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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO
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
(Title of Class of Securities)
150838 10 0
(CUSIP Number of Class of Securities)
STEPHEN RUSSELL
PRESIDENT, CHAIRMAN, AND CHIEF
EXECUTIVE OFFICER
CELADON GROUP, INC.
ONE CELADON DRIVE
INDIANAPOLIS, IN 46235
(317) 972-7000
BRIAN KWAIT
LAREDO ACQUISITION CORP.
C/O ODYSSEY INVESTMENT PARTNERS, LLC
280 PARK AVENUE, 38TH FLOOR
NEW YORK, NEW YORK 10017
(212) 351-7900
COPIES TO:
ARNOLD JACOBS
PROSKAUER ROSE LLP
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 969-3000
RICHARD TROBMAN
LATHAM & WATKINS
885 THIRD AVENUE
NEW YORK, NY 10022
(212) 906-1200
(Name, Addresses And Telephone Numbers Of Persons Authorized
To Receive Notices And Communications On Behalf Of Person(s) Filing Statement)
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
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TRANSACTION VALUATION* AMOUNT OF FILING FEE**
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$151,548,368 $30,310
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* 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
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Form of 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 (the "Cash Merger Price").
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.
Consummation of the Merger is subject to certain conditions, including the
obtaining of the Financing (as defined in the Merger Agreement) contemplated by
the Financing Letters (as defined in the Merger Agreement). It is contemplated
that the financing required to pay the Cash Merger Price, to pay the value of
all outstanding options (other than the Rollover Options) and the warrants (all
of which are held by an affiliate of a director of the Company), to refinance
certain existing indebtedness and capital leases of the Company and its
subsidiaries and to pay the fees and expenses in connection with the Merger and
such financing will be provided by (a) the issuance by the Company of senior
discount notes for gross proceeds of $25 million (the "Company Senior Discount
Notes") and 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" and together with the Company Senior
Discount Notes, the "Debt Securities"), (b) drawings of up to $7.5 million under
a $25 million revolving credit facility, and (c) equity financing provided by
Odyssey in the amount of approximately $57.6 million through the purchase of
common stock of Merger Sub. In the event that the offering of the Debt
Securities is not consummated prior to the Effective Time, bridge loans (the
"Bridge Loans") in an aggregate amount not to exceed $125 million will be
incurred by the Company and CTSI and will be used to finance the Merger. Merger
Sub informed the Company in writing that it had received notice on September 15,
1998 from Bankers Trust Corporation ("BT"), the institution that is to provide
the Bridge Loans, that BT would not be obligated to provide such financing under
the then existing market conditions. Pursuant to the commitment letter issued to
Merger Sub by BT with respect to the financing of the Merger (the "BT Financing
Letter"), BT
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would not be obligated to provide the Bridge Loans if, in the reasonable
judgment of BT, market conditions which would materially and adversely affect
the ability to sell or place the Debt Securities exist at the time funding is
requested. BT has noted that the conditions to funding the Bridge Loans,
including the absence of adverse market conditions, need only be satisified on
the date of request for funds. No such request has yet been made by Merger Sub.
The BT Financing Letter has not been terminated or otherwise modified as of this
date. The BT Financing Letter will terminate in accordance with its terms on
November 30, 1998 if no amounts have yet been funded thereunder. Pursuant to the
terms of the Merger Agreement, Merger Sub would not be obligated to consummate
the Merger if the financing contemplated by the BT Financing Letter was not
available. If the Merger is not consummated on or prior to November 30, 1998,
the Merger Agreement will terminate in accordance with it terms. See "Certain
Provisions of the Merger Agreement--Termination; Effect of Termination" in the
accompanying Proxy Statement.
As a result of the information available to the Company, including, without
limitation, the notice from BT and the Company's understanding of current market
conditions the Company believes it is highly unlikely that the Merger will be
consummated at the Cash Merger Price. Notwithstanding the Company's belief as to
the likelihood that the Merger will be consummated, the Company is proceeding to
take the actions required to close the Merger, including the mailing of this
Proxy Statement and obtaining stockholder approval of the Merger at the Special
Meeting. However, even if the Company's stockholders adopt and approve the
Merger Agreement, there can be no assurance that the Merger will be consummated.
See "Special Factors--Recent Developments; Material Uncertainty of Consummating
the Merger" in the accompanying Proxy Statement.
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
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ITEM IN SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT
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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.
</TABLE>
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<TABLE>
<CAPTION>
ITEM IN SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT
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Item 2(a)-(d).......................... Outside Front Cover Page, "SUMMARY--The Parties to the Merger"; "MERGER
SUB AND ODYSSEY"; and "DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING
CORPORATION."
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).............................. Outside Front Cover Page; "SUMMARY--Terms of the Merger", "--Effective
Time", and "--Conditions to Consummation of the Merger"; "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT" and ANNEX A to the Preliminary Proxy
Statement.
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".
</TABLE>
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<TABLE>
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ITEM IN SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT
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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."
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", and "THE SPECIAL MEETING--Quorum; Required Vote" and "SPECIAL
FACTORS--Reasons for the Merger; Recommendation of the Board of
Directors".
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."
Item 8(e).............................. "SUMMARY--Recommendation of the Board" and "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.
</TABLE>
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<TABLE>
<CAPTION>
ITEM IN SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT
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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".
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.
</TABLE>
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.
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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 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) 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"; "CERTAIN PROVISIONS OF THE MERGER AGREEMENT"; and
ANNEX A to the Preliminary Proxy Statement is incorporated herein by reference.
(b) Not applicable.
(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.
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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"; and
"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", and "--Appraisal Rights", "--Certain Related Agreements" 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 "SPECIAL FACTORS--Reasons for the Merger; Recommendation of
the Board of Directors" 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
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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 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, 1998, 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.
Consummation of the Merger is subject to certain conditions, including the
completion of financing to provide approximately $233.8 million to pay the Cash
Merger Price, to pay the value of all outstanding options (other than the
Rollover Options) and the warrants (all of which are held by an affiliate of a
director of the Company), to refinance certain existing indebtedness and capital
leases of the Company and its subsidiaries and to pay the fees and expenses in
connection with the Merger and such financing. It is contemplated that the
financing required in connection with the consummation of the Merger will be
provided by (a) the issuance by the Company of senior discount notes for gross
proceeds of $25 million (the "Company Senior Discount Notes") and 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" and together with the Company Senior Notes, the "Debt
Securities"), (b) drawings of up to $7.5 million under a $25 million revolving
credit facility, and (c) equity financing provided by Odyssey in the amount of
approximately $57.6 million through the purchase of common stock of Merger Sub.
In the event that the offering of the Debt Securities is not consummated prior
to the Effective Time, bridge loans (the "Bridge Loans") in an aggregate amount
not to exceed $125 million will be incurred by the Company and CTSI and will be
used to finance the Merger. Merger Sub informed the Company in
9
<PAGE>
writing that it had received notice on September 15, 1998 from Bankers Trust
Corporation ("BT"), the institution that is to provide the Bridge Loans, that BT
would not be obligated to provide such financing under the then existing market
conditions. Pursuant to the commitment letter issued to Merger Sub by BT with
respect to the financing of the Merger (the "BT Financing Letter"), BT would not
be obligated to provide the Bridge Loans if, in the reasonable judgment of BT,
market conditions which would materially and adversely affect the ability to
sell or place the Debt Securities exist at the time funding is requested. BT has
noted that the conditions to funding the Bridge Loans, including the absence of
adverse market conditions, need only be satisified on the date of request for
funds. No such request has yet been made by Merger Sub. The BT Financing Letter
has not been terminated or otherwise modified and remains in full effect as of
this date. If no amounts have yet been funded thereunder, the BT Financing
Letter will terminate in accordance with its terms on November 30, 1998. If the
Merger is not consummated on or prior to November 30, 1998, the Merger Agreement
will terminate in accordance with it terms. See "Certain Provisions of the
Merger Agreement--Termination; Effect of Termination" in the accompanying Proxy
Statement.
As a result of the information available to the Company, including, without
limitation, the notice from BT and the Company's understanding of current market
conditions the Company believes it is highly unlikely that the Merger will be
consummated at the Cash Merger Price. Notwithstanding the Company's belief as to
the likelihood that the Merger will be consummated, the Company is proceeding to
take the actions required to close the Merger, including the mailing of this
Proxy Statement and obtaining stockholder approval of the Merger at the Special
Meeting. However, even if the Company's stockholders adopt and approve the
Merger Agreement, there can be no assurance that the Merger will be consummated.
See "Special Factors--Recent Developments; Material Uncertainty of Consummating
the Merger" in the accompanying Proxy Statement.
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.
(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).
(b)(2) Materials Prepared for the Board of Directors of the Company, dated
June 22, 1998, delivered by Wasserstein Perella & Co.
(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, 1998.
10
<PAGE>
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: October 13, 1998
CELADON GROUP, INC.
By: /s/ STEPHEN RUSSELL
-----------------------------------------
Stephen Russell
PRESIDENT, CHIEF EXECUTIVE OFFICER, AND
CHAIRMAN
11
<PAGE>
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: October 13, 1998
<TABLE>
<S> <C> <C>
LAREDO ACQUISITION CORP.
By: /s/ BRIAN KWAIT
------------------------------------------
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
</TABLE>
12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- --------------------------------------------------------------------------------------------- ---------
<S> <C> <C>
(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).*
(b)(2) Materials Prepared for the Board of Directors of the Company, dated June 22, 1998, delivered
by Wasserstein Perella & Co.*
(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, 1998.**
</TABLE>
- ------------------------
* Filed previously
** Filed herewith
13
<PAGE>
CELADON GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 1998 WITH
REPORT OF INDEPENDENT AUDITORS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors......................................................... 1
Audited Consolidated Financial Statements:
Consolidated Balance Sheets.......................................................... 2
Consolidated Statements of Operations................................................ 3
Consolidated Statements of Cash Flows................................................ 4
Consolidated Statements of Stockholders' Equity...................................... 5
Notes to Consolidated Financial Statements........................................... 6
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of Celadon Group, Inc.
We have audited the accompanying consolidated balance sheets of Celadon
Group, Inc. as of June 30, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 1998. 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, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended June 30, 1998, 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 18, 1998
1
<PAGE>
CELADON GROUP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 2,537 $ 1,845
Trade receivables, net of allowance for doubtful accounts of $528 and $2,773 in 1998 and
1997, respectively...................................................................... 39,063 27,736
Accounts Receivable -- other.............................................................. 4,382 1,616
Prepaid expenses and other current assets................................................. 5,018 3,972
Tires in service.......................................................................... 3,555 2,987
Income tax recoverable.................................................................... 960 2,684
Current portion of notes receivable....................................................... 683 --
Deferred income tax....................................................................... 7,056 6,790
--------- ---------
Total current assets.................................................................... 63,254 47,630
--------- ---------
Property and equipment, at cost............................................................. 150,535 113,206
Less accumulated depreciation and amortization............................................ 35,476 29,424
--------- ---------
Net property and equipment.............................................................. 115,059 83,782
--------- ---------
Deposits.................................................................................... 496 523
Tires in service............................................................................ 2,000 2,057
Notes receivable, net of current portion.................................................... 719 --
Advance to affiliate........................................................................ -- 1,933
Intangible assets........................................................................... 625 750
Goodwill, net of accumulated amortization................................................... 11,469 4,848
Other assets................................................................................ 1,155 1,379
--------- ---------
Total assets.............................................................................. $ 194,777 $ 142,902
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................................... $ 6,469 $ 5,284
Accrued expenses.......................................................................... 18,301 14,535
Bank borrowings and current maturities of long-term debt.................................. 3,508 --
Current maturities of capital lease obligations........................................... 16,949 11,376
--------- ---------
Total current liabilities............................................................... 45,227 31,195
--------- ---------
Long-term debt, net of current maturities................................................... 16,873 11,959
Capital lease obligations, net of current maturities........................................ 65,970 42,402
Deferred income tax......................................................................... 14,373 11,540
--------- ---------
Total liabilities....................................................................... 142,443 97,096
--------- ---------
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 7,786,430 shares and
7,750,580 shares in 1998 and 1997....................................................... 257 256
Additional paid-in capital................................................................ 56,664 56,281
Retained earnings (deficit)............................................................... (3,522) (9,531)
Equity adjustment for foreign currency translation........................................ (475) (252)
Treasury stock, at cost, 64,441 shares and 128,000 shares in 1998 and 1997................ (602) (960)
--------- ---------
Total stockholders' equity.............................................................. 52,322 45,794
--------- ---------
Total liabilities and stockholders' equity.............................................. $ 194,777 $ 142,902
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
CELADON GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Operating revenue............................................................ $ 229,928 $ 191,035 $ 166,544
Operating expenses:
Salaries, wages and employee benefits...................................... 69,938 67,758 64,683
Fuel....................................................................... 29,404 30,854 28,037
Operating costs and supplies............................................... 18,952 13,482 12,944
Insurance and claims....................................................... 6,488 6,014 6,082
Depreciation and amortization.............................................. 12,889 10,135 7,365
Rent and purchased transportation.......................................... 61,466 35,604 32,107
Professional and consulting fees........................................... 1,503 1,536 2,001
Communications and utilities............................................... 3,285 3,102 2,544
Permits, licenses and taxes................................................ 3,901 4,174 4,327
Employee stock ownership plan contribution................................. -- 59 100
(Gain) on sale of revenue equipment........................................ -- -- (1,085)
Selling expenses........................................................... 3,623 3,286 3,123
General and administrative................................................. 2,675 2,596 2,579
---------- ---------- ----------
Total operating expenses................................................. 214,124 178,600 164,807
---------- ---------- ----------
Operating income............................................................. 15,804 12,435 1,737
Other (income) expense:
Interest income............................................................ (493) (161) (31)
Interest expense........................................................... 6,398 5,105 3,703
Other (income) expense, net................................................ (12) (37) 72
---------- ---------- ----------
Income (loss) from continuing operations before income taxes............... 9,911 7,528 (2,007)
Provision for income taxes (benefit)....................................... 3,902 3,024 (411)
---------- ---------- ----------
Income (loss) from continuing operations................................... 6,009 4,504 (1,596)
---------- ---------- ----------
Discontinued operations:
Loss from operations of freight forwarding division (net of tax)........... -- -- (2,306)
Loss on disposal of freight forwarding division (net of tax)............... -- -- (12,815)
Income (loss) from operations of logistics division (net of tax)........... -- -- (149)
Gain on disposal of logistics division (net of tax)........................ -- -- 67
---------- ---------- ----------
Income (loss from discontinued operations.................................. -- -- (15,203)
---------- ---------- ----------
Net income (loss)........................................................ $ 6,009 $ 4,504 $ (16,799)
---------- ---------- ----------
---------- ---------- ----------
Earnings (loss) per Common Share:
Continued operations:
Diluted and basic earnings per share..................................... $ 0.78 $ 0.59 $ (0.20)
Discontinued operations:
Diluted and basic earnings per share..................................... -- -- (1.93)
Average shares outstanding:
Diluted.................................................................... 7,752 7,660 7,877
Basic...................................................................... 7,664 7,628 7,877
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CELADON GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Continuing operations:
Cash flows from operating activities:
Net Income (loss) from continuing
operations.......................... $ 6,009 $ 4,504 $(1,596)
Adjustments to reconcile net income
(loss) to net cash providedby
operating activities:
Depreciation and amortization....... 12,889 10,135 7,365
Provision for deferred income
taxes.............................. 2,884 1,570 2,295
Provision for doubtful accounts..... 250 280 120
Net gain on sale of property and
equipment.......................... -- -- (1,085)
Net gain loss other................. -- -- 73
Change in assets and liabilities:
(Increase) in trade receivables... (245) (1,655) (9,328)
(Increase) decrease in accounts
receivable--other................ (2,545) (442) 5,982
Decrease (increase) in income tax
recoverable...................... 1,407 3,823 (2,790)
Decrease (increase) in tires in
service.......................... (738) 4 (699)
(Increase) in prepaid expenses and
other current assets............. (502) (782) (107)
Decrease (increase) in other
assets........................... 446 3,998 (3,031)
(Decrease) increase in accounts
payable and accrued expenses..... (2,638) (937) 9,749
(Decrease) increase in income
taxes payable.................... -- (145) (539)
------- ------- -------
Net cash provided by operating
activities............................ 17,217 17,213 6,409
------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment.... (3,623) (1,595) (9,578)
Proceeds from sale of property and
equipment........................... 4,662 14,100 2,602
Purchase of business, net of cash
acquired............................ (3,670) -- --
Disposal of property and equipment.... 1,265 -- --
Decrease in deposits.................. 27 286 388
------- ------- -------
Net cash provided by (used for)
investing activities................ (1,339) 12,791 (6,588)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuances of common
stock............................... 1,328 -- 136
Payment for redemption of common
stock............................... -- -- (1,550)
Purchase of treasury stock............ (586) (235) --
Proceeds from bank borrowing and
debt................................ 1,506 -- 41,626
Payments of bank borrowings and
debt................................ (2,397) (19,822) (29,951)
Principal payments under capital lease
obligations......................... (15,037) (10,903) (7,782)
------- ------- -------
Net cash (used for) provided by
financing activities............... (15,186) (30,960) 2,479
------- ------- -------
Net cash (used for) provided by
continuing operations.............. 692 (956) 2,300
------- ------- -------
Discontinued Operations:
(Loss) from operations, net of income
taxes............................... -- -- (15,203)
------- ------- -------
Change in net operating assets........ -- (2,445) 20,836
------- ------- -------
Operating activities.................. -- (2,445) 5,633
Investing activities.................. -- -- 3,286
Financing activities.................. -- -- (7,782)
------- ------- -------
Net cash (used for) provided by
discontinued operations.......... -- (2,445) 1,137
------- ------- -------
Increase (decreased) in cash and cash
equivalents........................... 692 (3,401) 3,437
Cash and cash equivalents at beginning
of year............................... 1,845 5,246 1,809
------- ------- -------
Cash and cash equivalents at end of
year.................................. $ 2,537 $ 1,845 $ 5,246
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CELADON GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
NO. OF SHARES PAID-IN FOREIGN CURRENCY
OUTSTANDING AMOUNT CAPITAL RETAINED EARNINGS TRANSLATION
-------------- ----------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995................ $ 7,741,247 $ 255 $ 55,283 $ 2,764 $ (178)
Equity adjustments for foreign currency
translation........................... -- -- -- -- (177)
Exercise of incentive stock options..... 9,333 1 135 -- --
Retirement of redeemable common stock... -- -- 863 -- --
Reduction of ESOP guarantee............. -- -- -- -- --
Net loss................................ -- -- -- (16,799) --
-------------- ----- ------- -------- -----
Balance at June 30, 1996................ 7,750,580 256 56,281 (14,035) (355)
Equity adjustments for foreign currency
translation........................... -- -- -- -- 103
Treasury stock purchases................ (128,000) -- -- -- --
Reduction of ESOP guarantee............. -- -- -- -- --
Net income.............................. -- -- -- 4,504 --
-------------- ----- ------- -------- -----
Balance at June 30, 1997................ 7,622,580 256 56,281 (9,531) (252)
Equity adjustments for foreign currency
translation........................... -- -- -- -- (223)
Exercise of warrant..................... 35,850 1 245 -- --
Treasury stock purchases................ (43,000) -- -- -- --
Exercise of incentive stock options..... 106,559 -- 138 -- --
Net income.............................. -- -- -- 6,009 --
-------------- ----- ------- -------- -----
Balance at June 30, 1998................ $ 7,721,989 $ 257 $ 56,664 $ (3,522) $ (475)
-------------- ----- ------- -------- -----
-------------- ----- ------- -------- -----
<CAPTION>
TOTAL STOCK-
TREASURY STOCK- DEBT GUARANTEE HOLDER'S
COMMON FOR ESOP EQUITY
----------------- ----------------- --------------
<S> <C> <C> <C>
Balance at June 30, 1995................ $ -- $ (285) $ 57,839
Equity adjustments for foreign currency
translation........................... -- -- (177)
Exercise of incentive stock options..... -- -- 136
Retirement of redeemable common stock... -- -- 863
Reduction of ESOP guarantee............. -- 100 100
Net loss................................ -- -- (16,799)
----- ----- --------------
Balance at June 30, 1996................ -- (185) 41,962
Equity adjustments for foreign currency
translation........................... -- -- 103
Treasury stock purchases................ (960) -- (960)
Reduction of ESOP guarantee............. -- 185 185
Net income.............................. -- -- 4,504
----- ----- --------------
Balance at June 30, 1997................ (960) -- 45,794
Equity adjustments for foreign currency
translation........................... -- -- (223)
Exercise of warrant..................... -- -- 246
Treasury stock purchases................ (586) -- (586)
Exercise of incentive stock options..... 944 -- 1,082
Net income.............................. -- -- 6,009
----- ----- --------------
Balance at June 30, 1998................ $ (602) $ -- $ 52,322
----- ----- --------------
----- ----- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
(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 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. In September 1997, the
Company acquired (the "GETS Acquisition") General Electric Transportation
Services ("GETS"), which transports certain of the freight of General Electric
Company, Inc. moving domestically and to and from Mexico, and in May 1998, the
Company acquired Gerth Transport, Kitchener, Ontario ("Gerth"), leading
truckload carrier between Canada and Mexico.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the accounts of Celadon Group,
Inc. and its subsidiaries, all of 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 Note 15--"Discontinued
Operations". All significant intercompany accounts and transactions have been
eliminated in consolidation. Unless otherwise noted, all references to annual
periods 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.
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.
6
<PAGE>
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, 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>
<S> <C>
Revenue and service equipment............ 4-12 years
Furniture and office equipment........... 5-15 years
Buildings................................ 20-40 years
Leasehold improvements................... Lesser of life of lease or useful life
of improvement
</TABLE>
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 or, in the case of leased
equipment, over the respective lease term. 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.
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 $625,000 and $750,000 with related
accumulated amortization of $375,000 and $250,000 at June 30, 1998 and 1997,
respectively.
GOODWILL
Goodwill reflects the excess of cost over net assets of businesses acquired
and is being amortized by the straight-line method over 15-40 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
7
<PAGE>
Officer of Randy International, Inc. The investment was sold in July 1997. See
Note 13--"Investment in Unconsolidated Affiliate".
INSURANCE RESERVES
The Company self insures the per occurrence deductible for (i) personal
injury and property damage claims up to $50,000 for claims incurred through
April 1998 (and has first dollar coverage for claims subsequent to April 1998),
(ii) physical damage claims up to $15,000 per tractor and $2,000 per trailer,
(iii) workers compensation claims up to $150,000 and (iv) cargo loss up to
$10,000 per occurrence, in each case (ii, iii, iv) at June 30, 1998 and 1997.
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
Deferred taxes are recognized for the future tax effects of temporary
differences between financial and income tax bases of assets and liabilities
based on enacted tax laws and rates. Federal income taxes are provided on the
portion of the income of foreign subsidiaries that is expected to be remitted to
the United States and be taxable.
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 $5.3 million or 14% of the total gross trade
receivables at June 30, 1998. 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.
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.
EARNINGS (LOSS) PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No 128,
"Earnings per Share" (SFAS 128). SFAS 128 requires the calculation of both basic
and diluted earnings per share. Basic earnings per share is based on the
weighted-average number of common shares outstanding during the period, while
diluted earnings per share includes the effect of options and restricted stock
that were dilutive and outstanding during the period. Restatement of
earnings-per-share data for previous periods is also required. All per-share
amounts, unless otherwise noted in the footnotes, are presented on diluted
basis.
8
<PAGE>
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 financial
statements in order to conform to the 1998 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 130, "Reporting Comprehensive Fiscal Income," was
issued. The statement must be adopted by the Company in the first quarter of
1999. Under provisions of this statement, the Company will be required to change
the financial statement presentation of comprehensive income and its components
to conform to these new requirements. As a consequence of this change, certain
reclassifications will be necessary to previously reported amounts to achieve
the required presentation of comprehensive income. Implementation of this
disclosure standard will not affect financial position or results of operations.
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.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.
(2) SEGMENT AND GEOGRAPHICAL INFORMATION; SIGNIFICANT CUSTOMER
The Company's business is operated through two divisions: van and flatbed
and the Company generates revenue from its operations in the United States,
Canada and Mexico.
Information as to the Company's operations by division is summarized below
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Operating revenue
Van........................................................................ $ 204,104 $ 167,609 $ 148,167
Flatbed.................................................................... 25,824 23,426 18,377
---------- ---------- ----------
Total revenues............................................................. 229,928 191,035 166,544
---------- ---------- ----------
---------- ---------- ----------
Operating Income (loss):
Van........................................................................ $ 14,430 $ 11,290 $ 969
Flatbed.................................................................... 1,374 1,145 768
---------- ---------- ----------
Total from operating divisions........................................... 15,804 12,435 1,737
Interest expense, net...................................................... 5,905 4,944 3,672
Other expense (income)..................................................... (12) (37) 72
---------- ---------- ----------
Income (loss) from continuing operations before income taxes............. $ 9,911 $ 7,528 $ (2,007)
---------- ---------- ----------
---------- ---------- ----------
Total assets
Van........................................................................ $ 186,207 $ 128,505 $ 114,290
Flatbed.................................................................... 8,570 8,271 7,021
---------- ---------- ----------
Total from operating divisions............................................. 194,777 136,776 121,311
Discontinued operations.................................................... -- 6,126 20,610
---------- ---------- ----------
Total...................................................................... $ 194,777 $ 142,902 $ 141,921
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Capital expenditures (including capital leases)
Van........................................................................ $ 41,412 $ 35,415 $ 24,134
Flatbed.................................................................... 122 32 18
---------- ---------- ----------
Total.................................................................... $ 41,534 $ 35,447 $ 24,152
---------- ---------- ----------
---------- ---------- ----------
Depreciation and amortization
Van........................................................................ $ 12,651 $ 9,897 $ 7,127
Flatbed.................................................................... 238 238 238
---------- ---------- ----------
Total.................................................................... $ 12,889 $ 10,135 $ 7,365
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Information as to the Company's geographic area is summarized below (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Operating revenue
United States.............................................................. $ 215,068 $ 185,378 $ 161,605
Canada(i).................................................................. 5,421 -- --
Mexico(ii)................................................................. 9,438 5,657 4,939
---------- ---------- ----------
Total.................................................................... 229,928 191,035 166,544
---------- ---------- ----------
---------- ---------- ----------
Operating income
United States.............................................................. $ 8,475 $ 7,221 $ (2,435)
Canada(i).................................................................. 447 -- --
Mexico(ii)................................................................. 989 307 428
---------- ---------- ----------
Total.................................................................... $ 9,911 $ 7,528 $ (2,007)
---------- ---------- ----------
---------- ---------- ----------
Total Assets
United States.............................................................. $ 172,463 $ 139,849 $ 133,987
Canada(i).................................................................. 17,788 -- --
Mexico(ii)................................................................. 3,427 1,670 2,496
Europe(iii)................................................................ 1,099 1,383 5,438
---------- ---------- ----------
Total.................................................................... $ 194,777 $ 142,902 $ 141,921
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
(i) Relates to the Company's trucking operations in Canada.
(ii) Relates to the Company's trucking operations in Mexico.
(iii) Relates to the Company's discontinued freight forwarding operations based
in the United Kingdom.
Revenue from Chrysler accounted for 36%, 42%, and 48% of the Company's total
revenue for 1998, 1997, and 1996, 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 27% and 73%, respectively, of the
Company's revenue from Chrysler in 1998 and 30% and 70%, respectively, in 1997.
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 movements was extended for three
years and now expires October 1, 2000.
10
<PAGE>
(3) PROPERTY, EQUIPMENT AND LEASES
Property and equipment, at cost, consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revenue equipment owned............................................... $ 35,608 $ 37,577
Revenue equipment under capital leases................................ 106,563 68,365
Furniture and office equipment........................................ 3,583 2,798
Land and buildings.................................................... 4,143 3,986
Service equipment..................................................... 449 317
Leasehold improvements................................................ 189 183
---------- ----------
$ 150,535 $ 113,206
---------- ----------
---------- ----------
</TABLE>
Included in accumulated depreciation was $16.9 million and $10.8 million in
1998 and 1997, respectively, related to revenue equipment under capital leases.
Depreciation and amortization expense relating to property and equipment
owned and revenue equipment under capital leases was $12.3 million in 1998, $9.9
million in 1997, $7.0 million in 1996.
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 5.7% to 10.6% per annum, maturing at various dates through 2003.
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 the borrowings outstanding under its bank
credit facility by approximately $6 million.
During fiscal year 1998 and 1997, 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 these conversions, fixed assets and
capital lease obligations increased $22.3 million and $10.4 million
respectively. The Company also completed a sale leaseback in 1997 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
JUNE 30 LEASES OPERATING LEASES
- ------------------------------------------------------------ ------------- ----------------
<S> <C> <C>
1999........................................................ $ 22,257 $ 10,451
2000........................................................ 18,504 8,413
2001........................................................ 17,680 4,843
2002........................................................ 14,484 2,666
2003........................................................ 18,127 1,228
Thereafter.................................................. 7,596 9,275
------------- -------
Total minimum lease payments.............................. $ 98,648 $ 36,876
------------- -------
------------- -------
Less amounts representing interest.......................... 15,729
-------------
Present value of net minimum lease payments................. 82,919
Less current maturities..................................... 16,949
-------------
Non-current portion....................................... $ 65,970
-------------
-------------
</TABLE>
11
<PAGE>
Total rental expense for operating leases is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenue, service equipment and purchased transportation.......................... $ 59,775 $ 34,446 $ 31,647
Office facilities and terminals.................................................. 1,691 1,158 460
--------- --------- ---------
$ 61,466 $ 35,604 $ 32,107
--------- --------- ---------
--------- --------- ---------
</TABLE>
(4) BANK BORROWINGS AND LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Outstanding amounts under lines of credit (collateralized by certain
trade receivables and revenue equipment).............................. $ 14,578 $ 11,500
Other borrowings........................................................ 5,803 459
--------- ---------
20,381 11,959
Less current maturities................................................. 3,508 --
--------- ---------
$ 16,873 $ 11,959
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
TOTAL LINES OF
CREDIT AMOUNTED BORROWED AMOUNT AVAILABLE
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- --------- ---------
$ 30,000(i) $ 30,000 $ 13,000 $ 11,500 $ 14,500 ii) $ 16,300(iii)
2,380 ii) -- 1,578 -- 802 --
--------- --------- --------- --------- --------- ---------
Total $ 32,380 $ 30,000 $ 14,578 $ 11,500 $ 15,302 $ 16,300
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(i) Represents the Company's Revolving Line of Credit with First Chicago NBD
Bank, N.A. commencing June 1, 1994 (the "1994 Credit Agreement").
(ii) Represents Gerth subsidiary Revolving Line of Credit with First Chicago
NBD Bank, Canada.
(iii) Represents unused portion of Revolving Line of Credit net of standby
letters of credit not reflected in accompanying consolidated financial
statements of $2,500,000 and $2,200,000 at June 30, 1998 and 1997,
respectively.
LINES OF CREDIT
The Company's line of credit for operations for the periods presented are as
follows (in thousands):
In June 1994, the Company refinanced the outstanding borrowings under the
1994 Credit Agreement ("Credit Agreement"). During the year ended June 30, 1997,
the Credit Agreement was further amended and modified. As amended during fiscal
1997, terms of the Credit Agreement further 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 option, upon either the bank's 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, 1998, the interest rate charged on
outstanding borrowings was 7.29%. 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 van trade
receivables (approximately
12
<PAGE>
$27.1 million at June 30, 1998) and certain revenue equipment (with a net book
value of approximately $9.3 million at June 30, 1998).
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>
YEAR ENDED
JUNE 30 LONG-TERM DEBT
- ------------------------------------------------------------------------------ --------------
<S> <C>
1999.......................................................................... $ 3,508
2000.......................................................................... 3,587
2001.......................................................................... 3,809
2002.......................................................................... 2,915
2003.......................................................................... 6,560
Thereafter.................................................................... --
-------
$ 20,381
-------
-------
</TABLE>
No compensating balance requirements exist at June 30, 1998.
(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 $1 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 1998, 1997 and 1996, the Company
did not pay the ESOP dividends and made $0, $25,000 and $100,000, respectively,
in Company contributions.
The loan from the lending institution bore interest at the bank's 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 $25,000 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 $25,000 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 $0,
$4,000 and $24,000 during 1998, 1997, 1996, respectively. The Board of Directors
authorized the termination of the Plan effective December 31, 1997. As of such
date, no new participants have been accepted in the Plan. The Company filed a
Letter of Determination for Termination with the Internal Revenue Service on
June 25, 1998 and has received a response dated July 6, 1998 from the Internal
Revenue Service acknowledging this filing. 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
The Company has 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
13
<PAGE>
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 1998, 1997 and 1996
amounted to $112,000, $155,000 and $83,000, respectively. No discretionary
contributions were made during 1998, 1997 or 1996.
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 176 active participants in the Plan as of June 30, 1998.
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, 1998, 30,259 shares had been purchased under the
Plan in open market transactions for an average price of $13.42 per share. The
Company's contribution to the purchases made was $45,000 in fiscal 1998 and
$16,000 in fiscal 1997.
(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 STOCK
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.
During fiscal year 1998, the Company purchased on the open market 25,000
shares of the Company's Common Stock at an average price of $13.50 per share and
recorded these shares as treasury stock. In addition, the Company purchased and
recorded as treasury stock 18,000 shares of the Company's Common Stock valued at
an average price $13.81 from certain Company executives. (See Note 9--Related
Party Transactions).
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 $500,000. On January 23, 1995, the warrant holder exercised one half
of the warrant by paying to the Company $250,000 upon the issuance of 35,851
shares by the Company. On November 1, 1997, the warrant holder exercised the
remaining portion of the warrant by paying the Company $250,000 upon the
issuance of 36,408 shares of common stock by the Company.
14
<PAGE>
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.
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 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. During 1998, the Plan was amended to increase the number of shares
under the Plan from 500,000 to 750,000 shares, which amendment was approved by
the shareholders at the 1997 annual meeting.
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 $523,000 and $650,000 in 1998 and
1997, 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 (in thousands) and earnings per share
would have been reduced as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Net Income................................................................... $ 314 $ 390
Earnings per share........................................................... 0.04 0.05
</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 2000.
The weighted-average per share fair value of the individual options granted
during fiscal year 1998 and 1997 is estimated as $6.37 and $5.73, respectively,
on the date of grant. The fair values for both years
15
<PAGE>
were determined using a Black-Scholes option-pricing model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Dividend yield........................................................... $ 0 $ 0
Volatility............................................................... 37.0% 56.2%
Risk-free interest rate.................................................. 5.70% 6.03%
Forfeiture rate.......................................................... 3.7% 10.0%
Expected life............................................................ 7 years 7 years
</TABLE>
Stock option activity during 1995-1998 is summarized below:
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK WEIGHTED AVERAGE
ATTRIBUTABLE TO EXERCISE PRICE OF
OPTIONS OPTIONS
--------------------- -----------------------
<S> <C> <C>
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 July 1, 1997................... 429,800 11.9919
Granted....................................... 124,000 13.8387
Exercised..................................... (106,001) 10.1745
Forfeited..................................... (44,899) 16.9654
-------- --------
Unexercised at June 30, 1998.................. $ 402,900 $ 12.4841
-------- --------
-------- --------
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options at June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
RANGE OF WEIGHTED-AVERAGE
EXERCISE NUMBER REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISABLE EXERCISE PRICE
- -------------- ----------- ----------------- ---------------- ------------------ ----------------
$5--$10 125,500 7.9024 $ 9.2032 88,838 $ 9.6247
$10-$15 238,400 8.1542 13.4937 130,236 13.6945
$15-$20 39,000 7.0048 17.0513 27,000 17.8889
</TABLE>
Shares exercisable at June 30, 1997 and 1996, were 246,074 and 293,678,
respectively.
16
<PAGE>
(8) EARNINGS (LOSS) PER SHARE
The following is a reconciliation of the numerators and denominators used in
computing earnings (loss) per share from continuing and discontinued operations:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Income (loss) available to common shareholders:
Income (loss) from continuing operations......................................... $ 6,009 $ 4,504 $ (1,596)
Income (loss) from discontinued operations....................................... -- -- (15,203)
--------- --------- ----------
Income (loss) available to common shareholders..................................... $ 6,009 $ 4,504 $ (16,799)
--------- --------- ----------
--------- --------- ----------
Earnings (loss) per share:
Weighted--average number of common shares outstanding............................ 7,664 7,628 7,877
Earnings (loss) per share from continuing operations............................. 0.78 0.59 (0.20)
Earnings (loss) per share from discontinued operations........................... 0.00 0.00 (1.93)
--------- --------- ----------
Total Earnings (loss) per share.................................................... $ 0.78 $ .059 $ (2.13)
--------- --------- ----------
--------- --------- ----------
Diluted earnings (loss) per share
Weighted--average number of common shares outstanding............................ 7,664 7,628 7,877
Stock options and other incremental shares....................................... 88 32 --
--------- --------- ----------
Weighted-average number of common shares outstanding--diluted.................... 7,752 7,660 7,877
--------- --------- ----------
--------- --------- ----------
Diluted earnings (loss) per share from continuing operations..................... $ 0.78 $ 0.59 $ (0.20)
Diluted earnings (loss) per share from discontinued operations................... 0.00 0.00 (1.93)
--------- --------- ----------
Total earnings (loss) per share.................................................... $ 0.78 $ 0.59 $ (2.13)
--------- --------- ----------
--------- --------- ----------
</TABLE>
For 1996, because the inclusion of stock option and other incremental shares
would be antidilutive, earnings per share has been calculated assuming no
incremental shares. For diluted earnings (loss) per share, stock options and
other incremental shares aggregated 42,000 for 1996.
(9) RELATED PARTY TRANSACTIONS
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
ensure that one member of the Company's board of directors is a designee of
Hanseatic and that 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 $268,396, 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
17
<PAGE>
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 January 1, 1998, the
bank loans were converted to Company loans secured by a total of 30,000 shares
of Celadon Group Inc. Common stock owned by the executives individually. During
fiscal year 1998, the Company purchased as treasury stock 18,000 shares from
five of the nine executives leaving 12,000 shares and $108,000 of outstanding
executive loans.
(10) HEDGING ACTIVITIES, COMMITMENTS AND CONTINGENCIES
The Company has outstanding commitments to purchase approximately $6.2
million of revenue equipment at June 30, 1998.
Standby letters of credit, not reflected in the accompanying consolidated
financial statements, aggregated approximately $2.5 million at June 30, 1998.
The Company has employment and consulting agreements with various key
employees providing for minimum combined annual compensation over the next three
years ranging from $1.1 million in 1999 to $0.2 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 the fuel used by its trucks. As of June 30, 1998,
the Company had contracts to purchase fuel for future physical delivery in the
months of July 1998 through May 1999. These contracts represent approximately
14% of the anticipated fuel requirements for those months. Additionally, the
Company periodically acquires exchange-traded petroleum futures contracts and
various commodity collar transactions. Gains and losses on transactions, not
designated as hedges, are recognized based on market value at the date of the
financial statements. At June 30, 1998, liquidation of outstanding transactions,
not designated as hedges, which extended through August 1998 (covering an
average of 9% of July and August 1998 fuel requirements), would have resulted in
a $47,000 loss, which has been recognized in the financial statements.
Transactions designated as hedges and therefore not marked-to-market value had a
negative value of $398,000. 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 years ended June 30, 1998 and 1997, a
loss of $997,000 and a gain of $79,000, respectively, on futures contracts and
commodity collar transactions were included in fuel
18
<PAGE>
expense. To the extent that Company hedges portions of its fuel purchases, it
may not fully benefit from market decreases in fuel prices.
The Company has been assessed approximately $750,000 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, 1996, 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 fiscal 1997, 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, 1998, 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.
Two litigations have been 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 (the "Merger") of the
Company and Laredo Acquisition Corp. ("Laredo"), a newly-formed wholly-owned
subsidiary of Odyssey Investment Partners, pursuant to the Agreement and Plan of
Merger, dated as of June 23, 1998, by and between the Company and Laredo. Upon
the effectiveness of the Merger, Laredo will be merged with and into the
Company, the separate corporate existence of Laredo shall cease and the Company
shall continue as the surviving corporation. In sum, these putative class
actions allege that the $20.00 per share to be paid to stockholders pursuant to
the Merger would permit management of the Company to acquire the public shares
of for less than fair and adequate consideration because, inter alia, the
intrinsic value of the Company's Common Stock is claimed to be (an unspecified
amount) higher. The Cash Merger Price (as defined in the Merger Agreement)
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 is also named in the Finkelstein Action. The
complaints seek certification of the class, certain injunctive and declaratory
relief, recission of the Merger if it is consummated, and unspecified money
damages and costs. No answer has yet been filed to these complaints. The Company
intends to defend these suits vigorously.
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<PAGE>
(11) PROVISION FOR INCOME TAXES
The income tax provision for operations in 1998, 1997 and 1996 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current (credit):
Federal........................................................................... $ 229 $ 1,229 $ 1,450
State and local................................................................... 274 400 (171)
Foreign........................................................................... 515 104 146
--------- --------- ---------
$ 1,018 $ 1,733 $ (1,475)
--------- --------- ---------
Deferred:
Federal........................................................................... 2,533 1,126 954
State and local................................................................... 351 165 110
--------- --------- ---------
2,884 1,291 1,064
--------- --------- ---------
$ 3,902 $ 3,024 $ (411)
--------- --------- ---------
--------- --------- ---------
</TABLE>
No provision is made for U.S. federal income taxes on undistributed earnings
of foreign subsidiaries of approximately $1,513,000 at June 30, 1998, 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) differs from the statutory
federal tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal tax rate.............................................................. 35.00% 35.00% 35.00%
State taxes, net of federal benefit..................................................... 4.16 4.88 1.96
Non-deductible officers' life insurance................................................. .09 .42 1.04
Non-deductible meals and entertainment.................................................. .25 .38 (11.72)
Non-deductible goodwill amortization.................................................... .16 .21 (2.34)
Other, net.............................................................................. (.29) (.72) (3.47)
--------- --------- ---------
Effective tax rate.................................................................... 39.37% 40.17% 20.47%
--------- --------- ---------
--------- --------- ---------
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at June 30, 1998 and 1997
consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................................................... $ 152 $ 683
Insurance reserves........................................................................ 461 677
Revenue recognition....................................................................... 109 218
Tires in service.......................................................................... 198 397
Parts and supplies........................................................................ 116 233
Accrued expense reserves.................................................................. 39 230
Net operating loss carryforwards.......................................................... 935 1,642
Alternative minimum tax credit carryforward............................................... 722 493
Other..................................................................................... 138 395
---------- ----------
Total deferred tax assets................................................................. $ 2,870 $ 4,968
---------- ----------
---------- ----------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Excess tax depreciation................................................................... $ (5,287) $ (5,868)
Capital leases............................................................................ (2,785) (1,964)
Deferred gain on partnership.............................................................. (560) (560)
Other..................................................................................... (1,555) (1,326)
---------- ----------
Total deferred tax liabilities............................................................ $ (10,187) $ (9,718)
---------- ----------
---------- ----------
Net current deferred tax assets........................................................... $ 7,056 $ 6,790
Net noncurrent deferred tax liabilities................................................... (14,373) (11,540)
---------- ----------
Total net deferred tax liabilities........................................................ $ (7,317) $ (4,750)
---------- ----------
---------- ----------
</TABLE>
As of June 30, 1998, the Company had approximately $2.8 million of operating
loss carryforwards with expiration dates through 2012.
(12) SUPPLEMENTAL CASH FLOW INFORMATION
In 1998, 1997 and 1996, capital lease obligations in the amount of $37.5
million, $33.9 million and $14.9 million, respectively, were incurred in
connection with the purchase of, or option to purchase, revenue equipment and
the associated tires in service.
For 1998, 1997 and 1996, the Company made interest payments of $6.3 million,
$4.9 million and $3.3 million, respectively.
For 1998, 1997 and 1996, the Company made income tax payments of $1.1
million, $0.3 million, and $0.9 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
In September 1997, the Company acquired the net assets of General Electric
Transportation Services ("GETS"), the transportation services unit of the
General Electric Industrial Control Systems ("GEICS") business. The Company has
accounted for this transaction as a purchase. In addition to the net assets
acquired, the Company received 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 $8.2 million payable as $5.5 million in cash at closing
and a $2.7 million note plus assumption of certain liabilities and lease
obligations. The revenues and expenses of the operations acquired from GEICS
have been included in the Company's consolidated financial statements since
September 1, 1997.
In May 1998, the Company acquired the assets of Gerth Transport, Kitchener,
Ontario for $13.8 million. The Company has accounted for this transaction as a
purchase. The Company believes that Gerth
21
<PAGE>
is the leading Canadian truckload carrier to Mexico, having 301 tractors and 817
trailers as of June 30, 1998, and approximately $31.0 million of revenue in
calendar 1997. The Company believes that this acquisition will strengthen its
presence in Canada and provide additional density in its core north-south
transport lanes. The revenues and expenses of the operations acquired from Gerth
have been included in the Company's consolidated financial statements since May
22, 1998.
The following pro forma data presents the consolidated results of operations
as if the acquisitions had occurred on July 1, 1996, after giving effect to
certain adjustments. The pro-forma results have been prepared for comparative
purposes only and do not purport to indicate the results of operations which
would actually have occurred had the acquisitions been in effect on the date
indicated or which may occur in the future.
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Operating revenue............................................................... $ 263,722 $ 246,956
Net income...................................................................... $ 7,452 $ 6,543
Net income per common share..................................................... $ 0.96 $ 0.85
</TABLE>
The purchase price has been allocated to the assets and liabilities based on
their fair values at the date of acquisition. In connection with the
acquisitions of GETS and Gerth, as described above, the assets acquired and
liabilities assumed by the Company during 1998 were as follows:
<TABLE>
<S> <C>
Current assets (net of cash acquired).................................. $12,097,318
Fixed assets........................................................... 8,092,657
Goodwill (amortized over 15 years)..................................... 7,045,422
Current liabilities.................................................... (7,589,614)
Bank borrowings and debt............................................... (9,312,797)
Capital lease obligations.............................................. (6,663,326)
----------
$3,669,660
----------
----------
</TABLE>
(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 International, 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 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 installments 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%
22
<PAGE>
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 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 fiscal 1996, the decision was made to sell certain businesses previously
included in the Logistics division and to discontinue offering logistics
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.
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.
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.
(16) PENDING MERGER
On June 23, 1998 the Company entered into the Agreement and Plan of Merger
(the "Merger Agreement"), dated as of June 23, 1998, by and between the Company
and Laredo Acquisition Corp. ("Laredo"), a newly-formed wholly-owned subsidiary
of Odyssey Investment Partners, pursuant to which Laredo will be merged with and
into the Company (the "Merger"). Upon effectiveness of the Merger, the separate
corporate existence of Laredo shall cease and the Company will continue as the
surviving corporation (the "Surviving Corporation"). In connection with the
Merger, except as described below, each share of common stock, par value $0.033,
of the Company issued and outstanding immediately prior to the consummation of
the Merger will be converted into the right to receive $20.00, subject to the
right of a holder to exercise dissenter's rights. Certain of the Company's
current officers and stockholders will retain an aggregate of 320,000 shares of
the Company's common stock currently held by them in lieu of receiving the
merger consideration. These shares will, upon the effectiveness of the Merger,
be converted into the right to receive one share of common stock of the
Surviving Corporation in the Merger. The affirmative vote of a majority of the
outstanding shares of the Company's common stock is required to consummate the
Merger.
23
<PAGE>
(17) RECENT DEVELOPMENTS (UNAUDITED)
The Company announced on September 18, 1998 that it had received written
notice from Laredo to the effect that the institution (Bankers Trust
Corporation) that is to provide $125,000,000 in bridge financing for the Merger
had concluded as of September 15, 1998, that under current market conditions, it
would not be obligated to provide the financing contemplated by the Merger
Agreement and the commitment letter issued to Laredo with respect thereto.
However, Bankers Trust Corporation noted that the conditions to funding
contemplated by its commitment letter need only be satisfied on the date of
request for funds and that its commitment letter had not been terminated or
otherwise modified. If no amounts have yet been funded thereunder, the
commitment letter with respect to financing for the Merger will terminate in
accordance with its terms on November 30, 1998. Laredo would not be obligated to
close the Merger if financing were not available.
24