the Company Common Stock or the Assets,
business or operations
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of the Company and its Subsidiaries or Sub's ability to own and operate the
Assets, business or operations of the Company and its Subsidiaries, if the
transactions contemplated hereby are consummated.
VI.........................................Recapitalization.
Sub shall be reasonably satisfied that the Merger shall be recorded as
a "recapitalization" for financial reporting purposes.
VII........................................Consents.
VIII.......................................All consents,
approvals and licenses of any governmental or other regulatory body required in
connection with the execution, delivery and performance of this Agreement and
for the Surviving Corporation to conduct the business of the Company in
substantially the manner now conducted, shall have been obtained, unless the
failure to obtain such consents, authorizations, orders or approvals would not,
individually or in the aggregate, have a Material Adverse Effect on the Company
after giving effect to the transactions contemplated by this Agreement
(including the Financing).
IX.........................................All consents listed on
Schedule 4.9 of the Disclosure Schedule shall have been obtained.
X..........................................Material Changes.
Since March 31, 1998, there shall not have been any Material Adverse
Change with respect to the Company and, to the knowledge of the Company, there
shall have been no potential or threatened Material Adverse Change with respect
to the Company.
XI.........................................Financing.
The funding contemplated by the Financing Letters shall have been
obtained.
XII........................................Certain Other
Agreements.
XIII.......................................The Persons listed in
Schedule 7.3(g) shall have entered into, as applicable, (a) the employment
agreements and (b) one or more
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agreements relating to their respective equity interests in the Company after
the Effective Time, in each case on the terms and conditions substantially
consistent with the terms and conditions of such agreements set forth on
Schedule 7.3(g) hereto.
XIV........................................The Stockholders party
to the Voting Agreement shall have performed their obligations under the Voting
Agreement in all material respects.
XV.........................................That certain
Stockholders Agreement, dated as of October 8, 1992, and as amended as of July
3, 1996, by and among the Company, Stephen Russell and Hanseatic Corp. shall be
terminated and of no further force or effect and any and all rights conferred to
such parties therein shall have been waived pending the consummation of the
Merger.
XVI........................................Financial Information.
Ernst & Young LLP shall have completed its audit, in accordance with generally
accepted auditing standards, of the Company's balance sheet as of June 30, 1998
and the corresponding statement of income, change in stockholders' equity and
cash flows for the fiscal year ended June 30, 1998, and shall have issued an
unqualified report with respect thereto (including that such audited financial
statements are in accordance with GAAP).
ARTICLE XVII.
MISCELLANEOUS
1...................................................Termination.
I..........................................Termination.
This Agreement may be terminated prior to the Effective Time as
follows (notwithstanding any approval of the Merger by the stockholders of the
Company):
II.........................................by mutual written
consent of Sub and the Company at any time;
III........................................by Sub or the Company
if the Closing shall not have occurred on or before November 30, 1998, provided
that the party seeking to exercise such right is not then in breach in any
material respect of any of its obligations under this Agreement;
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IV.........................................by either the Company
or Sub, if any of the conditions to such party's obligation to consummate the
transactions contemplated in this Agreement shall have become impossible to
satisfy;
V..........................................by either the Company
or Sub, if there shall be any law or regulation that makes consummation of the
Merger illegal or otherwise prohibited or if any judgment, injunction, order or
decree enjoining Sub or the Company from consummating the Merger is entered and
such judgment, injunction, order or decree shall become final and
non-appealable;
VI.........................................by Sub if the Board of
Directors of the Company shall have (A) withdrawn or modified or amended, in a
manner adverse to Sub, its approval or recommendation of this Agreement and the
Merger or its recommendation that stockholders of the Company adopt and approve
this Agreement and the Merger, (B) approved, recommended or endorsed an
Acquisition Proposal (including a tender or exchange offer for Company Common
Stock) or shall have failed to reconfirm its recommendation of this Agreement
and the Merger within five business days of Sub's request that it do so, (C)
failed to call the Stockholders Meeting or failed as promptly as practicable to
mail the Proxy Statement to its stockholders or failed to include in such
statement the recommendation referred to above, (D) in response to the
commencement of any tender offer of exchange offer for more then 20% of the
outstanding shares of Company Common Stock, not recommended rejection of such
tender offer or exchange offer; or (E) resolved to do any of the foregoing;
VII........................................by the Company if
prior to the Effective Time, in good faith, based upon written advice from
outside counsel and in order to prevent the Board of Directors from breaching
its fiduciary duty, the Board of Directors of the Company shall have withdrawn
or modified or amended, in a manner adverse to Sub, its approval or
recommendation of this Agreement and the Merger or its recommendation that
stockholders of the Company adopt and approve this Agreement and the Merger in
order to permit the Company to execute a definitive agreement providing for the
acquisition of the Company or in order to approve a tender or exchange offer for
any or all of the Company Common Stock, in either case, that is determined, by
the Board of Directors of the Company to be on financial terms more favorable to
the Company's stockholders than the Merger, provided that the Company shall be
in compliance with Section 6.4; or
VIII.......................................by either the Company
or Sub if, at a duly held stockholders meeting of the Company or any adjournment
thereof at which this Agreement and the Merger is voted upon, the requisite
stockholder adoption and approval shall not have been obtained.
The party desiring to terminate this Agreement pursuant
to Sections 8.1(a)(ii)-(vii) shall give written notice of such termination to
the other party in accordance with Section 8.3.
IX.........................................Effect of Termination.
If this Agreement is terminated pursuant to Section 8.1, this
Agreement shall become void and of no effect with no liability on the part of
any party hereto or such party's officers, directors, employees
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or representatives, except (i) that the agreements contained in Sections 6.4,
8.8 and 8.13 hereof shall survive the termination hereof and (ii) nothing herein
shall relieve any party from liability for any breach of this Agreement.
X..........................................Procedure Upon
Termination.
In the event of termination of this Agreement pursuant to Section 8.1:
XI.........................................Each party shall
redeliver all documents, work papers and other material of any other party and
any and all copies thereof relating to the transactions contemplated hereby,
whether obtained before or after the execution hereof, to the party furnishing
the same;
XII........................................No confidential
information received by any party with respect to the business of any other
party or its Affiliates shall be disclosed to any third party, unless required
by law; and
XIII.......................................The Confidentiality
Letter shall survive in accordance with its terms.
1...................................................Assignment.
Neither this Agreement nor any of the rights or obligations hereunder
may be assigned, in whole or in part, by operation of law or otherwise by any
party without the prior written consent of all other parties to this Agreement.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns, and,
with respect to the provisions of Section 6.8 hereof, shall inure to the benefit
of the persons or entities benefiting from the provisions thereof who are
intended to be third-party beneficiaries thereof, `and no other person shall
have any right, benefit or obligation hereunder.
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2...................................................Notices.
All notices, requests, demands and other communications which are
required or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when received, if personally delivered; when
transmitted, if transmitted by telecopy, upon receipt of telephonic or
electronic confirmation; the day after it is sent, if sent for next day delivery
to a domestic address by recognized overnight delivery service (e.g., Federal
Express); and upon receipt, if sent by certified or registered mail, return
receipt requested. In each case notice shall be sent to:
If to the Company, addressed to:
Celadon Group, Inc.
One Celadon Drive
Indianapolis, IN 46236-4207
Attention: Stephen Russell
Telecopy: (317) 890-8099
With a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10037
Attention: Arnold Jacobs, Esq.
Telecopy: (212) 969-2900
If to Sub, addressed to:
Laredo Acquisition Corp.
c/o Odyssey Investment Partners, LLC
280 Park Avenue, 38th Floor
New York, NY 10017
Attention: Brian Kwait
Telecopy: (212) 351-7925
With a copy to:
Latham & Watkins
885 Third Avenue
Suite 1000
New York, NY 10022
Attention: Richard Trobman, Esq.
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Telecopy: (212) 751-4864
or to such other place and with such other copies as either party may
designate as to itself by written notice to the others.
3............................................................Entire
Agreement; Waivers.
This Agreement, together with all exhibits and schedules hereto
(including, without limitation, the Disclosure Schedule), and the other
agreements referred to herein, constitute the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided. The Confidentiality Letter shall terminate at the Effective
Time.
4............................................................Multiple
Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
5......................................................Invalidity.
In the event that any one or more of the provisions contained in this
Agreement or in any other instrument referred to herein, shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, then to the
maximum extent permitted by law, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement or any other such
instrument.
6............................................................Titles.
The titles, captions or headings of the Articles and Sections herein
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
7............................................................Fees and
Expenses.
Except as provided in Section 6.4 hereof, all costs and expenses
incurred in connection with this Agreement shall be paid by the party incurring
such cost or expense.
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8.................................................Cumulative Remedies.
All rights and remedies of either party hereto are cumulative of each
other and of every other right or remedy such party may otherwise have at law or
in equity, and the exercise of one or more rights or remedies shall not
prejudice or impair the concurrent or subsequent exercise of other rights or
remedies.
9..........................................GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE
GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS.
10................................................Amendment.
This Agreement may be amended by the parties hereto at any time before
or after approval of matters presented in connection with the Merger by the
stockholders of the Company, but after any such stockholder approval, no
amendment shall be made which by law requires the further approval of
stockholders without obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto shall terminate at the Effective Time.
11.....................................Public Announcements.
Neither Sub, on the one hand, nor the Company, on the other hand, will
issue any press release or public statement with respect to the transactions
contemplated by this Agreement and the Voting Agreement, including the Merger,
without the other party's prior consent (such consent not to be unreasonably
withheld), except as may be required by applicable law, court process or the
quotation requirements of NASDAQ. In addition to the foregoing, Sub and the
Company will consult with each other before issuing, and provide each other the
opportunity to review and comment upon, any such press release or other public
statements with respect to such transactions. The parties agree that the initial
press release or releases to be issued with respect to the transactions
contemplated by this Agreement shall be mutually agreed upon prior to the
issuance thereof.
12.......................................Enforcement of Agreement.
The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement was not performed in
accordance with its specific terms or was otherwise
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<PAGE>
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which they are entitled at law or in equity.
13............................................Non-survival of
Representations, Warranties.
The representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall terminate at the Effective
Time.
14...........................................Interpretive Provisions.
I...................................................The words
"hereof," "herein," "hereby" and "hereunder" and words of similar import refer
to this Agreement as a whole and not to any particular Article, Section or other
subdivision hereof.
II..................................................Accounting
terms used but not otherwise defined herein shall have the meanings given to
such terms under GAAP.
[Signature Page Follows]
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on their respective behalf, by their respective officers
thereunto duly authorized, all as of the day and year first above written.
LAREDO ACQUISITION CORP.
By:________________________
Name:______________________
Title:_____________________
CELADON GROUP, INC.
By:________________________
Name:______________________
Title:_____________________
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TABLE OF CONTENTS
ARTICLE I. DEFINITIONS ...............................................2
1.1. Defined Terms ..............................................2
1.2. Other Defined Terms ........................................7
ARTICLE II. THE MERGER ...............................................8
2.1. The Merger ................................................8
2.2. Effective Time .............................................8
2.3. Closing ....................................................8
2.4. Certificate of Incorporation and By-Laws ...................8
2.5. Directors ..................................................9
2.6. Officers ...................................................9
ARTICLE III. EFFECT OF MERGER ON SECURITIES OF SUB AND THE
COMPANY ...............................................9
3.1. Conversion of Sub Common Stock. ............................9
3.2. Conversion of Company Common Stock. ........................9
3.3. Options ....................................................10
3.4. Warrants ...................................................10
3.5. Exchange of Certificates ...................................10
3.6. Dissenting Shares ..........................................12
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY ...............................................13
4.1. Organization and Capitalization ............................13
4.2. Authorization ..............................................14
4.3. Subsidiaries ...............................................14
4.4. Absence of Certain Changes or Events. ......................15
4.5. Title to Assets; Absence of Liens and Encumbrances, etc. ...15
4.6. Contracts and Commitments ..................................17
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4.7. Permits ....................................................18
4.8. No Conflict or Violation ...................................19
4.9. Consents and Approvals .....................................19
4.10. SEC Documents; Financial Statements, etc. ..................19
4.11. Undisclosed Liabilities ....................................20
4.12. Litigation .................................................20
4.13. Labor Matters ..............................................20
4.14. Compliance with Law ........................................21
4.15. No Brokers .................................................21
4.16. Proprietary Rights .........................................22
4.17. Employee Plans .............................................22
4.18. Tax Matters ................................................24
4.19. Insurance ..................................................26
4.20. Customers and Suppliers ....................................26
4.21. Compliance with Environmental Laws. ........................26
4.22. No Other Agreements to Sell the Assets or Shares of the
Company or its Subsidiaries ..........................28
4.23. Prohibited Payments ........................................28
4.24. Opinion of Financial Advisor ...............................28
4.25. Board Recommendation .......................................28
4.26. Required Company Vote ......................................28
4.27. Proxy Statement; Schedule 13E-3. ...........................29
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF SUB .....................29
5.1. Organization ...............................................29
5.2. Authorization ..............................................29
5.3. Consents and Approvals .....................................29
5.4. No Conflict or Violation ...................................30
5.5. Proxy Statement ............................................30
5.6. Financing ..................................................30
ARTICLE VI. COVENANTS OF THE COMPANY AND SUB .........................30
6.1. Maintenance of Business Prior to Closing ...................30
6.2. Investigation by Sub .......................................32
6.3. Consents and Efforts .......................................33
6.4. Other Offers ...............................................34
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6.5. Meeting of Stockholders ....................................36
6.6. Proxy Statement ............................................37
6.7. Schedule 13E-3 .............................................37
6.8. Director and Officer Liability .............................37
6.9. Notices of Certain Events ..................................38
6.10. Further Assurances .........................................39
6.11. Resignation of Directors ...................................39
6.12. Financial Statements, Etc ..................................39
ARTICLE VII. CONDITIONS TO THE MERGER ................................39
7.1. Conditions to the Obligations of Each Party. ...............39
7.2. Conditions to the Obligations of the Company. ..............40
7.3. Conditions to the Obligations of Sub. ......................40
ARTICLE VIII. MISCELLANEOUS ..........................................42
8.1. Termination ................................................42
8.2. Assignment .................................................44
8.3. Notices ....................................................45
8.4. Entire Agreement; Waivers ..................................45
8.5. Multiple Counterparts ......................................46
8.6. Invalidity .................................................46
8.7. Titles .....................................................46
8.8. Fees and Expenses ..........................................46
8.9. Cumulative Remedies ........................................46
8.10. GOVERNING LAW ..............................................46
8.11. Amendment ..................................................46
8.12. Public Announcements .......................................47
8.13. Enforcement of Agreement ...................................47
8.14. Non-survival of Representations, Warranties ................47
8.15. Interpretive Provisions ....................................47
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ANNEX B
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to ss.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinary meant by those words
and also membership or membership interest of a member of a nonstock
corporation; and words "depository receipt" mean a receipt or other instrument
issued by a depository representing an interest in one or more shares, or
fractions thereof, solely of stock of a corporation, which stock is deposited
with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss.251 (other than a merger effected pursuant to ss.251(g)
of this title), ss.252, ss.254, ss.257, ss.258, ss.263 or ss.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc., or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of ss.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to ss.ss.251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipt in respect
thereof) or depository receipts at the
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effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss.253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that apprisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent or the sale of all or substantially all of the assets of the
corporation. If the certificate of incorporation contains such a provision, the
procedures of this section, including those set forth in subsections (d) and (e)
of this section, shall apply as nearly as practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which apprisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
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(2) If the merger or consolidation was approved pursuant to ss.228 or
ss.253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series stock of such constituent corporation
who are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all shares of
such class or series of stock of such constituent corporation, and shall include
in such notice a copy of this section; provided that, if the notice is given on
or after the effective date of the merger or consolidation, such notice shall be
given by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the effective
date of the merger or consolidation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's shares. If such notice did not
notify stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders of
any class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or (ii)
the surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided, however,
that if such second notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistance secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be not
more than 10 days prior to the date the notice is given, provided, that if the
notice is given on or after the effective date of the merger or consolidation,
the record date shall be such effective date. If no record date is fixed and the
notice is give prior to the effective date, the record date shall be the close
of business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsection (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (b) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to
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which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate in all proceedings until it is finally determined that he is not
entitled to appraisal rights under this section.
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(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
120, L. '97, eff. 7-1-97.)
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ANNEX C
June 23, 1998
Board of Directors
Celadon Group, Inc.
One Celadon Drive
Indianapolis, IN 46236-4207
Members of the Board:
You have asked us to advise you with respect to the fairness, from a financial
point of view, to the holders of the common stock, par value $0.033 per share
(the "Shares) of Celadon Group, Inc. (the "Company") (other than a portion of
such shares held by certain officers, directors and employees of the Company as
set forth on Schedule A to the Merger Agreement (as herein after defined) (the
"Rollover Shares") of the consideration to be received by such holders pursuant
to the terms of the Agreement and Plan of Merger, dated as of June 23, 1998 (the
"Merger Agreement"), by and between the Company and Laredo Acquisition Corp.
("Sub"). The Merger Agreement provides for, among other things, a merger of Sub
with and into the Company pursuant to which each outstanding Share (other than
the Rollover Shares and Treasury Securities (as defined in the Merger
Agreement)), will be converted into the right to receive $20.00 in cash (the
"Transaction"). The terms and conditions of the Transaction are set forth in
more detail in the Merger Agreement.
In connection with rendering our opinion, we have reviewed drafts of the Merger
Agreement and related documents, and for purposes hereof, we have assumed that
the final forms of these documents will not differ in any material respect from
the drafts provided to us. We have also reviewed and analyzed certain publicly
available business and financial information relating to the Company for recent
years and interim periods to date, as well as certain internal financial and
operating information, including financial forecasts, analyses and projections
prepared by or on behalf of the Company and provided to us for purposes of our
analysis, and we have met with management of the Company to review and discuss
such information and, among other matters, the Company's business, operations,
assets, financial condition and future prospects.
We have reviewed and considered certain financial and stock market data relating
to the Company, and we have compared that data with similar data for certain
other companies, the securities of which are publicly traded, that we believe
may be relevant or comparable in certain respects to the Company or one or more
of its businesses or assets, and we have reviewed and considered the financial
terms of certain recent acquisitions and business combination transactions in
the trucking industry specifically, and in other industries generally, that we
believe to be reasonably comparable to the Transaction or otherwise relevant to
our inquiry. We have also performed such other financial studies, analyses, and
investigations and reviewed such other information as we considered appropriate
for purposes of this opinion.
In our review and analysis and in formulating our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We have also assumed and relied upon the reasonableness and
accuracy of the financial projections, forecasts and analyses provided to us,
and we have assumed that such projections, forecasts and analyses were
reasonably prepared in good faith and on bases reflecting the best currently
available judgments and estimates of the Company's management. We express no
opinion with respect to such projections, forecasts and analyses or the
assumptions upon which they are based. In addition, we have not reviewed any of
the books and records of the Company, or assumed any responsibility for
conducting a physical inspection of the properties or facilities of the Company,
or for making or obtaining an independent valuation or appraisal of the assets
or liabilities of the Company, and no such independent valuation or appraisal
was provided to us. We also have assumed that the transactions described in the
Merger Agreement will be consummated without waiver or modification of any of
the material terms or conditions contained therein by any party thereto. Our
<PAGE>
<PAGE>
opinion is necessarily based on economic and market conditions and other
circumstances as they exist and can be evaluated by us as of the date hereof.
It should be noted that in the context of our engagement by the Company, we were
authorized only to solicit indications of interest in acquiring all or any part
of the Company from private investment groups.
In the ordinary course of our business, we may actively trade the debt and
equity securities of the Company for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
We are acting as financial advisor to the Company in connection with the
proposed Transaction and will receive a fee for our services, which is
contingent upon the consummation of the Transaction. Our opinion addresses only
the fairness from a financial point of view to the shareholders of the Company
(other than the holders of the Rollover Shares) of the consideration to be
received by such shareholders pursuant to the Transaction, and we do not express
any views on any other terms of the Transaction. Specifically, our opinion does
not address the Company's underlying business decision to effect the
transactions contemplated by the Merger Agreement. In addition, our opinion does
not address the solvency of the Company or any other entity following
consummation of the Transaction or at any time.
It is understood that this letter is for the benefit and use of the Board of
Directors of the Company in its consideration of the Transaction and except for
inclusion in its entirety in any proxy statement required to be circulated to
shareholders of the Company relating to the Transaction, may not be quoted,
referred to or reproduced at any time or in any manner without our prior written
consent. This opinion does not constitute a recommendation to any shareholder
with respect to how such holder should vote with respect to the Transaction, and
should not be relied upon by any shareholder as such.
Based upon and subject to the foregoing, including the various assumptions and
limitations set forth herein, it is our opinion that as of the date hereof, the
$20.00 per Share cash consideration to be received by the shareholders of the
Company pursuant to the Transaction is fair to such shareholders (other than the
holders of the Rollover Shares) from a financial point of view.
Very truly yours, WASSERSTEIN PERELLA & CO., INC.
Board of Directors of Celadon Group, Inc. June 23, 1998
<PAGE>
<PAGE>
Exhibit (g)
CELADON GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Three years ended June 30, 1997 with
Report of Independent Auditors
Contents
Report of Independent Auditors..................................................
Audited Consolidated Financial Statements:
Consolidated Balance Sheets............................................
Consolidated Statements of Operations..................................
Consolidated Statements of Cash Flows..................................
Consolidated Statements of Stockholders' Equity........................
Notes to Consolidated Financial Statements.............................
1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Celadon Group, Inc.
We have audited the accompanying consolidated balance sheets of Celadon Group,
Inc. as of June 30, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended June 30, 1997. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement, An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Celadon
Group, Inc. at June 30, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
August 26, 1997
2
<PAGE>
<PAGE>
CELADON GROUP, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1997 1996
---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents............................................... $ 1,845 $ 5,246
Trade receivables, net of allowance for doubtful accounts of $2,773
and $5,432 in 1997 and 1996, respectively............................ 27,736 33,642
Accounts receivable-- other............................................. 1,616 4,338
Prepaid expenses and other current assets............................... 3,972 3,247
Tires in service........................................................ 2,987 2,814
Income tax recoverable.................................................. 4,198 3,926
Assets held for resale.................................................. --- 2,548
Deferred income tax assets.............................................. 1,568 3,404
Total current assets................................................. 43,922 59,165
Property and equipment, at cost............................................ 113,206 95,003
Less accumulated depreciation and amortization.......................... 29,424 22,715
Net property and equipment........................................... 83,782 72,288
Deposits................................................................... 523 809
Tires in service........................................................... 2,057 2,234
Advance to affiliate....................................................... 1,933 ---
Intangible assets.......................................................... 750 875
Goodwill, net of accumulated amortization.................................. 4,848 4,980
Other assets............................................................... 1,379 1,570
Total assets......................................................... $139,194 $ 141,921
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ 5,284 $ 8,707
Accrued expenses........................................................ 14,226 20,122
Bank borrowings and current maturities of long-term debt................ 309 4,029
Notes payable........................................................... --- 1,200
Current maturities of capital lease obligations......................... 11,376 7,356
Income taxes payable.................................................... --- 527
Current maturities of ESOP loan......................................... --- 185
Total current liabilities............................................ 31,195 42,126
Long-term debt, net of current maturities.................................. 11,959 26,552
Capital lease obligations, net of current maturities....................... 42,402 23,473
Deferred income tax liabilities............................................ 7,832 7,796
Total liabilities.................................................... 93,388 99,947
Minority interest.......................................................... 12 12
Commitments and contingencies.............................................. --- ---
Stockholders' equity:
Preferred stock, $1.00 par value, authorized 179,985 shares; issued
and outstanding zero shares.................................................. --- ---
Common stock, $0.033 par value, authorized 12,000,000 shares; issued
7,750,580 shares in 1997 and 1996............................................ 256 256
Additional paid-in capital...................................................... 56,281 56,281
Retained earnings (deficit)..................................................... (9,531) (14,035)
Equity adjustment for foreign currency translation.............................. (252) (355)
Debt guarantee for ESOP......................................................... --- (185)
Treasury stock, at cost, 128,000 shares and zero shares at June 30, 1997,
and 1996, respectively (960) ---
Total stockholders' equity................................................... 45,794 41,962
Total liabilities and stockholders' equity...................................$ 139,194 $ 14,192
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<PAGE>
CELADON GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 1997, 1996 and 1995
(Dollars in thousands except per share
amounts)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating revenue................................................ $ 191,035 $166,544 116,360
Operating expenses:
Salaries, wages and employee benefits......................... 67,758 64,683 47,351
Fuel.......................................................... 30,854 28,037 19,528
Operating costs and supplies.................................. 13,482 12,944 11,246
Insurance and claims.......................................... 6,014 6,082 5,271
Depreciation and amortization................................. 10,135 7,365 5,744
Rent and purchased transportation............................. 35,604 32,107 9,194
Professional and consulting fees.............................. 1,536 2,001 1,292
Communications and utilities.................................. 3,102 2,544 1,793
Permits, licenses and taxes................................... 4,174 4,327 3,469
Employee stock ownership plan contribution.................... 59 100 25
(Gain) on sale of revenue equipment........................... --- (1,085) (490)
Selling expenses.............................................. 3,286 3,123 1,409
General and administrative.................................... 2,596 2,579 1,349
Total operating expenses................................... 178,600 164,807 107,181
Operating income................................................. 12,435 1,737 9,179
Other (income) expense:
Interest expense.............................................. 4,944 3,672 3,171
Minority interest in loss..................................... --- --- (5)
Other (income) expense, net................................... (37) 72 108
Income (loss) from continuing operations before
income taxes................................................ 7,528 (2,007) 5,905
Provision for income taxes (benefit).......................... 3,024 (411) 3,690
Income (loss) from continuing operations................... 4,504 (1,596) 2,215
Discontinued operations:
Loss from operations of freight forwarding division
(net of tax) --- (2,306) (3,142)
Loss on disposal of freight forwarding division (net of tax).. --- (12,815) ---
Income (loss) from operations of logistics division
(net of tax)............................................... --- (149) 536
Gain on disposal of logistics division (net of tax)........... --- 67 ---
Income (loss) from discontinued operations.................... --- (15,203) (2,606)
Net income (loss).......................................... $ 4,504 $(16,799) (391)
Earnings (loss) per Common Share:
Continuing operations......................................... $0.59 $(0.20) $0.31
Discontinued operations....................................... --- $(1.93) $(0.36)
Net income (loss).......................................... $0.59 $(2.13) $(0.05)
Weighted average number of common shares and common share 7,653 7,879 7,192
equivalents outstanding.......................................
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<PAGE>
CELADON GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Continuing operations:
Cash flows from operating activities:
<S> <C> <C> <C>
Net Income (loss) from continuing operations................... 4,504 (1,596) 2,215
Adjustments to reconcile net income (loss) to net cash.........
provided by operating activities:
Depreciation and amotization................................ 10,135 7,365 5,744
Provision for deferred income taxes......................... 267 2,295 876
Provision for doubtful accounts............................. 280 120 90
Net (gain) on sale of property and equipment................ --- (1,085) (490)
Net (gain) loss other....................................... --- 73 (5)
Changes in assets and liabilities:
(Increase) in trade receivables........................... (1,655) (9,328) (3,340)
(Increase) decrease in accounts receivable--other........ (442) 5,982 (5,239)
Decrease (increase) in income tax recoverable............. 1,963 (2,790) (350)
Decrease (increase) in tires in service................... 4 (699) (565)
(Increase) in prepaid expenses and other current assets... (782) (107) (1,023)
Decrease (increase) in other assets....................... 3,998 (3,031) (4,948)
(Decrease) increase in accounts payable and accrued
expenses........................................... (937) 9,749 1,380
(Decrease) increase in income taxes payable............... (145) (539) 522
Net cash provided by (used for) operating activities...... 17,190 6,409 (5,133)
Cash flows from investing activities:
Purchase of property and equipment.......................... (1,595) (9,578) (14,081)
Proceeds from sale of property and equipment................ 14,100 2,602 3,290
Proceeds from sale of investment in unconsolidated
affiliate............................................ --- --- (6,036)
Decrease (increase) in deposits............................. 286 388 (195)
Net cash provided by (used for) investing activities...... 12,791 (6,588) (17,022)
Cash flows from financing activities:
Proceeds from issuances of common stock..................... --- 136 16,127
Proceeds from issuance of redeemable common stock........... --- --- 3,614
Payment for redemption of redeemable common stock........... --- (1,550) ---
Purchase of treasury stock for cash......................... (235) --- ---
Proceeds from bank borrowings and debt...................... --- 41,626 38,625
Payments of bank borrowings and debt........................ 19,822) (29,951) (43,138)
Principal payments under capital lease obligations.......... 10,903) (7,782) (6,788)
Net cash (used for) provided by financing activities...... 30,960) 2,479 8,440
Net cash (used for) provided by continuing operations..... (979) 2,300 (13,715)
Discontinued Operations:
(Loss) from operations, net of income taxes................. --- (15,203) (2,606)
Change in net operating assets.............................. (2,422) 20,836 9,885
Operating activities........................................ (2,422) 5,633 7,279
Investing activities........................................ --- 3,286 (1,911)
Financing activities........................................ --- (7,782) 7,710
Net cash (used for) provided by discontinued operations... (2,422) 1,137 13,078
(Decrease) increase in cash and cash equivalents.................. (3,401) 3,437 (637)
Cash and cash equivalents at beginning of year.................... 5,246 1,809 2,446
Cash and cash equivalents at end of year.......................... 1,845 5,246 1,809
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<PAGE>
CELADON GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended June 30, 1997, 1996 and 1995
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
Common Stock Additional Foreign Treasury Debt for Total
No.of Shares Paid-in Retained Currency Stock- Guarantee Stockholders'
Outstanding Amount Capital Earnings Translation Common ESOP Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994.................... 6,552,116 $216 $39,203 $3,155 ($177) ($8) ($310) $42,079
Equity adjustments for foreign currency
translation.............................. -- -- -- -- (1) -- -- (1)
Issuance of Common Stock in public offering,
net of $763 of issuance costs............ 1,154,399 38 15,834 -- -- -- -- 15,872
Exercise of warrant......................... 35,851 1 249 -- -- -- -- 250
Exercise of incentive stock options......... 334 -- 5 -- -- -- -- 5
Retirement of treasury shares............... (1,453) -- (8) -- -- 8 -- --
Reduction of ESOP guarantee................. -- -- -- -- -- -- 25 25
Net loss.................................... -- -- -- (391) -- -- -- (391)
Balance as June 30, 1995.................... 7,741,247 255 55,283 2,764 (178) -- 57,839
Equity adjustments for foreign currency
translation.............................. -- -- -- -- (177) -- -- (177)
Exercise of incentive stock options......... 9,333 1 135 -- -- -- -- 136
Retirement of redeemable common stock....... -- -- 863 -- -- -- -- 863
Reduction of ESOP guarantee................. -- -- -- (16,799) -- -- 100 100
Net loss.................................... -- -- -- -- -- -- -- (16,799)
Balance at June 30, 1996.................... 7,750,580 256 56,281 (14,035) (355) -- (185) 41,962
Equity adjustments for foreign currency
translation.............................. -- -- -- -- 103 -- -- 103
Treasury stock purchases.................... (128,000) -- -- -- -- (960) -- (960)
Reduction of ESOP guarantee................. -- -- -- -- -- -- 185 185
Net income.................................. -- -- -- -- -- -- -- 4,504
Balance at June 30, 1997.................... 7,622,580 $256 $56,281 ($9,531) ($252) ($960) $ -- $45,794
========= ==== ======= ======== ====== ====== ======== =======
</TABLE>
6
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Celadon Group, Inc. (the "Company") was formed on July 24, 1986 through
the combination of two companies, Celadon Trucking Services, Inc. and Celadon
Logistics, Inc., each owned by the same principal stockholders. The Company
entered the freight forwarding business in July 1990 by purchasing International
Freight Holding Corp. ("IFHC") and its subsidiaries (collectively, "Randy
International"). In fiscal year 1996, the Company discontinued its freight
forwarding business and the logistics business. The Company is currently an
international transportation company primarily offering trucking services. The
Company specializes in providing long-haul, full truckload services between the
United States and Mexico. The Company expanded its presence in Mexico during May
1995 by making an investment in Servicio de Transportacion Jaguar, S.A. de C.V.
("Jaguar"), formerly known as Transportes RQF, S.A. de C.V., a Mexican company
formed to provide trucking services. In June 1995, the Company acquired Cheetah
Transportation Company and CLK, Inc., including its subsidiary Cheetah
Brokerage, Inc. (collectively "Cheetah"). Cheetah provides flatbed trucking and
brokerage services principally in the United States.
Summary of Significant Accounting Policies
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of Celadon
Group, Inc. and its subsidiaries, which are wholly owned except for Jaguar in
which the Company has a 75% interest. Discontinued operations relating to
freight forwarding and logistics are set forth in footnote 15. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Unless otherwise noted, all references to annual periods in the footnotes refer
to the respective fiscal years ended June 30.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosures at the date of the financial statements and
during the reporting period. Such estimates include provisions for damage and
liability claims, uncollectible accounts receivable and losses associated with
discontinued operations. Actual results could differ from those estimates.
7
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents.
Revenue Recognition
Trucking revenue is recognized as of the date the freight is delivered
by the Company. Amounts payable to drivers for wages and other related trucking
expenses on delivered shipments are accrued.
Tires in Service
Original and replacement tires on tractors and trailers are included in
tires in service and are amortized over 18 to 36 months.
Fuel
Fuel is generally expensed when purchased, except for the fuel supplies
at terminals and in truck tanks, which are classified as prepaid expenses.
Property and Equipment
Property and equipment are stated at cost. Property and equipment under
capital leases are stated at the lower of the present value of minimum lease
payments at the beginning of the lease term or fair value at the inception of
the lease.
Depreciation of property and equipment and amortization of assets under
capital leases is generally computed using the straight-line method and is based
on the estimated useful lives (net of salvage value) of the related assets as
follows:
<TABLE>
<CAPTION>
<S> <C>
Revenue and service equipment................... 4-10 years
Furniture and office equipment.................. 4-15 years
Buildings....................................... 20-40 years
Leasehold improvements.......................... Lesser of life of lease or
useful life of improvement
</TABLE>
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is recognized in income
8
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
for the period. The cost of maintenance and repairs, including tractor
overhauls, is charged to expense as incurred; costs incurred to place assets in
service and betterments are capitalized and depreciated over the remaining life
of each respective asset.
Initial delivery costs relating to placing tractors and trailers in
service, which are included in revenue and service equipment, are being
amortized on a straight-line basis over the lives of the assets and, in the case
of leased equipment, over the respective lease.
Intangibles
Intangibles reflect the amounts assigned to various assets of
businesses acquired. Amortization of intangibles is generally computed using the
straight line method for financial reporting purposes and is based on the
estimated useful lives of the related assets. Intangibles consist of customer
lists related to the Cheetah acquisition which are being amortized over an eight
year period. The net intangibles balance was $750 thousand and $875 thousand
with related accumulated amortization of $250 thousand and $125 thousand at June
30, 1997 and 1996, respectively.
Goodwill
Goodwill reflects the excess of cost over net assets of businesses
acquired and is being amortized by the straight-line method over 40 years. The
carrying value of the goodwill is reviewed if the facts and circumstances
suggest that it may be permanently impaired. Such review is based upon the
undiscounted expected future operating profit derived from such businesses and,
in the event such result is less than the carrying value of the goodwill, the
carrying value of the goodwill is reduced to an amount that reflects the
expected future benefit.
Investment in Unconsolidated Affiliate
In December 1996, the Company provided a loan to and acquired a 49%
interest in NG Enterprises, Inc. ("NGE"), a company controlled by Norman G.
Grief, the former President and Chief Executive Officer of Randy International,
Inc. The investment was sold in July 1997. This investment is being accounted
for under the cost basis method of accounting. See Note 13 "Investment in
Unconsolidated Affiliate."
9
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
Insurance Reserves
The Company self insures the per occurrence deductible for (i) personal
injury and property damage claims up to $50,000, (ii) physical damage claims up
to $15,000 per unit, (iii) workers compensation claims up to $150,000 and (iv)
cargo loss up to $10,000 per occurrence, in each case at June 30, 1997 and 1996.
Reserves for known claims and incurred but not reported claims up to these
limits are accrued based upon information provided by insurance adjusters and
actuarial factors. Management considers such reserves adequate. Such amounts are
included in accrued expenses.
Income Taxes
Income taxes are accounted for using the liability method. Under the
asset and liability method. deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled.
Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables.
Concentrations of credit risk with respect to trade receivables are generally
limited due to the Company's large number of customers and the diverse range of
industries which they represent. Accounts receivable balances due from Chrysler
Corporation ("Chrysler") totaled $8.7 million or 33% and $7.5 million or 30% of
the total continuing operations gross trade receivables at June 30, 1997 and
1996, respectively. The Company had no other significant concentrations of
credit risk.
Foreign Currency Translation
Foreign financial statements are translated into U. S. dollars in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation." Assets and liabilities of the Company's foreign
operations are translated into U.S. dollars at year-end exchange rates. Income
statement accounts are translated at the average exchange rate prevailing during
the year. Resulting translation adjustments are reported as a separate component
of stockholders' equity.
10
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
Common Stock Dividend Policy
Although the Company has paid cash dividends on the Common Stock from
time to time, it has no present intention of paying cash dividends on the Common
Stock in the foreseeable future. Moreover, pursuant to its credit agreements,
the Company and certain of its subsidiaries may pay cash dividends only up to
certain specified levels and if certain financial ratios are met.
Net Income (Loss) per Common Share
The net income (loss) per common share is based upon the weighted
average number of shares of common stock and common stock equivalents, when
dilutive, outstanding during the period.
Reclassifications
Certain reclassifications have been made to the 1996 and 1995 financial
statements in order to conform to the 1997 presentation.
Implementation of New Financial Accounting Standards
Effective July 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121
requires that impairments, measured using fair market value, are recognized
whenever events or changes in circumstances indicate that the carrying amount of
long lived assets may not be recoverable and the future undiscounted cash flows
attributable to the asset are less than its carrying value. Adoption of this
statement did not affect the Company's consolidated results of operations.
Effective July 1, 1996, the Company adopted SFAS No. 123, "Stock Based
Compensation." This statement requires the Company to choose between two
different methods of accounting for stock options. The statement defines a
fair-value-based method of accounting for stock options but allows an entity to
continue to measure compensation cost for stock options using the accounting
prescribed by APB Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees." The Company has elected to continue using the accounting methods
prescribed by APB No. 25 but has included the pro forma disclosures required by
SFAS No. 123 in Note 8.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted for
financial statements issued for periods ending after December 15, 1997. This
statement establishes standards for computing and presenting earnings per share
(FPS). It requires dual presentation of basic and diluted EPS on the face of the
income statement and a reconciliation between the computations. The Company has
not yet determined the impact of Statement 128 on its reported earnings per
share.
11
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
In June 1997, the Financial Accounting Standards Board issued Statement
No. 131, Disclosures about Segments of an Enterprise and Related Information,
which is effective for fiscal years beginning after December 15, 1997. This
statement establishes requirements for reporting information about operating
segments. This statement may require a change in the way the Company's segments
are presently reported; however, the extent of the change, if any, has not been
determined.
(2) SEGMENT AND GEOGRAPHICAL INFORMATION; SIGNIFICANT CUSTOMER
The Company's continuing business is operated through two divisions;
truckhold and flatbed and the Company generates revenue from its operations in
the United States and Mexico.
The flatbed segment was acquired in June 1995 in a transaction
accounted for as a purchase. Consequently, there is no financial data presented
for this division for period prior to fiscal 1996.
Information as to the Company's operations by division is summarized
below (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Operating revenue:
<S> <C> <C> <C>
Truckload............................................ $ 167,609 $ 148,167 $ 116,360
Flatbed.............................................. 23,426 18,377 ---
Total.......................................... 191,035 $ 166,544 $ 116,360
Operating income (loss):
Truckload............................................ $13,253 $5,205 $12,690
Flatbed.............................................. 1,145 768 ---
Total from operating divisions................. 14,398 5,973 12,690
Corporate expenses................................... 1,963 4,236 3,511
Interest expense..................................... 4,944 3,672 3,171
Other expense (income)............................... (37) (72) 103
Income (loss) from continuing operations
before income taxes............................ $7,528 ($2,007) $5,905
Total assets:
Truckload............................................ $119,273 $107,737 $86,884
Flatbed.............................................. 8,271 7,021 645
Total from operating divisions................. 127,544 114,758 87,529
Corporate............................................ 5,524 6,553 8,439
Discontinued operations.............................. 6,126 20,610 55,656
Total.......................................... $139,194 $141,921 $151,624
Capital expenditure (including capital leases):
12
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
Total................................................. $ 191,035 $ 166,544 $ 116,360
Total................................................. $ 191,035 $ 166,544 $ 116,360
Operating income (loss):
Truckload............................................... $13,253 $5,205 $12,690
Flatbed................................................. 1,145 768 ---
Total from operating divisions....................... 14,398 5,973 12,690
Corporate expenses...................................... 1,963 4,236 3,511
Interest expense........................................ 4,944 3,672 3,171
Other expense (income).................................. (37) (72) 103
Income (loss) from continuing operations
before income taxes................................ $7,528 ($2,007) $5,905
before income taxes................................ $7,528 ($2,007) $5,905
Total assets:
Total assets:
Truckload............................................... $119,273 $107,737 $86,884
Flatbed................................................. 8,271 7,021 645
Truckload............................................... $35,415 $24,131 $26,248
Flatbed................................................. 32 18 --
Corporate............................................... -- 3 27
Total................................................ $35,447 $24,152 $26,285
Depreciation and amortization:
Truckload............................................... $9,826 $7,108 $5,733
Flatbed................................................. 238 238 --
Corporate............................................... 71 19 11
Total............................................... $10,135 $7,365 $5,744
</TABLE>
Information as to the Company's continuing operations by geographical
area is summarized below (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- -----------
Operating revenue:
<S> <C> <C> <C>
United States................................ $ 185,378 $ 161,605 $ 115,438
Mexico(1).................................... 5,657 4,939 922
---------- ----------- -----------
Total............................... $191,035 $166,544 $ 116,360
========== =========== ===========
Income (loss) before income taxes:
United States................................ $ 7,221 $ (2,435) $5,799
Mexico(1).................................... 307 428 106
---------- ----------- -----------
Total............................... $ 7,528 $ (2,007) $5,905
========== =========== ===========
Total assets:
United States................................ $131,398 $118,815 $ 94,908
Mexico(1).................................... 1,670 2,496 1,060
---------- ----------- -----------
Total............................... $133,068 $121,311 $ 95,968
========== =========== ===========
</TABLE>
- ----------------
(1) Relates to the Company's trucking operations in Mexico.
Revenue from Chrysler accounted for 47%, 54%, and 45% of the Company's
truckload revenue for 1997, 1996, and 1995, respectively. The Company transports
Chrysler after-market replacement parts and accessories within the United States
and Chrysler original equipment automotive parts primarily between the United
States and the Mexican border, which accounted for
13
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
30% and 70%, respectively, of the Company's revenue from Chrysler in 1997 and
31% and 69%, respectively, in 1996. Chrysler business is covered by two
agreements, one of which covers the United States-Mexican business and the other
of which covers domestic business. The international contract was extended for
three years and now expires on December 31, 1999. The contract applicable to
domestic business has expired by is the basis for service provided while a new
contract is negotiated.
(3) PROPERTY, EQUIPMENT AND LEASES
Property, Equipment and Revenue Equipment Under Capital Leases
Property and equipment, at cost, consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Revenue equipment............................ $37,790 $40,413
Revenue equipment under capital leases....... 68,365 41,423
Furniture and office equipment............... 2,798 2,729
Land and buildings........................... 3,986 9,920
Service equipment............................ 84 362
Leasehold improvements....................... 183 156
---------- ---------
$113,206 $95,003
========== =========
</TABLE>
Revenue and service equipment and revenue equipment under capital
leases include positioning costs which are amortized over the shorter of the
useful lives of the assets or the terms of the leases.
Included in accumulated depreciation was $10.8 million and $7.0 million
in 1997 and 1996, respectively, related to revenue equipment under capital
leases.
Depreciation and amortization expense relating to property and
equipment and revenue equipment under capital leases was $9.9 million in 1997,
$7.0 million in 1996, $5.6 million in 1995.
Lease Obligations
The Company leases certain revenue and service equipment under
long-term lease agreements, payable in monthly installments with interest at
rates ranging from 5.3% to 10.6% per annum, maturing at various dates through
2003.
14
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
The Company leases warehouse and office space under noncancellable
operating leases expiring at various dates through September, 2016. Certain
leases contain renewal options.
In September 1996, the Company entered into a sale/leaseback
transaction relating to its new headquarters facility in Indianapolis, IN. The
proceeds from the transaction were used to reduce by approximately $6 million
the borrowings outstanding under its bank credit facility.
During the quarter ended December 31, 1996, the Company declared its
option to purchase certain revenue equipment previously financed with operating
leases at the end of the lease term. As a result of this conversion, fixed
assets and capital lease obligations uncreased $10.4 million. The Company also
completed a sale leaseback of certain revenue equipment previously owned. The
proceeds from the sale and the increase to capital lease obligations was $6.6
million.
Future minimum lease payments relating to capital leases and to
operating leases with initial or remaining terms in excess of one year are as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended Capital Operating
June 30 Leases Leases
- ------------------- ----------- ------------
<S> <C> <C>
1998........................................ $15,124 $12,994
1999........................................ 15,592 11,626
2000........................................ 11,167 10,503
2001........................................ 10,222 7,098
2002........................................ 6,859 5,341
Thereafter.................................. 4,800 12,153
----------- ------------
Total minimum lease payments....... 63,764 $59,715
============
Less amounts representing interest.......... 9,986
-----------
Payment value of net minimum lease
payments........................... 53,778
Less current maturities............ 11,376
-----------
Non-current portion................ $42,402
============
</TABLE>
Total rental expense for operating leases is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ----------- ----------
<S> <C> <C> <C>
Revenue, service equipment and purchased $34,446 $32,579 $8,856
transportation.................................
</TABLE>
15
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Office facilities and terminals.................... 1,158 460 338
--------- ----------- ---------
$35,604 $33,039 $9,194
========= =========== ==========
</TABLE>
(4) BANK BORROWINGS AND LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
-------- -------
(in thousands)
--------
<S> <C> <C>
Outstanding amounts under lines of credit (collateralized
by certain trade receivables and revenue equipment)........... $11,500 $29,500
Long-term notes entered into for the purchase of tractors,
trailers and various equipment................................ --- 251
Other borrowings................................................. 459 830
------- ---------
11,959 30,581
Less current maturities.......................................... --- 4,029
-------- ---------
$11,959 $26,552
======== ==========
</TABLE>
Lines of Credit
The Company's line of credit for continuing operations for the periods
presented are as follows (in thousands):
<TABLE>
<CAPTION>
Total Lines of Credit Amount Borrowed Amount Available (ii)
- ---------------------------------- ---------------------------------- ----------------------------------
1997 1996 1997 1996 1997 1996
- ----------------- ---------------- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
(i)$30,000 $35,000 $11,500 $29,500 $16,300 $3,375
</TABLE>
- --------
(ii) Represents unused portion of Revolving Line of Credit net of
standby letters of credit not reflected in accompanying consolidated financial
statements of $2,200 thousand and $2,125 thousand at June 30, 1997 and 1996,
respectively.
(i) Represents the Company's Revolving Line of Credit with NBD Bank,
N.A. and the First National Bank of Boston commencing June 1, 1994 (the "1994
Credit Agreement").
16
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
In June 1994, the Company refinanced the outstanding borrowings under
the 1994 Credit Agreement. During the year ended June 30, 1997, the Credit
Agreement was amended and modified. As amended during fiscal 1997, terms of the
1994 Credit Agreement (Credit Agreement) provide for successive one year
renewals, at the option of the banks, commencing November 1, 1999 with an
automatic conversion to a three year term loan with a five year amortization if
the Credit Agreement is not extended by the banks. Interest is based, at the
Company's options upon either the banks prime rate or the London Interbank
Offered Rate ("LIBOR") plus a margin ranging from .625% to 1.625% depending upon
performance by the Company. At June 30, 1997, the interest rate charged on
outstanding borrowings was 7.56%. In addition, the Company pays a commitment fee
of .5% on the unused portion of the Credit Agreement.
Amounts available under the Credit Agreement are determined based upon
the Company's borrowing base, as defined. In addition, there are certain
covenants which restrict, among other things, the payment of cash dividends, and
require the Company to maintain certain financial ratios and certain other
financial conditions. Such borrowings are collateralized by the Company's
truckload trade receivables (approximately $23.1 million at June 30, 1997) and
certain revenue equipment (with a net book value of approximately $12.4 million
at June 30, 1997).
Maturities of long-term debt, assuming the Company exercises the
conversion feature within its Credit Agreement as modified in fiscal 1997, for
the years ending June 30 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998............................................ $ ---
1999............................................ 459
2000............................................ 1,725
2001............................................ 2,300
2002............................................ 2,300
Thereafter...................................... 5,175
$11,959
</TABLE>
No compensating balance requirements exist at June 30, 1997.
17
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
(5) EMPLOYEE BENEFIT PLANS
Employee Stock Ownership Plan
In July 1990, the Company established an Employee Stock Ownership Plan
(the "ESOP") for employees of certain of the Company's subsidiaries. The ESOP
borrowed $l million from a lending institution which was guaranteed by the
Company. The ESOP used the proceeds to purchase 129,500 shares of the Company's
Common Stock, par value $.033 per share, from stockholders.
The Company recognizes expense based on an amount equal to the ESOP's
cost of the shares allocated to the participants. The expense is in proportion
to annual principal and interest payments. During 1997, 1996 and 1995, the
Company did not pay the ESOP dividends and made $25 thousand, $100 thousand and
$25 thousand, respectively, in Company contributions.
The loan from the lending institution bore interest at the banks
floating prime rate. The Company paid a 1% annual commitment fee on the
outstanding principal balance of the loan. The loan was secured by the shares
purchased by the ESOP and was guaranteed by the Company. In April 1992, the loan
agreement was amended to require principal payments of $25 thousand per quarter
commencing June 30, 1992, with the remaining balance due April 1994. In April
1994, the loan agreement was extended with principal payments of $25 thousand
per quarter required commencing June 30, 1995, and the remaining balance was due
March 30, 1997. In November, 1996, the ESOP paid the loan in full with proceeds
received by the ESOP from the sale of shares in connection with the Company's
common stock offering in January 1995. Interest costs incurred amounted to
approximately $4 thousand, $24 thousand and $29 thousand during 1997, 1996,
1995, respectively. In connection with such loan, the Company issued to the
lender a warrant to purchase shares of Common Stock. See Note 7 - "Stockholders'
Equity".
401(k) Profit Sharing Plan
In July 1990, the Company established a 401(k) profit sharing plan
which permits employees of the Company to contribute up to 15% of their annual
compensation, up to certain Internal Revenue Service limits. The contributions
made by each employee are fully vested at all times and are not subject to
forfeiture. The Company makes a matching contribution of 25% of the employee's
contribution up to 5% of their annual compensation and may make additional
discretionary contributions. The aggregate Company contribution may not exceed
5% of the employee's compensation. Employees vest in the Company's contribution
to the plan at the rate of 20% per year from the date of contribution.
Contributions made by the Company during 1997, 1996 and 1995 amounted to $155
thousand, $83 thousand and $83 thousand, respectively. No discretionary
contributions were made during 1997, 1996 or 1995.
18
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
Employee Stock Purchase Plan
On October 18, 1996, the Company's Board of Directors authorized the
sale of up to 250,000 shares of the Company's Common Stock to the Celadon Group,
Inc. Employee Stock Purchase Plan (the "Plan"), referred to informally by the
Company as the Celadon Hallmark Investment Plan ("CHIP"). The Common Stock, par
value $0.33 per share, may be treasury shares or newly issued shares, at a price
equal to 85% of the fair market value of the shares as of the day of purchase.
There were approximately 200 active participants in the Plan as of June 30,
1997. Participation in the Plan is limited to employees who meet the eligibility
requirements set forth in the Plan and executive officers of the Company may not
participate. As of June 30, 1997, 9,692 shares had been purchased under the Plan
in open market transactions for an average price of $11.30 per share. The
Company's contribution to the purchases made was $16 thousand.
(6) SENIOR SUBORDINATED CONVERTIBLE NOTE
In October 1992, the Company issued an $8 million, 9.25% Senior
Subordinated Convertible Note (the "9.25% Note") which was due and payable on
September 30,1998. On February 28, 1994, the holder converted the 9.25% Note
into 739,371 shares of Common Stock. In connection with the issuance of the
9.25% Note, the Company issued a warrant to purchase 12,121 shares of Common
Stock and entered into a registration rights agreement covering shares issued
from the conversion of the 9.25% Note or warrant. See Note 7 - "Stockholders'
Equity".
(7) STOCKHOLDERS' EQUITY
Common and Preferred Stock
On October 31, 1994, in connection with the formation of Celadon/Jacky
Maeder Company ("CJN"), Swissair Associated Companies, Ltd. ("Swissair")
purchased 200,000 shares of Common Stock, at $18.07 per share. These shares were
classified as redeemable common stock because Swissair could require the Company
to repurchase such shares at $18.07 per share, plus 10% interest and one-half of
the stock appreciation as defined in the agreement, if the Company did not
effect a shelf registration for the benefit of Swissair prior to April 30, 1996.
On February 7, 1996, the Company's Board of Directors ("the Board") authorized
the purchase of the 200,000 shares of the Company's Common Stock from Swissair
Associated Companies, Ltd. On February 21, 1996 these shares were purchased at a
negotiated price of $13.75 per share.
On January 31, 1995, the Company issued 1,000,000 shares of Common
Stock and granted to the underwriters an over-allotment option to issue an
additional 154 thousand shares of Common Stock pursuant to an underwritten
public offering. On February 2, 1995 the overallotment option was exercised by
the underwriters and the Company issued an additional 154,399 shares of Common
Stock. The aggregate proceeds from these issuances of Common Stock were $16.6
million. In connection with these issuances the Company incurred costs of $763
thousand.
19
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
On February 2, 1995, the Company retired 1,453 shares of Common Stock
held in treasury. In addition, on February 2, 1995 the Company amended its
Certificate of Incorporation by reducing the number of authorized shares of
Common Stock from 17,000,000 shares to 12,000,000 shares.
During fiscal year 1997, the Company purchased on the open market
28,000 shares of the Company's Common Stock at an average price of $8.40 per
share and recorded these shares as treasury stock. In addition, the Company
received and recorded as treasury stock 100,000 shares of the Company's Common
Stock valued at $7.25 per share from the former President of Celadon Group, Inc.
as consideration for a portion of the sales price paid by him to acquire the
Company's South American warehousing, logistics and distribution business
operating under the name of Celsur, Inc.
Stock Options
Stock options and performance awards have been granted to officers and
other executives and key employees. Stock options are granted at exercise prices
equal to the fair market value of the Company's stock at the dates of grant.
Generally, options vest in increments and become fully exercisable three years
from the date of grant and have a term of 10 years. See Note 8 - "Stock
Options."
Warrants
Pursuant to the ESOP loan agreement, the Company issued to the lender a
warrant entitling the holder to purchase, in the aggregate, 2% of the Company's
outstanding Common Stock, subject to adjustment as defined in the agreement, for
a price of $500 thousand. On January 23, 1995, the warrant holder exercised one
half of the warrant by paying to the Company $250 thousand upon the issuance of
35,851 shares by the Company. On October 1, 1996, the Company's Board of
Directors authorized the extension of the expiration date for the warrant issued
pursuant to the ESOP loan agreement to November 1, 1997.
In connection with the issuance of the 9.25% Note, the Company issued
to the holder of the 9.25% Note a warrant to purchase 12,121 shares of the
Common Stock at $10.82 per share, subject to certain adjustments for dilution.
The warrant is exercisable through September 30, 1998.
In connection with each of the warrants described above, the Company
has granted certain piggyback and demand registration rights with respect to
shares issued upon the exercise of such warrants.
(8) STOCK OPTIONS
In January 1994, the Company adopted a Stock Option Plan (the "Plan")
which provides for the granting of stock options, stock appreciations rights and
restricted stock awards to purchase not more than 250,000 shares of Common
Stock, subject to adjustment under certain circumstances, to
20
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
select management and key employees of the Company and its subsidiaries. During
1995, the Plan was amended to increase the number of shares under the Plan from
250,000 to 500,000 shares, which amendment was approved by the shareholders at
the 1994 annual meeting.
In connection with the extension of an employment agreement with the
President and Chief Executive Officer of CJM (the "CJM Executive") in February
1994, an option to purchase 100,000 shares of Common Stock was granted at an
exercise price of $14.50 per share. In connection with the sale of certain
freight forwarding assets to NG Enterprises Inc., a company controlled by the
CJM Executive, the options were canceled. See Note 15 - Discontinued Operations.
The Company has elected to follow Accounting Principles Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its stock options. Under APB No. 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized. However, SFAS No. 123, "Accounting for Stock-Based Compensation,"
requires presentation of pro forma net income and earnings per share as if the
Company had accounted for its employee stock options granted subsequent to June
30, 1995, under the fair value method of that statement. Under SFAS No. 123,
total compensation expense for stock-based awards of $650 thousand and $433
thousand in 1997 and 1996, respectively, on a pro forma basis, would have been
reflected in income on a pretax basis. For purposes of pro forma disclosure, the
estimated fair value of the options is amortized to expense over the vesting
period. Under the fair value method, the Company's net income and earnings per
share would have been reduced as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Income..................................... $390 $260
Earnings per share............................. .05 .03
</TABLE>
Because SFAS No. 123 is applicable only to options granted subsequent to June
30, 1995, and the options have a three-year vesting period, the pro forma effect
will not be fully reflected until fiscal year 1999.
The weighted-average per share fair value of the individual options
granted during fiscal year 1997 and 1996 is estimated as $5.73 and $6.78,
respectively, on the date of grant. The fair values for both years were
determined using Black-Scholes option-pricing model with the following weighted
average assumptions:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Dividend yield............................. 0 0
</TABLE>
21
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Volatility.................................... 56.2% 60.8%
Risk-free interest rate....................... 6.03% 6.73%
Forfeiture rate............................... 10% 36%
Expected life................................. 7 years 7 years
</TABLE>
Stock option activity during 1995-1997 is summarized below:
<TABLE>
<CAPTION>
Shares of Weighted
Common Stock Average
Attributable to Exercise Price
Options of Options
------------------- -------------------
<S> <C> <C>
Unexercised at July 1, 1994 299,650 $14.5584
Granted 239,000 16.3891
Exercised (334) 14.5000
Forfeited (8,566) 14.9378
-------------------
Unexercised at June 30, 1995 529,750 15.3782
Granted 171,800 10.2698
Exercised (9,333) 14.5000
Forfeited (102,600) 14.3307
-------------------
Unexercised at June 30, 1996 589,617 13.7468
Granted 98,000 8.9541
Exercised --- ---
Forfeited (257,817) 14.1815
-------------------
Unexercised at June 30, 1997 429,800 11.9919
===================
</TABLE>
22
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
The following table summarizes information concerning outstanding and
exercisable options at June 30, 1997.
<TABLE>
<CAPTION>
Weighted-
Average
Range of Remaining Weighted- Weighted
Exercise Number Contractual Average Number Average-
Prices Outstanding Life Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C> <C>
$5 - $10 221,500 8.4071 $ 9.2946 122,672 $ 9.6943
$10- $15 148,800 7.8223 13.3474 111,506 14.1547
$15- $20 59,500 7.1667 18.6429 59,500 18.6429
</TABLE>
Shares exercisable at June 30, 1997 and 1996, were 293,678 and 356,029,
respectively.
(9) RELATED PARTY TRANSACTIONS
CJM's main warehouse facility in New York was leased from a corporation
owned by the CJM Executive and another employee of CJM. Rent in the amounts of
$148 thousand and $146 thousand was paid by the Company in each of 1996 and
1995, respectively, under the terms of the lease agreement, which expired in
1996.
Additionally, CJM's Israeli freight forwarding agent, which had a
profit sharing arrangement with the Company, is 30% owned by the CJM Executive.
The gross profits (freight forwarding revenue less direct transportation of
freight forwarding) in each of 1996 and 1995 earned by the Israeli agent were
approximately $302 thousand and $747 thousand, respectively. In connection with
this agency agreement which terminated in June 1997, the Company agreed in
fiscal 1994 to advance up to $500 thousand to its Israeli agent for advancing on
behalf of Israeli customers value added taxes and other prepaid charges incurred
by such agent in its business. As of June 30, 1997, there were no advances
outstanding. In connection with the winddown of the freight forwarding business
segment, CJM and the Company resolved certain disputed items with CJM's Israeli
freight forwarding agent. As a result, the Company recorded a $727,000 bad debt
write-off expense as a component of the loss on discontinued operations in the
fiscal year ended June 30, 1996.
The Company's Chief Executive Officer and the Company's former
President, prior to his resignation in July 1996, were parties to a
stockholders' agreement that required the parties thereto to vote their shares
of stock for the election as directors of the Company certain designees of the
other party to the agreement. The Company, the Company's Chief Executive Officer
(the "Company Executive"), and Hanseatic, a significant shareholder, are parties
to a stockholders agreement. This agreement provides that, as long as Hanseatic
or the Company Executive each beneficially own at least five percent of the
outstanding shares of Common Stock, the Company shall use its best efforts to
insure that one member of the Company's board of directors is a designee of
Hanseatic and that
23
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
another member of the Company's board of directors is a designee of the Company
Executive. In addition, the Company Executive and Hanseatic have agreed to vote
all shares of Common Stock owned by them in favor of the election of such
nominees or, upon the death of the Company Executive, for the designee of the
holder of a majority of the Company Executive's shares of Common Stock on the
date of death.
On July 3, 1996, Leonard R. Bennett, former President, Chief Operating
Officer and a Director of the Company resigned as an Officer and Director of the
Company and all of its subsidiaries. At that time, he also released the Company
from its obligations under his employment contract. The Company entered into a
three year noncompete and consulting agreement with Mr. Bennett which provided
for annual payments of $269,396, which were accrued as of June 30, 1996, and
continuation of certain disability and life insurance benefits. The agreement
can be canceled by either party for cause. Mr. Bennett acquired the Company's
80.5% interest in Celsur Inc. for a total of 100,000 shares of Celadon Group,
Inc. common stock and $2,440,645 in the form of a personal note, bearing
interest at the prime commercial lending rate of The Chase Manhattan Bank, N.A.
New York, New York which was paid in full when due on October 3, 1996. On March
28, 1997, the agreement was terminated and all other obligations of the parties,
except for the non-compete and confidentiality provisions and certain
indemnifications, ceased upon the payment by the Company of $365,565.
On July 3, 1996, Peter Bennett, former Executive Vice President
Administration of Celadon Trucking Services, Inc. ("CTSI"), the Company's
principal operating subsidiary, resigned as an officer and employee of CTSI. The
Company entered into a one year non-compete and consulting contract with Mr.
Bennett providing for an annual payment of $60,000 which was accrued for as of
June 30, 1996. On March 28, 1997, the agreement was terminated and all other
obligations of the parties, except for the non-compete and confidentiality
provisions and certain indemnifications, ceased upon the payment by the Company
of $30,692.
In July 1996, the Company guaranteed eight individual one year bank
loans to eight executives aggregating $270,000. The loans range in amounts from
$9,000 to $54,000, are full recourse to the individual executive and are secured
by a total of 30,000 shares of Celadon Group, Inc. common stock owned by the
executives individually. In February, 1997, one of the original participants
withdrew and was replaced by two additional executives. On July 1, 1997, the
bank loans and the Company's guarantee were extended until January 1, 1999. The
total amounts and ranges noted were not affected.
(10) HEDGING ACTIVITIES, COMMITMENTS AND CONTINGENCIES
The Company has outstanding commitments to purchase approximately $9.4
million of revenue equipment at June 30, 1997.
Standby letters of credit, not reflected in the accompanying condensed
consolidated financial statements, aggregated approximately $2.2 million at June
30, 1997.
24
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
The Company has employment and consulting agreements with various key
employees and former employees providing for minimum combined annual
compensation over the next four years ranging from $1.1 million in 1998 to $0.3
million in 2001.
There are various claims, lawsuits and pending actions against the
Company and its subsidiaries incidental to the operation of its businesses. The
Company believes many of these proceedings are covered in whole or in part by
insurance and that none of these matters will have a material adverse effect on
its consolidated financial position.
The Company, from time-to-time, enters into arrangements to protect
against fluctuations in the price of fuel used by its trucks. As of June 30,
1997, the Company had contracts to purchase fuel for future physical delivery in
the months of November 1997 through April 1998. These contracts represent
approximately 22% of the anticipated fuel requirements in those months.
Additionally, the Company periodically acquires exchange-traded petroleum
futures contracts and various commodity collar transactions. Gains and losses on
transactions, not designated at hedges, are recognized based on market value at
the date of the financial statements. At June 30, 1997, liquidation of
outstanding transactions, not designated as hedges, which extended through June
1998 and covered approximately 32% of the Company's fuel requirements would have
resulted in a $36 thousand loss. The Company has no transactions outstanding as
of June 30, 1997 designated as hedges. The current and future delivery prices of
fuel are monitored closely and transaction positions adjusted accordingly. Total
commitments are also monitored to ensure they will not exceed actual fuel
requirements in any period. During the year ended June 30, 1997, gains of $79
thousand were realized on the physical delivery and futures contracts and shown
as a reduction of fuel expense.
The Company has been assessed approximately $750 thousand by the State
of Texas for Interstate Motor Carrier Sales and Use Tax for the period from
April 1988 through June 1992. The Company disagrees with the State of Texas over
the method used by the state in computing such taxes and intends to vigorously
pursue all of its available remedies. On October 30, l996, the Company made a
payment of $1.1 million, under protest, which includes interest to the date of
payment and enables the Company to pursue resolution of the matter with the
State of Texas Attorney General. In the March 1997 quarter, the Company filed
its Original Petition against representatives of the State of Texas. The state
responded and denied the Company's claims. As of June 30, 1997, the parties to
the litigation were exchanging discovery requests and documentation. The Company
has accrued an amount that management estimates is due based upon methods they
believe are appropriate. While there can be no certainty as to the outcome, the
Company believes that the ultimate resolution of this matter will not have a
material adverse effect on its consolidated financial position.
25
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
(11) PROVISION FOR INCOME TAXES
The income tax provision for continuing operations in 1997, 1996 and
1995 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------- ----------- ------------
Current (Credit):
<S> <C> <C> <C>
Federal............................... $1,229 $ (1,450) $ 1,958
State and local....................... 400 (171) 772
Foreign............................... 104 146 52
------------- ----------- ------------
$1,733 (1,475) 2,782
------------- ----------- ------------
Deferred:
Federal............................... 1,126 954 816
State and local....................... 165 110 92
------------- ----------- ------------
1,291 1,064 908
------------- ----------- ------------
$3,024 $ (411) $3,690
============= =========== ============
</TABLE>
No provision is made for U.S. federal income taxes on undistributed
earnings of foreign subsidiaries of approximately $257 thousand at June 30,
1997, as management intends to permanently reinvest such earnings in the
Company's operations in the respective foreign countries where earned.
The Company's effective tax rate on income (loss) from continuing
operations differs from the statutory federal tax rate of 35% as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- --------- ---------
<S> <C> <C> <C>
Statutory federal tax rate..................... 35.00% 35.00% 35.00%
State taxes, net of federal benefit............ 4.88 1.96 9.52
Non-deductible officers' life insurance........ .42 1.04 .56
Non-deductible meals and entertainment......... .38 (11.72) 15.91
Non-deductible goodwill amortization........... .21 (2.34) .18
Other, net..................................... (.72) (3.47) 1.32
------ -------- ----------
Effective tax rate.................... 40.17% 20.47% 62.49%
====== ======== ==========
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at June 30, 1997 and 1996
consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- ---------
Continuing Operations:
Deferred tax assets:
<S> <C> <C>
Allowance for doubtful accounts............. $ 461 $ 404
Insurance reserves.......................... 539 595
Revenue recognition......................... 378 491
Tires in service............................ 412 616
Parts and supplies.......................... 488 608
Accrued expense reserves.................... 750 826
Other....................................... 576 536
-------- ---------
Total deferred tax assets.......... $3,604 $4,076
========= =========
Deferred tax liabilities:
Excess tax depreciation..................... $ (5,158) $ (5,220)
Capital leases.............................. (5,337) (4,278)
---------- -----------
Total deferred tax liabilities..... $ (10,495) $ (9,498)
========== ===========
Discontinued Operations:
Net current deferred tax assets............. $ 709 $ 2,428
Net noncurrent deferred tax liabilities..... (82) (1,398)
---------- ----------
$ 627 $ 1,030
========== ==========
Net current deferred tax assets................ $ 1,568 $ 3,404
Net noncurrent deferred tax liabilities........ (7,832) (7,796)
----------- ----------
Total net deferred tax liabilities.... $ (6,264) $ (4,392)
============ ==========
</TABLE>
As of June 30, 1997, the Company had approximately $5.1 million of
operating loss carryforwards with expiration dates through 2012.
26
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
(12) SUPPLEMENTAL CASH FLOW INFORMATION
In 1997, 1996 and 1995, capital lease obligations in the amount of
$33.9 million, $14.9 million and $13.0 million, respectively, were incurred in
connection with the purchase of, or option to purchase, tires in service and
revenue equipment.
For 1997, 1996 and 1995, the Company made interest payments of $4.9
million, $3.3 million and $3.3 million, respectively.
For 1997, 1996 and 1995, the Company made income tax payments of $252
thousand, $880 thousand, and $1.5 million, respectively.
(13) INVESTMENT IN UNCONSOLIDATED AFFILIATE
On December 18, 1996, the Company sold certain assets consisting
primarily of customer lists of its wholly owned freight forwarding operations
conducted in the New York area to NG Enterprises, Inc. (NGE), a company
controlled by Norman G. Grief, the former President and Chief Executive Officer
of Randy International, Inc. In connection with the sale, the Company acquired a
49% interest in NGE, agreed to provide a five year interest bearing revolving
credit loan up to $1.9 million secured by the assets of NGE and agreed to an
option exercisable by NGE to acquire the Company's 49% interests in NGE for
$300,000 initially, which amount will increase by $30 thousand annually. No gain
or loss was recognized on the sale. On July 11, 1997, the Company transferred
its 49% interest in NGE to NGE and the business conducted by NGE was sold to
Union Transport Corporation, a wholly owned subsidiary of Union Transport, Inc.,
a global logistics company. In that transaction, Union Transport Corporation
assumed, with the Company's consent, certain of the obligations of NGE to the
Company.
(14) ACQUISITIONS
Freight Forwarding
On October 31, 1994, the Company entered into a partnership (the
"Partnership Agreement") with Jacky Maeder, Ltd., a freight forwarding company
wholly owned by Swissair Associated Companies Ltd. ("Swissair"), which
partnership combined the respective United States freight forwarding operations
of the Company (Randy International Ltd.) with Jacky Maeder, Ltd. The
partnership between the two companies operated under the name "Celadon/Jacky
Maeder Company" and was 70% owned by the Company and 30% owned by Jacky Maeder,
Ltd. The Company accounted for this transaction as a purchase. In addition,
Swissair purchased 200,000 shares of the Company's Common Stock at $18.07 per
share. The Company loaned $2.5 million of the proceeds of this share issuance to
Celadon/Jacky Maeder Company.
In connection with the formation of Celadon/Jacky Maeder Company and
the acquisition by the Company of a 70% ownership interest in the business
contributed to the partnership by Jacky
27
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
Maeder, Ltd. (based upon the fair market value of such ownership interest) in
exchange for a 30% ownership interest in the business contributed to the
partnership by Randy International, the Company realized a gain of $1.5 million
net of $400 thousand for professional fees associated with the transaction. The
Company also incurred a charge to operations of $822 thousand for costs
associated with the formation of Celadon/Jacky Maeder Company.
In connection with the integration of the Company's United States
freight forwarding business with that of Jacky Maeder, the Company wrote-off
costs of $2 million during December 1995 related to the former Randy
International computer system. This system was abandoned as a result of the
Company's conversion to a single integrated computer system for substantially
all of the United States freight forwarding operations of Celadon/Jacky Maeder
Company.
During March 1995, the Company, through its wholly owned subsidiary,
Randy UK, acquired Guestair, Ltd., a freight forwarding company based in the
United Kingdom for approximately $2.6 million. The Company accounted for this
transaction as a purchase.
In December 1995, the Company discontinued the operations of the
freight forwarding division. See Note 15 - "Discontinued Operations."
Trucking
In May 1995, the Company made an investment of approximately $1.1
million in Servicio de Transportacion Jaguar, S.A, de C.V. ("Jaguar"), formerly
known as Transportes RQF, S.A. de C.V., a previously inactive entity. For its
investment, the Company acquired 75% of the stock of Jaguar. Jaguar is a Mexican
motor freight carrier. The Company has accounted for ties transaction as a
purchase.
On June 29, 1995, the Company acquired Cheetah Transportation Company
and CLK, Inc. ("Cheetah"). Cheetah operates in the flatbed segment of the full
truckload market. The purchase price was approximately $5.1 million. The Company
has accounted for this transaction as a purchase.
(15) DISCONTINUED OPERATIONS
Freight Forwarding Segment
During December, 1995 the Board of Directors of Celadon Group, Inc.
authorized the disposal of the Company's freight forwarding business. In
connection with the Company's plan of disposition effective February 1, 1996,
the U.S. customer list together with certain assets and liabilities of the
Company's U.S. freight forwarding business, operating under the name
Celadon/Jacky Maeder Company, were sold to the Harper Group, Inc.'s primary
operating subsidiary, Circle Intemational, Inc. Pursuant to the terms of the
transaction, the total purchase price for these assets and liabilities was to be
paid in cash and equal the net revenue derived from such customer
28
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
(Dollar amounts in thousands)
list during the twelve-month period following February 1, 1996. The
Harper Group, Inc. made an initial down payment of $9.5 million at closing with
the balance of the purchase price to be paid in quarterly installment as earned
by the Harper Group, Inc. There were no additional payments by Harper Group,
Inc. to the Company based on reported net revenues during the measurement
period.
In May 1996, the Company became the sole owner of the freight
forwarding operations conducted in the New York area by acquiring the minority
interest of Jacky Maeder, Ltd. This step was taken to facilitate the ultimate
disposition of this operation. On December 18, 1996, the Company sold certain
assets consisting primarily of customer lists of the freight forwarding
operations conducted in the New York area to NG Enterprises, Inc. ("NGE"), a
company controlled by Norman G. Grief, the Former President and Chief Executive
Officer of Randy International Inc. In connection with the sale, the Company
received a 49% interest in NGE, was relieved of its obligation to Norman G.
Grief under his employment contract, agreed to provide a five year interest
bearing revolving credit loan up to $1.9 million secured by the assets of NGE
and agreed to an option exercisable by NGE to acquire the Company's 49% interest
in NGE for $300,000 initially, which amount would increase by $30 thousand
annually. No gain or loss was recognized on the sale. On July 11, 1997, the
Company transferred its 49% interest in NGE to NGE and the business conducted by
NGE was sold to Union-Transport Corporation, a wholly owned subsidiary of
Union-Transport, Inc. a global logistics company. In that transaction,
Union-Transport Corporation assumed, with the Company's consent, certain of the
obligations of NGE to the Company.
In the second quarter of fiscal 1997, there was a dispute between the
Company and its partner in the discontinued freight forwarding operation
concerning final liquidation of the partnership. The dispute was resolved by the
Company acquiring, in February, 1997, the other partner's 30% interest in the
remaining assets and liabilities of the partnership.
In May 1996, the Company concluded the sale of the United Kingdom
freight forwarding operation to Forwardair Limited a subsidiary of the Fritz
Companies.
Logistics Segment
In the quarter ended June 30, 1996, the decision was made to sell
certain businesses previously included in the Logistics division and to
discontinue offering logistic services as a separate activity of the Company.
Consequently in June 1996, the net assets of the Company's package delivery
business headquartered in New York City and operating under the name Celadon
Express was sold.
On July 3, 1996, the Company concluded the sale of its South American
warehousing logistics and distribution business operating under the name of
Celsur, Inc. for approximately $3.1 million. The sales price was paid with
100,000 shares of the Company's common stock, and an interest bearing promissory
note for $2.4 million due October 3, 1996.
29
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
(Dollar amounts in thousands)
At June 30, 1997 and 1996, assets and liabilities included in the
Company's consolidated balance sheet related to the discontinued freight
forwarding operation are as follows ( in thousands):
<TABLE>
<CAPTION>
June 30,
1997 1996
---- ----
Assets:
<S> <C> <C>
Cash................................................. $753 $3,142
Accounts receivable (net of allowance)............... 1,457 8,436
Accounts receivable other............................ 25 2,558
Prepaid expenses and other current assets............ 167 224
Assets held for resale............................... -- 69
Income tax receivable................................ 2,565 --
Deferred income tax receivable....................... 568 2,369
Other assets......................................... 590 --
Total...................................$6,125 $16,798
Liabilities and Equity:
Accounts payable.....................................$1,230 $4,805
Accrued expenses..................................... 1,861 6,146
Income taxes payable................................. -- 105
Deferred income tax liabilities (assets)............. (36) (11)
Equity adjustment for foreign currency
translation...................................... -- 25
Total $3,055 $11,070
</TABLE>
30
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
(Dollar amounts in thousands)
At June 30, 1997 and 1996, assets and liabilities included in the
Company's consolidated balance sheet related to the discontinued logistics
segments are as follows (in thousands):
<TABLE>
<CAPTION>
June 30,
1997 1996
---- ----
Assets:
<S> <C> <C>
Cash............................................ $ --- 33
Accounts receivable (net of allowance).......... --- 303
Accounts receivable other....................... --- 632
Income tax receivable........................... --- 329
Assets held for sale............................ --- 2,479(1)
Deferred income tax receivable.................. --- 36
Total...................................... $ --- $3,812
Liabilities and Equity:
Accrued expenses................................ --- $ 214
Income taxes payable............................ --- 276
Deferred income taxes payable................... --- 206
Equity adjustment for foreign currency
translation................................... --- (2)
Total...................................... $ --- $ 694
</TABLE>
- ------------
(1) Represents the net investment in Celsur Inc., the stock of which
was sold on July 3, 1996.
The anticipated loss of the disposal of the freight forwarding and logistics
segments have been accounted for as discontinued operations in accordance with
Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations
- - Reporting the Effects of Disposal of a Segment of Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." As such, prior
period financial statements have been reclassified to reflect the
discontinuation of these lines of business.
31
<PAGE>
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
The Company recorded a charge to earnings of $8.2 million during the
three months ending December 31, 1995 representing the expected loss on the
disposal of the freight forwarding segment. In determining the estimated loss on
disposition in the December 31, 1995 quarterly financial statements, management
made certain estimates and assumptions based upon currently available
information. These estimates and assumptions primarily related to the ultimate
sales price to be received from the sale of the U.S. customer list to the Harper
Group, Inc., the net realizable value of the remaining assets to be disposed of,
the liquidation of trade receivables, and the costs associated with the
settlement of certain leases, severance and other obligations. The Company also
recorded an additional $4.6 million loss on disposal, net of tax, in the June
30, 1996 financial statements. This is primarily a result of the reduction in
the payment to be received from the Harper Group, Inc. for revenue attributable
to the U. S. customer list which they acquired. Additionally, based on actual
collection and payment experience and cost to wind-down the operations through
June 30, 1996, the estimated after tax loss on discontinued freight forwarding
operations was increased by $1.2 million to $2.3 million. Revenue of the freight
forwarding segment for the years ended June 30, 1996, 1995 and 1994, were $120.5
million and $126.5 million and $83.2 million, respectively.
In the quarter ended June 30, 1996, the Company also recorded a charge
of $600 thousand relating to the discontinuation of the logistics line of
business. The loss is primarily comprised of the loss on the sale of the net
assets of Celadon Express, Inc. in June 1996, partially offset by the gain on
the sale of the Company's 80.5% ownership interest in Celsur Inc., a warehousing
and logistics operation in Argentina and Brazil. It is not anticipated that
future adjustments to the net assets sold will be material. Revenue for the
logistics segment for the years ended June 30, 1996, 1995 and 1994 were $11.9
million, $7.4 million and $3.0 million, respectively.
(16) SUBSEQUENT EVENTS
On August 25, 1997, the Company acquired the net assets of the
transportation services unit of the General Electric Industrial Control Systems
(GEICS) business and a five-year contract to continue providing transportation
service to GEICS, which represents approximately one-half of the current
business volume of the transportation services unit. The total acquisition price
was $8.5 million payable as $5.5 million in cash at closing and a $3.0 million
note plus assumption of certain liabilities and lease obligations.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
There were no changes in or disagreements with accountants on
accounting or financial disclosures within the last three fiscal years.
32
