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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 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
<TABLE>
<CAPTION>
TRANSACTION VALUATION* AMOUNT OF FILING FEE**
<S> <C>
$151,548,368 $30,310
</TABLE>
* 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
<TABLE>
<S> <C>
Form of Registration No.: Preliminary Proxy
Statement
Filing Party: Celadon Group, Inc.
Date Filed: July 27, 1998
</TABLE>
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This Rule 13e-3 Transaction Statement (the "Statement") relates to the
Agreement and Plan of Merger dated as of June 23, 1998 (the "Merger Agreement")
by and between Laredo Acquisition Corp., a Delaware Corporation, ("Merger Sub")
and Celadon Group, Inc., a Delaware Corporation ("Celadon" or the "Company").
Merger Sub is a newly formed corporation, controlled by Odyssey Investment
Partners Fund, LP ("Odyssey"). Odyssey Capital Partners, LLC, a Delaware limited
liability company, is the general partner of Odyssey and Odyssey Investment
Partners, LLC, a Delaware limited liability company, serves as the manager of
Odyssey. Merger Sub was formed for the purpose of consummating the Merger (as
defined below). A copy of the Merger Agreement is attached as Annex A to the
preliminary proxy statement filed by the Company with the Securities and
Exchange Commission contemporaneously herewith (including all annexes thereto,
the "Preliminary Proxy Statement"). The Preliminary Proxy Statement is attached
hereto as Exhibit (d).
Upon the terms and subject to the conditions of the Merger Agreement, at the
Effective Time (as defined below) (i) Merger Sub will be merged into Celadon
(the "Merger"), with Celadon continuing as the surviving corporation (the
"Surviving Corporation"); (ii) the current directors of Celadon will be replaced
by the directors of Merger Sub (and the majority of the directors of the
Surviving Corporation will be designees of Odyssey); (iii) the shares of common
stock of Merger Sub held by Odyssey will be converted into shares of common
stock, par value $0.033 per share, of the Surviving Corporation (the "Surviving
Corporation Common Stock"), representing approximately 90% of the outstanding
shares of the Surviving Corporation Common Stock; (iv) an officer and director
of Celadon, and an entity which is an affiliate of a director of Celadon, will
retain certain of their existing shares (the "Rollover Shares") of Celadon
Common Stock, which Rollover Shares will represent approximately 10% of the
outstanding shares of the Surviving Corporation Common Stock; (v) certain
officers and directors of Celadon will retain certain of their existing options
to purchase Celadon Common Stock (the "Rollover Options"; and (vi) each share of
Celadon Common Stock outstanding immediately prior to the Effective Time (except
for the Rollover Shares and treasury shares held by Celadon) will be converted
into the right to receive $20.00 per share in cash. Shares of Celadon Common
Stock held in the Company's treasury will be canceled and retired. Except for
the Rollover Options, all outstanding options and warrants exercisable to
purchase shares of Celadon Common Stock will be canceled. The effective time of
the Merger will be the date and time of the filing of the Certificate of Merger
with the Delaware Secretary of State in accordance with the Delaware General
Corporation Law (the "Effective Time"), which is scheduled to occur as soon as
practicable after the satisfaction of certain closing conditions.
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.
2
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CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM IN SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT
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<S> <C>
Item l(a) and (b)...................... Outside Front Cover Page, "SUMMARY--The Parties to the Merger", "--The
Special Meeting" and "THE SPECIAL MEETING--Record Date, Solicitation and
Revocability of Proxies".
Item l(c) and (d)...................... "SUMMARY--Market Prices; Dividends" and "MARKET PRICES AND DIVIDENDS."
Item l(e).............................. Not applicable.
Item l(f).............................. Not applicable.
Item 2(a)-(d).......................... Outside Front Cover Page, "SUMMARY--The Parties to the Merger"; "MERGER
SUB AND ODYSSEY"; 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".
</TABLE>
3
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<TABLE>
<CAPTION>
ITEM IN SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT
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<S> <C>
Item 6(a)-(d).......................... "SUMMARY--Financing Arrangements" and "FINANCING OF THE MERGER".
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>
4
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<TABLE>
<CAPTION>
ITEM IN SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT
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<S> <C>
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.
5
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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.
6
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ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(d) The information set forth in "SUMMARY--Financing Arrangements" and
"FINANCING OF THE MERGER" of the Preliminary Proxy Statement is incorporated
herein by reference.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(d) The information set forth on the Outside Front Cover Page and in
"SUMMARY--Reasons for the Merger", "--Recommendation of the Board", "--Opinion
of Financial Advisor", "--Interests of Certain Persons in the Merger",
"--Certain Related Agreements", "--Certain Effects of the Merger", "--Certain
Federal Income Tax Consequences of the Merger", "--Appraisal Rights"; 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.
7
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ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The information set forth in "SUMMARY--Interests of Certain Persons in the
Merger", "CERTAIN EFFECTS OF THE MERGER--Certain Related Agreements", "SPECIAL
FACTORS--Interests of Certain Persons in the Merger" and "--Certain Related
Agreements" of the Proxy Statement is incorporated herein by reference. See also
Exhibits (c)(1) and(c)(2) attached hereto.
ITEM 12. PRESENT INTENTION AND RECOMMENDATIONS OF CERTAIN
PERSONS WITH REGARD TO THE TRANSACTION.
(a) and (b) The information set forth in "SUMMARY--The Special Meeting",
"-Recommendation of the Board"; "THE SPECIAL 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.
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.
8
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(a)(2) Bank Loan Commitment Letter from General Electric Capital Corporation
to Merger Sub dated June 23, 1998.
(b)(1) Fairness Opinion, dated as of June 22, 1998, delivered by Wasserstein
Perella & Co., (filed herewith as Annex C to the Preliminary Proxy Statement,
which is filed as Exhibit (d) hereto).
(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.
9
<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 7, 1998
CELADON GROUP, INC.
By: /s/ STEPHEN RUSSELL
-----------------------------------------
Stephen Russell
PRESIDENT, CHIEF EXECUTIVE OFFICER, AND
CHAIRMAN
10
<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 7, 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>
11
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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
12
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Exhibit 99(a)(1)
[BRIDGE COMMITMENT LETTER]
BANKERS TRUST CORPORATION
l3O LIBERTY STREET
<PAGE>
NEW YORK, NEW YORK 10006
Laredo Acquisition Corp.
c/o Odyssey Investment Partners Fund, LP
280 Park Avenue (38th Floor)
New York, NY 10017
Attention: Brian Kwait
Re: Celadon Group, Inc. Acquisition Financing
Gentlemen:
We understand that Odyssey Investment Partners Fund, LP ("Odyssey")
and certain other equity investors reasonably satisfactory to us
(collectively, the "Equity Investors") intend to consummate a leveraged
recapitalization transaction (the "Recapitalization") whereby Laredo
Acquisition Corp., a corporation newly formed by the Equity Investors
("Holdings"), would merge with Celadon Group, Inc. (the "Acquired
Business"). Upon consummation of the Recapitalization, the assets of the
Acquired Business will be held by a direct wholly owned subsidiary of
Holdings (the "Operating Company"). We further understand that the
funding requirements for the Recapitalization, the refinancing of
indebtedness of the Acquired Business (the "Refinancing") and related
fees and expenses will be approximately $279.5 million and such amount,
together with ongoing working capital requirements, will be provided solely
from (i) a revolving credit facility of the Operating Company (the "Bank
Financing") of up to $175.0 million, of which up to $7.5 million will be
drawn as of the closing date of the Recapitalization (the "Closing Date"),
(ii) a $64.0 million equity investment in Holdings (including up to $6.4
million of rollover equity of certain stockholders of the Acquired
Business) (the "Equity Financing"), (iii) the assumption of existing
indebtedness and (iv) the issuance and sale of the Operating Company Debt
Securities and the Holdings Discount Debt Securities (each as defined
below). The Recapitalization, the Refinancing, the Bank Financing, the
Equity Financing, any advance of the bridge loan contemplated by this letter
and the issuance and sale of the Operating Company Debt Securities and the
Holdings Discount Debt Securities are herein collectively referred to as the
"Transaction".
-1-
<PAGE>
In connection with the Transaction, you have engaged BT Alex. Brown
Incorporated to sell or place senior subordinated debt securities of
the Operating Company (the "Operating Company Debt Securities") and senior
discount debt securities of Holdings (the "Holdings Discount Debt
Securities" and, together with the Operating Company Debt Securities, the
"Debt Securities").
You have requested that Bankers Trust Corporation (the "Lender")
commit to provide to (i) the Operating Company funds in the amount of up to
$100 million in the form of a senior subordinated bridge loan to be made
available as described in Section 1 hereof (the "Operating Company Bridge
Loan") and (ii) Holdings funds in the amount of up to $25 million in
the form of a senior discount bridge loan to be made available as described
in Section 1 hereof (the "Holdings Bridge Loan" and, together with the
Operating Company Bridge Loan, the "Bridge Loan").
Accordingly, subject to the terms and conditions set forth or
incorporated in this letter, the Lender agrees with you as follows:
Section 1. Bridge Loan. The Lender hereby commits, subject to the
terms and conditions hereof and in the Summary Term Sheets attached hereto
as Exhibits A and B (collectively, the "Term Sheet"), to provide to the
Operating Company a senior subordinated bridge loan on the Closing Date in
the aggregate principal amount of up to $100 million and to Holdings a
senior discount bridge loan on the Closing Date yielding gross proceeds
of up to $25 million. The proceeds of the Bridge Loan shall be
used solely to finance the Recapitalization, to consummate the
Refinancing and to pay related fees and expenses. The principal terms of
the Bridge Loan are summarized in the Term Sheet.
Unless the Lender's commitment hereunder shall have been terminated
pursuant to Section 7, the Lender shall have the exclusive right to provide
the Bridge Loan or other bridge or interim financing required in connection
with the Transaction.
You hereby represent and covenant that based on your review and
analysis, to the best of your knowledge (a) all information other
than Projections (as defined below), which has been or is hereafter made
available to the Lender by you or your representatives, advisors or
affiliates in connection with the transactions contemplated hereby (the
"Information") has been reviewed and analyzed by you in connection with the
performance of your own due diligence and, to your knowledge, is, or in the
case of Information made available after the date hereof will be, when taken
together as a whole, true and correct in all material respects and does not
and will not contain any untrue statement of a material fact or omit to
state a material fact known to you and necessary to make the statements
contained therein, in the light of the circumstances under which such
statements were or are made, not misleading and (b) all financial
projections concerning the Acquired Business that have been or are
hereafter made available to the Lender by you or your representatives,
advisors or affiliates in connection with the transactions
contemplated hereby (the "Projections"), to your knowledge, have been or,
in the case of
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<PAGE>
Projections made available after the date hereof, will be prepared in good
faith based upon reasonable assumptions (it being understood that the
Projections are subject to significant uncertainties and contingencies, many
of which are beyond your control and that no assurance can be given that
such Projections will be realized). In arranging and syndicating the
Bridge Loan, the Lender will be using and relying on the Information and the
Projections. The representations and covenants contained in this
paragraph shall remain effective until a definitive financing agreement
is executed and thereafter the representations contained herein shall be
terminated and of no further force and effect.
Section 2. Financing Documentation. The making of the Bridge Loan will
be governed by definitive loan and related agreements and
documentation (collectively, the "Financing Documentation") in form and
substance reasonably satisfactory to the Lender and you. The Financing
Documentation shall be prepared by Cahill Gordon & Reindel, special
counsel to the Lender. The Financing Documentation shall contain such
covenants, terms and conditions as are consistent with this letter and
the Term Sheet and such other covenants, terms, conditions,
representations, warranties, events of default and remedies provisions as
shall be reasonably satisfactory to the Lender and you.
Section 3. Conditions. The obligation of the Lender under Section 1 of
this letter to provide the Bridge Loan is subject to fulfillment of
the following conditions:
(a) Recapitalization Agreement. Holdings and the Acquired
Business shall have entered into a merger agreement relating to the
Recapitalization (the "Recapitalization Agreement") on terms and in
form and substance reasonably satisfactory to the Lender (it being
understood that the draft merger agreement dated June 23, 1998 is
satisfactory to the Lender in all material respects). The
Recapitalization Agreement shall not have been amended without the
Lender's consent, which consent shall not be unreasonably
withheld. All conditions precedent to the Recapitalization contained
in the Recapitalization Agreement shall have been performed or
complied with substantially on the terms set forth therein and not
waived without the Lender's consent, which consent shall not be
unreasonably withheld and simultaneously with the making of the
Bridge Loan, the Recapitalization shall have been consummated.
(b) Financing Documentation. Holdings, the Operating Company and
the Lender shall have entered into the Financing Documentation relating
to the Bridge Loan and the transactions contemplated thereby, on terms
and in form and substance reasonably satisfactory to the Lender,
Holdings and the Operating Company.
(c) Bank Financing. The Operating Company shall have entered
into definitive documentation on terms and in form and substance
reasonably satisfactory to the Lender and the Operating Company with
respect to the Bank Financing (collectively with all documents and
instruments related thereto or delivered in connection therewith, the
"Bank Documents") with a commercial lender or lenders or a syndicate of
commercial
-3-
<PAGE>
lenders. The Bank Documents shall be in full force and effect and
the parties thereto shall be in compliance with all material
agreements thereunder.
(d) Equity Financing. On or prior to the Closing Date, Holdings
shall have received cash proceeds of not less than $64 million, which
shall be provided by the Equity Investors and up to $6.4 million shall
have been in the form of rollover equity. The terms of the Equity
Financing shall be otherwise satisfactory to the Lender.
(e) No Adverse Change or Development, Etc. (i) Nothing shall
have occurred since March 31, 1998 (and the Lender shall have become
aware of no facts or conditions not previously known to the Lender)
which the Lender shall reasonably determine could reasonably be
expected to have a material adverse effect on the business, property,
assets, liabilities, condition (financial or otherwise), results
of operations or prospects of the Acquired Business, after giving
effect to the Transaction; (ii) a banking moratorium shall not have
been declared by New York or United States authorities; and (iii)
there shall not have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, or (B) an
outbreak or escalation of any other insurrection or armed
conflict involving the United States or any other national or
international calamity or emergency, or (C) any material change in the
general financial markets of the United States which, in each case in
clauses (ii) and (iii) hereof, in the reasonable judgment of the
Lender would materially and adversely affect the ability to sell or
place the Debt Securities.
(f) Capital Structure. The pro forma consolidated capital structure
of Holdings and the Operating Company, after giving effect to the
Transaction, shall be consistent with the capital structure
contemplated herein, and other than the Bank Financing, the Bridge
Loan and other indebtedness reasonably satisfactory to the Lender
(including up to approximately $83 million of capital leases),
Holdings and its subsidiaries (including the Operating Company),
after giving effect to, and upon consummation of, the Transaction, shall
have no outstanding indebtedness for money borrowed.
(g) Opinions. As of the Closing Date, the Lender shall have
received a legal and other opinions (including with respect to solvency)
from persons, and covering matters, reasonably acceptable to the Lender
and customary for high yield financings.
(h) Take-Out Bank. You shall have engaged BT Alex. Brown
Incorporated (the "Take-Out Bank") to privately place the Debt
Securities of Holdings and the Operating Company, the proceeds of
which will be used either to fund the Transaction or to prepay in
whole or in part the Bridge Loan. Holdings and the Operating
Company shall have prepared an offering memorandum relating to the
issuance of Debt Securities (which offering memorandum shall
contain audited, unaudited and pro forma financial statements
meeting the requirements of Regulation S-X under the Securities Act of
1933, as amended, of Holdings, the Operating Company and the
Acquired Business for the
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<PAGE>
periods required of a registrant on Form S-1) and the Take-Out
Bank shall have been provided with a reasonable opportunity to
market such Debt Securities pursuant to such offering memorandum
for such a period as is customary to complete the sale of securities
such as the Debt Securities.
Section 4. Securities Demand. You agree to comply with the provisions
in the fee letter dated the date hereof between you and the Lender (the
"Fee Letter").
Section 5. Indemnification and Contribution. You agree to indemnify
the Lender and each of its affiliates and each person in control of the
Lender and each of its affiliates and the respective officers, directors,
employees, agents and representatives of the Lender and its affiliates and
control persons, as provided in the Indemnity Letter dated the date
hereof (the "Indemnity Letter") and attached hereto.
Section 6. Expenses. In addition to any fees that may be payable to
the Lender hereunder and regardless of whether any of the
transactions contemplated by this letter are consummated, if this
letter agreement is terminated in accordance with Section 7 hereof,
the Bridge Loan is made available or the Financing Documentation is
executed and delivered, you hereby agree to reimburse the Lender for all
reasonable fees and disbursements of legal counsel and consultants,
including but not limited to the reasonable fees and disbursements of Cahill
Gordon & Reindel, the Lender's special counsel, and all of the Lender's
travel and other reasonable out-of-pocket expenses incurred in connection
with the Transaction or otherwise arising out of the Lender's
commitment hereunder, in each case contemplated by this Section 6 only to
the extent that either (i) the Recapitalization is consummated or (ii)
Holdings receives reimbursement for such expenses pursuant to the
Recapitalization Agreement.
Section 7. Termination. The Lender's commitment hereunder to provide
the Bridge Loan shall terminate, unless expressly agreed to by the Lender in
its sole discretion to be extended to another date, on the earlier of (A)
November 30, 1998 if no portion of the Bridge Loan has been funded
(other than as a result of failure of the Lender to fulfill its obligations
hereunder), and (B) the termination of the Recapitalization Agreement in
accordance with the terms thereof. No such termination of such commitment
shall affect your obligations under Sections 5 and 6 hereof or this Section
7, which shall survive any such termination.
Section 8. Assignment. This letter shall not be assignable by any
party hereto without the prior written consent of the other parties (other
than, in the case of the Lender, to an affiliate of the Lender that is
financially capable of honoring its obligations as a Lender hereunder, it
being understood that any such affiliate shall be subject to the
restrictions set forth in this Section 8); provided, however, that the
Lender shall have the right, in its sole discretion, to syndicate the Bridge
Loan, once funded (or, prior to funding, to financial institutions
reasonably acceptable to you) among banks or other financial
institutions pursuant to the Financing Documentation or otherwise and to
sell, transfer or assign all or any portion of, or interests or
participations in, the Bridge Loan and any notes issued in connection
therewith.
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<PAGE>
Section 9. Miscellaneous. THIS LETTER SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE PRINCIPLES GOVERNING CONFLICTS OF LAWS, AND ANY RIGHT TO
TRIAL BY JURY WITH RESPECT TO ANY CLAIM, ACTION, SUIT OR PROCEEDING
ARISING OUT OF OR CONTEMPLATED BY THIS COMMITMENT LETTER IS HEREBY
WAIVED. YOU AND WE HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE
FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN
CONNECTION WITH ANY DISPUTE RELATED TO THIS COMMITMENT LETTER OR ANY
MATTERS CONTEMPLATED HEREBY. This letter (including the provisions of
the Indemnity Letter specifically incorporated herein) embodies the
entire agreement and understanding between you and the Lender and
supersedes all prior agreements and understandings relating to the subject
matter hereof. This letter may be executed in any number of
counterparts, each of which shall be an original, but all of which
shall constitute one instrument. Capitalized terms used herein or in the
Term Sheet and not defined herein or therein shall have the meaning
provided in the Fee Letter.
The Lender reserves the right to employ the services of its affiliates
(including the Take-Out Bank) in providing services contemplated by this
letter and to allocate, in whole or in part, to its affiliates certain fees
payable to the Lender in such manner as the Lender and its affiliates may
agree in their sole discretion. You acknowledge that the Lender may
share with any of its affiliates (including the Take-Out Bank) and such
affiliates may share with the Lender (in each case, subject to any
confidentiality agreements applicable thereto), any information related
to you or your affiliates, the Acquired Business (including
information relating to creditworthiness) or the Transaction.
If you are in agreement with the foregoing, please sign and return to
the Lender at 130 Liberty Street, New York, New York 10006 the enclosed copy
of this letter no later than 5:00 p.m., New York time, on June 23, 1998,
whereupon the undertakings of the parties shall become effective to the
extent and in the manner provided hereby. This offer shall terminate if not
so accepted by you on or prior to that time.
Very truly yours,
BANKERS TRUST CORPORATION
By:
Name:
Title:
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<PAGE>
Accepted and Agreed to as of the date first above written:
LAREDO ACQUISITION CORP.
By:
Name:
Title:
By:
Name:
Title:
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<PAGE>
EXHIBIT A
Bridge Loan and Term Loan Facility
Summary Term Sheet(1)
Borrower: A subsidiary (the "Borrower") of the surviving company of the
merger of Laredo Acquisition Corp., a corporation newly formed
by the Equity Investors ("Holdings"), with the Acquired
Business.
Guarantors: All obligations under the Bridge Loan shall be unconditionally
guaranteed on a senior subordinated basis by each of the
Borrower's subsidiaries, if any, that guarantee the Bank
Financing (collectively, the "Guarantors").
Lender: Bankers Trust Corporation.
Amount: $100 million senior subordinated bridge loan (the "Bridge Loan").
Maturity: The commitment shall automatically expire on November 30, 1998
if the Bridge Loan has not been funded (other than as a result
of failure of the Lender to fulfill its obligations
hereunder). Any outstanding amount under the Bridge Loan will
be required to be repaid in full on the earlier of (a) one
year following the initial funding date of any portion of the
Bridge Loan and (b) the closing date of any permanent
financing; provided, however, that if the Borrower has failed
to raise permanent financing before the date set forth in (a)
above, the Bridge Loan shall be converted, subject to the
conditions outlined under "Conditions to Conversion of the
Bridge Loan", to a senior subordinated term loan facility (the
"Term Loan" and, collectively with the Bridge Loan, the
"Facility") with a maturity of six months after the scheduled
maturity of the Bank Financing (as in effect on the Closing
Date); provided, however, that the Borrower shall pay to the
Lender on the Conversion Date (as defined below), a conversion
cash fee as provided in the Fee Letter (the "Conversion Fee").
Commitment
and Funding
Fee: As provided in the Fee Letter.
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(1) Capitalized terms used herein and not defined herein shall
have the meanings provided in the bridge loan commitment
letter to which this summary term sheet is attached.
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<PAGE>
Use of To fund in part the Transaction and to pay related fees and
Proceeds expenses.
Interest
Rate: As provided in the Fee Letter.
Ranking: The obligations of the Borrower and the Guarantors under the
Bridge Loan will be senior subordinated obligations of the
Borrower and the Guarantors and will rank (i) junior in right
of payment to all senior indebtedness of the Borrower or the
Guarantors, as the case may be, (ii) senior in right of
payment with all subordinated indebtedness of the Borrower or
the Guarantors, as the case may be and (iii) PARI PASSU in
right of payment with all senior subordinated indebtedness of
the Borrower or the Guarantors, as the case may be.
Optional
Prepayment: The Borrower may prepay the Bridge Loan or the Term Loan, in
whole or in part, at any time at a redemption price equal to
100% of the principal amount thereof plus accrued interest
thereon; PROVIDED, HOWEVER, that at such time as the Term Loan
bears interest at the Fixed Rate, the Term Loan shall be
subject to redemption restrictions and premiums typical for
high yield debt securities.
Mandatory
Prepayment: Net proceeds of sales of debt securities or equity securities
in a public offering or private placement by the Borrower or
any of its subsidiaries shall be used to prepay the Bridge
Loan plus accrued interest and any other amount payable
thereunder to the full extent of the net proceeds so received
to the extent such net proceeds (other than from the issuance
of Debt Securities) are not used to retire bank debt. The
Borrower will be required to make an offer to purchase all
notes outstanding under the Bridge Loan or the Term Loan, as
the case may be, upon the occurrence of a Change of Control
(to be defined).
Participation/
Assignment
or
Syndication: The Lender may participate out or sell or assign, or syndicate
to other lenders, the Bridge Loan or Term Loan, in whole or in
part, at any time, subject to compliance with applicable
securities laws.
Conditions
to Conversion
of the Bridge
Loan: One year after the Funding Date of any portion of the Bridge
Loan, unless (A) the Borrower or any significant subsidiary
thereof is subject to a bankruptcy or other insolvency
proceeding, (B) there exists a payment default (whether
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<PAGE>
or not matured) with respect to the Bridge Loan or the
Conversion Fee or (C) there exists a default in the payment
when due at final maturity of any indebtedness (excluding the
indebtedness under the Bridge Loan) of the Borrower or any of
its subsidiaries in excess of $5 million for any such default
or all such defaults, or the maturity of such indebtedness
shall have been accelerated, the Bridge Loan shall convert
into the Term Loan; provided, however, that if an event
described in clause (B) or (C) is continuing at the
scheduled Conversion Date but the applicable grace period, if
any, set forth in the events of default provision of the
Bridge Loan has not expired, the Conversion Date shall be
deferred until the earlier to occur of (i) the cure of such
event or (ii) the expiration of any applicable grace period.
Debt Security
Exchange: The Lender may at any time after the Conversion Date require
that the Borrower exchange the Term Loan for long-term notes
which shall bear interest at the Fixed Rate, determined at
such time, and shall have such covenants as are customary for
high yield debt securities issued for cash in the then
prevailing market and reasonably acceptable to the Lender and
the Borrower and shall in addition provide customary and
mutually acceptable registration rights, including, without
limitation, a registered exchange offer or, if not permitted
by applicable law to effect an exchange offer, demand
registrations.
Covenants: The Financing Documentation will contain customary affirmative
and negative high yield covenants (with customary carve-outs
and exceptions), including, without limitation, restrictions
on the ability of the Borrower and its subsidiaries to incur
additional indebtedness and to incur indebtedness which is
subordinated to senior debt and not subordinated to the Bridge
Loan or Term Loan, pay certain dividends and make certain
other restricted payments and investments, impose restrictions
on the ability of the Borrower's subsidiaries to pay dividends
or make certain payments to the Borrower, create liens, enter
into transactions with affiliates, and merge, consolidate or
transfer substantially all of their respective assets.
Further, during the term of the Bridge Loan, the covenants
will be more restrictive than the covenants applicable to the
Term Loan and will include additional prohibitive covenants
relating to asset sales, certain acquisitions, certain debt
incurrences and certain other corporate transactions as are
customary for such financings.
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<PAGE>
Representations
and
Warranties: Customary for transactions of this type.
Conditions
Precedent: Customary for transactions of this type as set forth in Section 3
of the bridge loan commitment letter.
Events
of Default: Customary for transactions of this type, including, without
limitation, payment defaults, covenant defaults, bankruptcy
and insolvency, judgments, cross acceleration of and failure
to pay at final maturity other indebtedness aggregating $5
million or more, subject to, in certain cases, notice and
grace provisions.
Governing Law
and Forum: The State of New York.
Indemnification
and Expenses
Reimbursement: Customary for transactions of this type.
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<PAGE>
EXHIBIT B
Senior Discount Bridge and Term Loan Facility
Summary Term Sheet(2)
Borrower: Laredo Acquisition Corp., a corporation newly formed by the
Equity Investors (the "Borrower").
Guarantors: None.
Lender: Bankers Trust Corporation.
Amount: $25 million senior discount bridge loan (the "Senior Discount
Bridge Loan").
Maturity: The commitment shall automatically expire on November 30, 1998
if no portion of the Senior Discount Bridge Loan has been
funded (other than as a result of failure of the Lender to
fulfill its obligations hereunder). Any outstanding amount
under the Senior Discount Bridge Loan will be required to be
repaid in full on the earlier of (a) one year following the
initial funding date of any portion of the Senior Discount
Bridge Loan and (b) the closing date of any permanent
financing; provided, however, that if the Borrower has failed
to raise permanent financing before the date set forth in (a)
above, the Senior Discount Bridge Loan shall be converted,
subject to the conditions outlined under "Conditions to
Conversion of the Senior Discount Bridge Loan", to a senior
discount term loan facility (the "Senior Discount Term Loan"
and, collectively with the Senior Discount Bridge Loan, the
"Facility") with a maturity of 12 months after the scheduled
final maturity of the Bank Financing (as in effect on the
Closing Date); provided, however, that the Borrower shall pay
to the Lender on the Conversion Date (as defined below), a
conversion cash fee as provided in the Fee Letter (the
"Conversion Fee").
Commitment
and Funding
Fee: As provided in the Fee Letter.
Use of
Proceeds: To fund in part the Transaction and to pay related fees and
expenses.
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(2) Capitalized terms used herein and not defined herein
shall have the meanings provided in the commitment letter
to which this summary term sheet is attached.
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<PAGE>
Interest
Rate: As provided in the Fee Letter.
Ranking: The obligations of the Borrower under the Senior Discount
Bridge Loan will be senior obligations of the Borrower and
will rank (i) PARI PASSU in right of payment to all senior
indebtedness of the Borrower, and (ii) senior to any
subordinated indebtedness of the Borrower.
Optional
Prepayment: The Borrower may prepay the Senior Discount Bridge Loan or the
Senior Discount Term Loan, in whole or in part, at any time at
a redemption price equal to 100% of the principal amount
thereof plus accrued interest thereon; PROVIDED, HOWEVER, that
at such time as the Senior Discount Term Loan bears interest
at the Fixed Rate, the Senior Discount Term Loan shall be
subject to redemption restrictions and premiums typical for
high yield debt securities.
Mandatory
Prepayment: Net proceeds of sales of debt or equity securities in a public
offering or private placement by the Borrower shall be used to
prepay the Senior Discount Bridge Loan plus accrued interest
and any other amount payable thereunder to the full extent of
the net proceeds so received. The Borrower will be required to
make an offer to purchase all notes outstanding under the
Senior Discount Bridge Loan or the Senior Discount Term Loan,
as the case may be, upon the occurrence of a Change of Control
(to be defined).
Participation/
Assignment
or
Syndication: The Lender may participate out or sell or assign, or syndicate
to other lenders, the Senior Discount Bridge Loan or Senior
Discount Term Loan, in whole or in part, at any time, subject
to compliance with applicable securities laws.
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<PAGE>
Conditions
to Conversion
of the Senior
Discount One year after the Funding Date of any portion of the Senior
Bridge Loan: Discount Bridge Loan, unless (A) the Borrower or any
significant subsidiary thereof is subject to a bankruptcy or
other insolvency proceeding, (B) there exists a payment
default (whether or not matured) with respect to the Senior
Discount Bridge Loan or the Conversion Fee or (C) there
exists a default in the payment when due at final maturity of
any indebtedness (excluding the indebtedness under the Senior
Discount Bridge Loan) of the Borrower or any of its
subsidiaries in excess of $5 million for any such default or
all such defaults, or the maturity of such indebtedness shall
have been accelerated, the Senior Discount Bridge Loan shall
convert into the Senior Discount Term Loan; PROVIDED, HOWEVER,
that if an event described in clause (B) or (C) is continuing
at the scheduled Conversion Date but the applicable grace
period, if any, set forth in the events of default provision
of the Senior Discount Bridge Loan has not expired, the
Conversion Date shall be deferred until the earlier to occur
of (i) the cure of such event or (ii) the expiration of any
applicable grace period.
Debt Security
Exchange: The Lender may at any time after the Conversion Date require
that the Borrower exchange the Senior Discount Term Loan for
long-term notes which shall bear interest at the Fixed Rate,
determined at such time, and shall have such covenants as are
customary for high yield debt securities issued for cash in
the then prevailing market and acceptable to the Lender and
the Borrower and shall in addition provide customary
registration rights, including, without limitation, a
registered exchange offer or, if not permitted by applicable
law to effect an exchange offer, demand registrations.
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<PAGE>
Covenants: The Financing Documentation will contain customary affirmative
and negative high yield covenants (with customary carve-outs
and exceptions), including, without limitation, restrictions
on the ability of the Borrower and its subsidiaries to incur
additional indebtedness, pay certain dividends and make
certain other restricted payments and investments, impose
restrictions on the ability of the Borrower's subsidiaries to
pay dividends or make certain payments to the Borrower, create
liens, enter into transactions with affiliates, and merge,
consolidate or transfer substantially all of their respective
assets. Further, during the term of the Senior Discount
Bridge Loan, the covenants will be more restrictive than the
covenants applicable to the Senior Discount Term Loan and will
include additional prohibitive covenants relating to asset
sales, certain acquisitions, certain debt incurrences and
certain other corporate transactions as are customary for such
financings.
Representations
and
Warranties: Customary for transactions of this type.
Conditions
Precedent: Customary for transactions of this type as set forth in
Section 3 of the bridge loan commitment letter.
Events Customary for transactions of this type, including, without
of Default: limitation, payment defaults, covenant defaults, bankruptcy
and insolvency, judgments, cross acceleration of and failure
to pay at final maturity other indebtedness aggregating $5
million or more, subject to, in certain cases, notice and
grace provisions.
Governing Law The State of New York.
and Forum:
Indemnification Customary for transactions of this type.
and Expense
Reimbursement:
-15-
June 23, 1998
CONFIDENTIAL
<PAGE>
Exhibit 99(a)(2)
Odyssey Investment Partners Fund, LP
Laredo Acquisition Corp.
c/o Odyssey Capital Partners, LLC
280 Park Avenue
West Tower, 38th Floor
New York, New York 10017
Attn: Brian Kwait
Re: Commitment Letter
Ladies and Gentlemen:
You have advised General Electric Capital Corporation ("GE Capital"
or "Agent") that Laredo Acquisition Corp. ("Holdco"), a company formed by
Odyssey Investment Partners Fund, LP and certain other investors
(collectively, the "Equity Investor"), intends to acquire, through a
leveraged recapitalization transaction (the "Recapitalization"),
Celadon Group, Inc., a Delaware corporation (the "Company"), pursuant
to a merger agreement (the "Merger Agreement") to be entered into with the
Company and approved by the respective boards of Holdco and the Company. We
understand that the Recapitalization will be accomplished through the merger
(the "Merger") of Holdco with and into the Company with the Company as the
surviving entity (the "Surviving Entity"). We understand that cash
proceeds to the stockholders of the Company will be approximately $151.2
million and that the remaining shares (the "Retained Shares") will be
retained by certain stockholders of the Company (the "Rollover
Stockholders") and will have a value of approximately $6.4 million. In
addition, in connection with the Recapitalization, the Company will (i)
refinance (the "Refinancing") approximately $18.9 million (or, if the
cash proceeds of the Subordinated Notes referred to below exceed $100.0
million, an amount equal to approximately $18.9 million plus such excess)
of currently outstanding indebtedness and capital leases of the Company;
(ii) assume capital leases of the Company not to exceed approximately
$83.1 million (or, if the cash proceeds of such Subordinated Notes exceed
$100.0 million, an amount not to exceed approximately $83.1 million less
such excess); and (iii) pay estimated fees and expenses in connection with
the Recapitalization, the Merger, the Refinancing, and related
transactions of approximately $19.9 million. As used herein, the term
"Company Reorganization" shall refer, collectively, to the
Recapitalization, the Merger, and the Refinancing.
We understand that the total cash proceeds required to consummate the
Company Reorganization will be financed with the proceeds of the following:
(i) the issuance by Celadon Trucking Services, Inc., a New Jersey
corporation ("Borrower"), for cash equal to either (a) approximately $100.0
<PAGE>
million of subordinated bridge financing (the "Subordinated Bridge Notes")
or (b) $100.0 million to $150.0 million of senior subordinated notes
(the "Subordinated Permanent Notes"; the Subordinated Bridge Notes and
the Subordinated Permanent Notes are each, as applicable, sometimes
referred to herein as the "Subordinated Notes"); (ii) the issuance by
Holdco, for gross cash proceeds equal to approximately $25.0 million of
either pay-in-kind (a) senior discount debt securities (the "Holdco
Permanent Notes") or (b) bridge notes (the "Holdco Bridge Notes"; the
Holdco Permanent Notes and the Holdco Bridge Notes are each, as
applicable, sometimes referred to herein as the "Holdco Notes"); (iii)
the issuance of common equity of Holdco ("Common Stock") to be purchased
by the Equity Investor, for cash proceeds of not less than $57.6 million;
and (iv) solely in connection with the Refinancing, borrowings by
Borrower of not more than $7.5 million under a $25.0 million senior
secured revolving credit facility (the "Revolver").
In furtherance of the foregoing, you have further advised Agent that
Borrower is seeking up to $175,000,000 of financing (the "Financing"),
consisting of the Revolver to be used for working capital purposes and
other corporate purposes (including to partially finance the Refinancing
as described above) and a $150,000,000 Senior Secured Capital Expenditure
and Acquisition Line (the "Capex Line") to be used for certain permitted
capital expenditures and permitted acquisitions. The Company
Reorganization, the Financing and all related transactions are collectively
referred to herein as the "Transaction".
Based on our understanding of the Transaction as described above and
the information which you have provided to us, GE Capital is pleased to
offer its commitment to provide the Financing described in this Commitment
Letter in the amount of $175,000,000, subject to the following terms and
conditions. In addition, without committing GE Capital in any manner,
financing for the assets of Gerth Transport and Servicio de Transportacion
Jaguar, S.A. de C.V. could be addressed through a separate Canadian or
Mexican facility, as applicable, in each case mutually satisfactory to GE
Capital and Borrower.
AGENT:
GE Capital.
LENDERS:
BORROWER:
GE Capital and other lenders acceptable to GE Capital.
Celadon Trucking Services, Inc., a New Jersey corporation.
SUMMARY OF TERMS
FOR REVOLVER
REVOLVER MAXIMUM AMOUNT:
$25,000,000 (including a Letter of Credit Subfacility of up to $5,000,000).
Letters of Credit will be issued by a bank, and on terms, acceptable to GE
Capital, and will be guaranteed or otherwise backed by GE Capital
<PAGE>
and the Revolver Lenders. GE Capital's Revolver commitment may also include a
swing line subfacility of up to $5,000,000.
TERM:
Sixty (60) months.
AVAILABILITY:
Borrowing availability will be limited to the sum of (i) 85% of
Borrower's eligible accounts receivable, (ii) 100% of the net book value
(after giving effect to reserves for depreciation) of Borrower's
eligible tractors and trailers which at any relevant date of determination
are no more than one year old (the "New Tractors and Trailers") and (iii)
80% of the net book value (after giving effect to reserves for
depreciation) of Borrower's eligible tractors and trailers (other than the
New Tractors and Trailers), in each case less reserves described below (the
"Borrowing Base"), but not to exceed the Revolver Maximum Amount. Agent
will retain the right from time to time after reasonable advance notice to
establish or modify advance rates, standards of eligibility and reserves
against availability, in each case in Agent's reasonable credit
judgment. The face amount of all letters of credit outstanding under
the Letter of Credit Subfacility will be reserved in full against
availability. In addition, in no event shall the aggregate amount of Loans
(as hereinafter defined) and letters of credit exceed the Borrowing Base.
SUMMARY OF TERMS FOR CAPEX LINE
CAPEX MAXIMUM AMOUNT:
Up to $150,000,000.
TERM:
Sixty (60) months.
AVAILABILITY:
Borrowing availability will be limited to the Borrowing Base, but not
to exceed the Capex Maximum Amount. The face amount of all letters of
credit outstanding under the Letter of Credit Subfacility and the
greater of (a) $20,000,000 and (b) the aggregate amount of any loans
outstanding under the Revolver ("Revolving Loans") will be reserved in
full against availability. For each advance under the Capex Line, the
Borrowing Base would include eligible assets then being acquired with such
advance.
TERMINATION:
If the Revolver is terminated, the Capex Line will immediately be due
and payable in full.
TERMS OF GENERAL
<PAGE>
APPLICABILITY
USE OF PROCEEDS:
Revolving Loans made on the date the Financing is consummated (the "Closing
Date") will be used for immediate working capital and other corporate purposes
(including up to $7,500,000 to consummate the
<PAGE>
Refinancing). Revolving Loans made after the Closing Date will be used for
Borrower's working capital and other corporate purposes. Loans made under the
Capex Line ("Capex Loans"; together with Revolving Loans, "Loans") after the
Closing Date will be used for Borrower's permitted capital expenditures and
permitted acquisitions (to be defined). No Capex Loans will be made on the
Closing Date.
INTEREST:
Rates:
At Borrower's option, all loans will bear interest at either (a) a
floating rate equal to the Index Rate plus the Applicable Margin or (b)
absent a default, a fixed rate for periods of one, two, three or six
months equal to the reserve adjusted London Interbank Offered Rate
("LIBOR Rate") plus the Applicable Margin.
Payment Dates:
Interest will be payable quarterly in arrears for Index Rate Loans and at
the expiration of each LIBOR period for LIBOR Loans except that in the
case of LIBOR periods greater than three months in duration, interest will
be payable at three-month intervals and on the expiration of such LIBOR
periods.
Other Terms:
APPLICABLE MARGINS:
All interest will be calculated based on a 360 day year and actual
days elapsed. The Financing documentation will contain (a) mutually agreeable
LIBOR breakage provisions and LIBOR borrowing mechanics, (b) LIBOR Rate
definitions, and (c) the Index Rate definition which will equal the
higher of the prime rate as reported by The Wall Street Journal or the
overnight Federal funds rate plus 50 basis points.
Subject to the terms of the fifth bullet point under the heading
"Other Conditions" contained herein, the following Applicable Margins
(consisting of per annum rate margins) shall apply until the Applicable
Margins are adjusted as described below:
<TABLE>
<S> <C>
Applicable Revolver Index Margin 1.25%
Applicable Revolver LIBOR Margin 2.50%
Applicable L/C Margin 2.50%
Applicable Capex Index Margin 1.25%
Applicable Capex LIBOR Margin 2.50%
Applicable Unused Revolver Facility Fee Margin .50%
Applicable Unused Capex Facility Fee Margin .50%
</TABLE>
<PAGE>
Starting with the delivery to Agent of the Surviving Entity's consolidated
quarterly financial statements for the first fiscal quarter ending after the
first anniversary of the Closing Date, the Applicable Margins shall be subject
to adjustment (up or down), prospectively, based on the Surviving Entity's
consolidated financial performance for the trailing four quarters most
recently ended in accordance with the grid attached hereto as Schedule I.
The definitive Financing documentation will contain provisions regarding the
delivery of financial statements, and the timing and mechanics of subsequent
prospective adjustments in Applicable Margins. If a default is continuing at
the time that a reduction in Applicable Margins is to be implemented, that
reduction will be deferred until the first month commencing after the cure or
waiver thereof.
FEES:
In addition to the fees and expenses payable to GE Capital as specified in the
fee letter among Holdco, GE Capital and Odyssey Investment Partners Fund, L.P.
("Odyssey") of even date herewith (the "Fee Letter") and that certain
engagement letter among Holdco, Odyssey and GE Capital dated June 22, 1998
(the "Engagement Letter"), the following fees will be payable to Agent under
the Financing documentation:
Letter of Credit Fee:
Equal to the Applicable L/C Margin per annum (calculated on the basis of a
360-day year and actual days elapsed) on the face amount of the letters of
credit under the Revolver, payable quarterly in arrears, plus any costs and
expenses incurred by Agent in arranging for the issuance or guaranty of
Letters of Credit and any charges assessed by the issuing bank.
Unused Revolver Facility Fee:
Equal to the Applicable Unused Revolver Facility Fee Margin per annum
(calculated on the basis of a 360-day year and actual days elapsed) on the
average unused daily balance of the Revolver, payable quarterly in arrears.
Unused Capex Facility Fee:
Equal to the Applicable Unused Capex Facility Fee Margin per annum (calculated
on the basis of a 360-day year and actual days elapsed) on the average unused
daily balance of the Capex Line, payable quarterly in arrears.
Prepayment Premium:
Payable in the event that the Revolver or the Capex Line commitment is reduced
or terminated other than as a result of Mandatory Prepayments (as hereinafter
defined), except Mandatory Prepayments required by clause (d) under the
heading "Mandatory Prepayments" contained herein, prior to the first
anniversary of the Closing Date, in an amount equal to the Revolver Maximum
Amount or the Capex Maximum Amount, as applicable, multiplied by 1%.
DEFAULT RATES:
From and after the occurrence of a default (after giving effect to any
<PAGE>
applicable grace periods, if any), the interest rates applicable to all
Loans and the Letter of Credit Fee will be increased by 2% per annum
over the interest rate or Letter of Credit Fee otherwise applicable and
such interest and fees will be payable on demand.
SECURITY:
To secure all obligations of Borrower to Agent and Lenders, Agent, for
itself and the ratable benefit of Lenders, will receive a fully
perfected first priority security interest in all of the existing and after
acquired real and personal, tangible and intangible assets of all of the
Surviving Entity's domestic subsidiaries, including, without
limitation, Borrower and its domestic subsidiaries, including, without
limitation, all cash,
<PAGE>
cash equivalents, bank accounts, accounts, other receivables, chattel
paper, contract rights, inventory (wherever located), instruments,
documents, securities (including, without limitation, all of the capital
stock of the Surviving Entity's domestic subsidiaries and 65% (or such
greater percentage that would not trigger adverse tax consequences to the
Surviving Entity or Borrower) of the capital stock of the Surviving
Entity's or any domestic subsidiaries' direct foreign subsidiaries)
(whether or not marketable), equipment, fixtures, real property interests,
franchise rights, patents, trade names, trademarks, copyrights,
intellectual property, general intangibles, investment property and all
substitutions, accessions and proceeds of the foregoing (including
insurance proceeds) (collectively, together with the assets of the
Surviving Entity described in the second succeeding paragraph, the
"Collateral").
All Collateral will be free and clear of other liens, claims and
encumbrances, except for approximately $83,100,000 (or, if the cash
proceeds of the Subordinated Notes exceed $100,000,000, an amount not to
exceed approximately $83,100,000 less such excess) of existing capital
leases and other permitted liens and encumbrances acceptable to Agent.
The Surviving Entity will guarantee the obligations of Borrower under
the Financing documents and, to the extent provided above, pledge the
capital stock of Borrower and its other subsidiaries to Agent and grant
to Agent a security interest in all of its other real and personal assets.
All such obligations will be cross-defaulted to each other and to all
other material indebtedness of the Surviving Entity or any of its
subsidiaries. All such obligations shall be cross-collateralized with
each other and cross-collateralized and guaranteed by any and all
domestic subsidiaries of the Surviving Entity (other than Borrower).
MANDATORY PREPAYMENTS:
Borrower shall make prepayments against principal in the following
amounts: (a) all net proceeds of any sale or other disposition of any of the
assets of the Surviving Entity or any of its subsidiaries (other than
the sale of inventory in the ordinary course), (b) subject to exceptions
for repairs and replacements, all net insurance proceeds or other awards
payable in connection with the loss, destruction or condemnation of any
assets of the Surviving Entity or its subsidiaries, (c) 100% of the net
proceeds from the issuance or sale of debt which is used to refinance debt
incurred under the Capex Line to purchase tractors, trailers and other
equipment and (d) 50% of the net cash proceeds from the sale or issuance of
public equity which is not dedicated as reasonably determined by Agent
for permitted capital expenditures and permitted acquisitions (to be
defined).
These payments will be applied as follows: (a) net proceeds from
the disposition of the Surviving Entity's or any of its subsidiaries
tractors or trailers, any net insurance proceeds related to the loss,
destruction or condemnation of such assets or any net proceeds from the
sale or issuance of public equity or debt securities shall first be applied
against outstanding
<PAGE>
Capex Loans until such Loans are repaid in full, second against
outstanding swing line advances until such advances are repaid in full and
third against outstanding Revolving Loans; and (b) all other such payments
shall be applied first against outstanding swing line advances until such
advances are repaid in full, second against outstanding Revolving Loans
until such Loans are repaid in full and third against outstanding Capex
Loans. In general, such payments will not require a permanent reduction
in availability; provided, that such net proceeds attributable to the sale
or issuance of debt or public equity and requiring prepayments above shall
in an amount equal to any such proceeds permanently reduce commitments
under the Capex Line. In addition to the foregoing and without requiring a
mandatory prepayment of outstanding Loans, the net proceeds from capital
leases used to finance the purchase of tractors, trailers and other
equipment which was not previously financed with proceeds of the Capex Line
will permanently reduce commitments under the Capex Line in an amount equal
to the lesser of (a) 100% of such proceeds and (b) the excess of (i) the
Capex Maximum Amount over (ii) outstanding Capex Loans at the time of such
issuance.
<PAGE>
VOLUNTARY PREPAYMENTS:
Borrower may voluntarily prepay all or any portion of the Revolver and
Capex Loans and may voluntarily terminate or reduce the commitment
under the Revolver and/or Capex Line in minimum amounts to be agreed upon
at any time, upon at least 3 days' (in the case of prepayments of Loans
bearing interest based on the LIBOR Rate and otherwise one day) prior
written notice. All voluntary prepayments will be accompanied by the
prepayment premium described above and LIBOR breakage costs, if any.
FINANCIAL REPORTING:
The Financing documentation will require the Surviving Entity and Borrower
and each of their respective subsidiaries, on a monthly and quarterly
basis, to provide to Agent internally prepared financial statements.
Annually, the Surviving Entity and Borrower will be required to provide
audited financial statements, a board approved operating plan for the
subsequent year, and a reliance letter from their respective auditors.
Borrower will provide, on an as requested (and in no event less than
monthly) basis, Borrowing Base Certificates and other information
(including, without limitation, fleet aging, additions and retirements)
reasonably requested by Agent. All financial statements (other than
monthly statements which shall be on a stand alone basis) shall be prepared
on a consolidated and consolidating basis.
DOCUMENTATION:
The Financing documentation will contain representations and
warranties; conditions precedent; affirmative, negative and
financial covenants (including, without limitation, maximum senior
leverage ratio of 3.0 to 1.0, minimum EBITDA and maximum fixed charge
coverage ratio); indemnities; events of default and remedies as required
by Agent. Relevant documents, such as Transaction documents,
subordination agreements, inter- creditor agreements, equity or stockholder
agreements, incentive and employment agreements, tax agreements, and other
material agreements (including all documents relating to the Subordinated
Notes, the Holdco Notes and other indebtedness to remain outstanding after
the Closing Date), to be acceptable to Agent.
SYNDICATION:
Upon acceptance of this letter, GE Capital's affiliate, GECC Capital
Markets Group, Inc. ("GECMG"), will initiate discussions with potential
lenders relating to the syndication of the Financing. Each of Odyssey,
Holdco, Company and Borrower will agree to a syndication timetable that
allows for the primary syndication of the Financing prior to the Closing
Date, but the success of the syndication will not be a condition precedent to
the closing of the Financing.
GECMG will syndicate the transaction with the assistance of Borrower, each
of Odyssey, Holdco and the Company. Such assistance shall include, but
not be limited to (i) prompt assistance in the preparation of the
Information Memorandum and the verification of the completeness and
accuracy of the information contained therein; (ii) preparation of
offering materials and projections by Borrower, Odyssey, Holdco and the
Company and their respective advisors taking into account the proposed
Transaction and Financing; (iii)
<PAGE>
providing GECMG with all information reasonably deemed necessary by GECMG
to successfully complete the syndication; (iv) confirmation as to the
accuracy and completeness of such offering materials, information and
projections; (v) participation of Holdco's, the Company's and Borrower's
senior management and senior personnel of Odyssey in meetings and
conference calls with potential lenders at such times and places as GECMG
may reasonably request; and (vi) using best efforts to ensure that the
syndication efforts benefit from Odyssey's, the Company's and Borrower's
existing lending relationships.
GECMG may provide to industry trade organizations information with respect
to the Financing that is necessary and customary for inclusion in league
table measurements.
<PAGE>
OTHER TERMS:
GE Capital's commitment with respect to the Financing is conditioned
upon satisfaction of the following conditions as of the Closing Date,
and the Financing documents will require, among other things,
compliance with covenants pertaining to the following (all in form and
substance satisfactory to Agent):
* Cash management system for the Surviving Entity and its
subsidiaries acceptable to Agent. Agent will have springing cash
dominion upon the occurrence of certain events (to be mutually agreed
upon) by means of lockboxes and blocked account agreements executed on
or before the Closing Date.
* Commercially reasonable insurance protection for the Surviving
Entity's, Borrower's and their respective subsidiaries' industry, size
and risk and Agent's collateral protection (terms, underwriter, scope, and
coverage to be acceptable to Agent); Agent named as loss payee
(property/casualty) and additional insured (liability); and
non-renewal/cancellation/amendment riders to provide 30 days advance notice
to Agent.
* Compliance with applicable laws, decrees, and material agreements
or obtaining of applicable consents and waivers.
* General and collateral releases from prior lenders, customary corporate
and estoppel certificates; landlord/mortgagee/bailee waivers; and
consignment or similar filings to the extent applicable.
* Limitations on commercial transactions, management agreements,
service agreements, and borrowing transactions between the Surviving Entity,
Borrower and its subsidiaries and their respective officers, directors,
employees and affiliates.
* Limitations on, or prohibitions of, cash dividends, other distributions
to equity holders, payments in respect of the Holdco Notes, the
Subordinated Notes, the Shareholder Notes (as hereinafter defined) and other
subordinated debt, payment of management fees to affiliates and
redemption of common or preferred stock; provided, that so long as no
default has occurred or would occur as a result thereof the Surviving
Entity shall be permitted in connection with certain terminations of
employment to purchase certain of the Rollover Stockholders' Retained Shares
at a purchase price not to exceed their fair market value if after giving
effect to such purchase (a) the Surviving Entity is in pro
-forma compliance with all covenants contained in the definitive
Financing documentation and (b) there is at least $5,000,000 of excess
availability under the Revolver. In addition to the conditions
contained in the foregoing proviso, the Surviving Entity shall not be
permitted to pay more
<PAGE>
than $4,000,000 in cash in the aggregate for all such Retained Shares so
purchased and any additional consideration paid for such purchases shall
consist of unsecured notes issued by the Surviving Entity (the
"Shareholder Notes").
* Prohibitions on additional indebtedness except for additional capital
leases incurred after the Closing Date by Borrower in an amount and subject
to other conditions acceptable to the Lenders;
provided, that at any date of determination if there are less than (a)
$40,000,000 of Capex Loans outstanding both before and after giving effect
to the incurrence of any such additional capital lease, the ratio of
outstanding Capex Loans to capital leases incurred since the Closing Date
after giving effect to such incurrence shall be at least 4 to 1 or (b)
$70,000,000 but at least $40,000,000 (such incremental amount of Capex
Loans being referred to herein as the "40 to 70 Capex Loans") of Capex
Loans outstanding both before and after giving effect to the incurrence of
any such additional capital lease, the ratio of outstanding
<PAGE>
40 to 70 Capex Loans to the amount of outstanding capital leases incurred
since the Closing Date after giving effect to such incurrence thereof less
$10,000,000 shall be at least 2 to 1.
* Other than the Merger and permitted acquisitions (to be defined),
prohibitions of mergers, acquisitions or sale of the Surviving Entity,
Borrower or any of their respective subsidiaries, their stock or a material
portion of their assets.
* Prohibitions of a direct or indirect change in control of the Surviving
Entity or Borrower.
* Limitations on capital expenditures.
* Agent's and Lenders' rights of: Inspection; access to facilities, management
and auditors. Without limiting the foregoing, Agent's auditors shall conduct a
field examination prior to the Closing Date for purposes of determining
accounts receivables' eligibility for inclusion in the Borrowing Base.
* Customary yield protection provisions, including, without limitation,
provisions as to capital adequacy, illegality, changes in circumstances and
withholding taxes.
* If and to the extent requested by Agent after the Closing Date, appraisals
of Borrower's fleet in scope and form, by firms, and with results acceptable
to Agent; provided that, notwithstanding anything to the contrary contained
herein, unless a default has occurred Borrower shall not be responsible for
the cost of such appraisals.
* Governing law: New York.
OTHER CONDITIONS:
GE Capital's commitment with respect to the Financing will be further
conditioned upon the following (all to Agent's satisfaction):
* Delivery of Transaction documents, including the Merger Agreement, to Agent
in a timely manner. Completion of the Company Reorganization on terms and
conditions reasonably acceptable to GE Capital with (i) the approval of the
respective boards of the Company and Holdco prior to any public announcement,
and (ii) the prior removal by the Company of any "poison pill provisions". In
addition, the Merger Agreement shall have been adopted by the stockholders of
the Company in accordance with the General Corporation law of the State of
Delaware. The sources and uses of funds for the Company Reorganization
<PAGE>
(assuming the issuance of Subordinated Bridge Notes and Holdco Bridge Notes)
will be as set forth on Schedule II hereto. Upon consummation of the Company
Reorganization, the Surviving Entity will be the sole shareholder of Borrower.
* Corporate structure, capital structure (including, without limitation, the
equity to be contributed by the Equity Investor and the Subordinated Notes and
the Holdco Notes), any contingent liabilities, and tax and legal effects
resulting from the Transaction to be acceptable. At or prior to closing the
Equity Investor will
<PAGE>
contribute at least $57,600,000 of cash equity and the Rollover Stockholders
will retain Retained Shares, in each case on terms acceptable to Agent.
* The Surviving Entity shall be a holding company whose only asset shall be
the capital stock of Borrower and which shall not engage in any activities
other than those associated with being the sole shareholder of Borrower
and the issuer of the Holdco Notes and the Shareholder Notes, if any, and,
without limiting the foregoing, shall not incur any liabilities other than
pursuant to the Holdco Notes, the Shareholder Notes, the Financing
documents and legal, accounting and other corporate overhead expenses
acceptable to Agent.
* There shall be no material change, inaccuracy or omission in any information
previously provided to Agent or to the Lenders by Odyssey, Borrower, Holdco,
or the Company.
* As of the Closing Date, Holdco and Borrower shall have received at least
$125,000,000 (but not more than $175,000,000) in cash proceeds from the
issuance of the Subordinated Notes and the Holdco Notes. Terms of the Holdco
Bridge Notes and the Subordinated Bridge Notes, if applicable, must be
reasonably acceptable to Agent and terms of the Holdco Permanent Notes and the
Subordinated Permanent Notes, if applicable, must be acceptable to Agent, and
all obligations of Holdco, the Surviving Entity, Borrower and their respective
subsidiaries under or in respect of the Financing and all liens granted to
Agent and Lenders to secure such obligations must constitute permitted senior
indebtedness and senior liens, as applicable, under the terms of the
Subordinated Notes and the Holdco Notes. Without limiting the immediately
preceding sentence, the outstanding principal amount of the Subordinated
Bridge Notes, if applicable, shall equal $100,000,000 and the cash interest
rate thereon shall not exceed 14.75% per annum (it being understood, without
limiting any other rights of Agent or the Lenders hereunder, that a cash rate
of 14.75% per annum or lower on the Subordinated Bridge Notes is acceptable to
Agent). If Borrower issues Subordinated Bridge Notes on the Closing Date and
such notes are not refinanced within six months thereafter in connection with
the issuance of Subordinated Permanent Notes in a principal amount of not less
than $150,000,000 and otherwise acceptable to Agent, (a)
each of the Applicable Margins otherwise applicable hereunder (other than
the Applicable Unused Revolver Facility Fee Margin and the Applicable
Unused Capex Facility Fee Margin) shall be increased by 25 basis points
until such time, if at all, such acceptable refinancing occurs and (b)
Agent and the requisite Lenders in their discretion shall have the right
to require that Borrower prepay with proceeds of the Loans capital leases
assumed at closing in an amount determined by Agent and requisite Lenders.
* A letter from the Chief Executive Officer or Chief Financial Officer of the
Surviving Entity as to each of the Surviving Entity's, Borrower's and their
respective subsidiaries' solvency at closing after taking into account the
Financing and the Transaction; a pro forma consolidated balance sheet for each
<PAGE>
of the Surviving Entity and Borrower.
* Total indebtedness of the Surviving Entity and its subsidiaries (including
the Financing, the Subordinated Notes, the Holdco Notes and capital leases) at
closing not to exceed $217,000,000.
* There shall be excess availability under the Revolver for Borrower at
closing (on a pro forma basis without deterioration of working capital) of at
least $17,500,000.
<PAGE>
* Agent shall be satisfied with the status of potential dissenters' rights
that may be exercised in connection with the Merger or retain the right to
reserve against availability as a result thereof.
* The Company shall have received a satisfactory fairness opinion with
respect to the consideration to be received by the stockholders of the
Company in connection with the Merger and provided a copy of such opinion
to Agent.
* Agent shall have received the Company's audited financial statements for the
period ending June 30, 1998 and unaudited financial statements for each
monthly period thereafter ending 30 days prior to the Closing Date.
* With respect to any real estate collateral, receipt of title insurance
policies in amount, form and from an issuer satisfactory to Agent.
* Receipt of all necessary or appropriate third party and governmental
waivers and consents.
* Satisfactory opinions of counsel from the Surviving Entity's and Borrower's
counsel (including local counsel as requested) reasonably acceptable to Agent.
* As of the Closing Date, there will have been (i) since March 31, 1998, no
material adverse change, individually or in the aggregate, in the business,
financial or other condition of the Company, or the Company and its
subsidiaries taken as a whole, the industry in which Borrower operates, or the
collateral which will be subject to the security interest granted to Agent and
Lenders or in the prospects or projections of
the Surviving Entity, or the Surviving Entity and its subsidiaries taken
as a whole, (ii) no litigation commenced which, if successful, would have
a material adverse impact on the Surviving Entity, or the Surviving Entity
and its subsidiaries taken as a whole, their business, or Borrower's
ability to repay the loans, or which would challenge the transactions
under consideration, (iii) since March 31, 1998, no material increase in
the liabilities, liquidated or contingent, of the Company, Borrower or
Company and its subsidiaries taken as a whole, or material decrease in the
assets of the Company, Borrower or Company and its subsidiaries taken as a
whole except as a result of sales of assets in the ordinary course of
business; and (iv) since the date hereof, no change in loan syndication,
financial or capital market conditions generally that in GECMG's judgment
would materially impair syndication of the Financing.
GE Capital's commitment hereunder is subject to the execution and delivery of
final legal documentation acceptable to GE Capital and its counsel
incorporating, without limitation, the terms set forth in this Commitment
<PAGE>
Letter.
You agree that GECMG will act as the sole syndication agent for the Loans and
that no additional agents, co-agents or arrangers will be appointed, or other
titles conferred, without GECMG's consent. You agree that no Lender will
receive any compensation of any kind for its participation in the Financing,
except as expressly provided for in this letter or the Fee Letter.
<PAGE>
To ensure an orderly and effective syndication of the Financing, you agree
that until the termination of the syndication, as determined by GECMG, you
will not, and will not permit any of your affiliates to, syndicate or issue,
attempt to syndicate or issue, announce or authorize the announcement of the
syndication of or issuance of, or engage in discussions concerning the
syndication or issuance of, any debt facility or debt security for the Company
or Borrower or to finance the Company Reorganization (including any renewals
thereof), other than the Subordinated Notes and the Holdco Notes, without the
prior written consent of GECMG. You also acknowledge and agree that within the
last 365 days no person has attempted to syndicate for the Company or Borrower
a financing substantially similar to the Financing.
By signing this Commitment Letter, Odyssey, Holdco and Agent acknowledge that
this Commitment Letter supersedes any and all discussions and understandings,
written or oral, between or among GE Capital and any other person as to the
subject matter hereof, including, without limitation, any prior commitment
letters, if any; provided, however, that the Engagement Letter shall survive
the execution and delivery of this Commitment Letter and remain in full force
and effect in accordance with its terms. No amendments, waivers or
modifications of this Commitment Letter or any of its contents shall be
effective unless expressly set forth in writing and executed by Odyssey,
Holdco and Agent. This Commitment Letter is being provided to you on the
condition that, except as required by law, neither it, the Fee Letter, the
Engagement Letter, nor their contents will be disclosed publicly or privately
except to those individuals who are yours or, in the case of the Commitment
Letter, the Company's officers, employees or advisors who have a need to know
of them as a result of their being specifically involved in the Transaction
under consideration and then only on the condition that such matters may not,
except as required by law, be further disclosed. No person, other than the
parties signatory hereto, is entitled to rely upon this Commitment Letter or
any of its contents. No person shall, except as required by law, use the name
of, or refer to, GE Capital, or any of its affiliates, in any correspondence,
discussions, press release, advertisement or disclosure made in connection
with the Transaction without the prior written consent of GE Capital.
If the Financing closes, the Corporate Reorganization or substantially similar
transaction closes with Odyssey or any of its affiliates without the financing
contemplated herein being provided by GE Capital (other than solely by reason
of GE Capital's failure to honor its commitment hereunder) or Holdco is
reimbursed by the Company for its expenses as contemplated by Section 6.4 of
the Merger Agreement or receives a fee in connection with a Payment Event (as
defined in the Merger Agreement), Holdco agrees to pay upon demand to GE
Capital all out-of-pocket expenses which may be incurred by GE Capital, GECMG
or any of their respective affiliates in connection with the Financing or the
Transaction (including all reasonable legal, environmental, and other
consultant costs and fees, including costs and fees related to noting the
Agent's lien on certificate of titles, incurred in the preparation of this
Commitment Letter, the Fee Letter, the Engagement Letter, and evaluation of
and documenting of the Financing and the Transaction). Regardless of whether
the commitment herein is terminated or the Transaction or the Financing
<PAGE>
closes, Holdco shall indemnify and hold harmless each of GE Capital, GECMG,
the Lenders, their respective affiliates, and the directors, officers,
employees, agents, attorneys and representatives of any of them (each, an
"Indemnified Person"), from and against all suits, actions, proceedings,
claims, damages, losses,
<PAGE>
liabilities and expenses (including, but not limited to, attorneys' fees and
disbursements and other costs of investigation or defense, including those
incurred upon any appeal), which may be instituted or asserted against or
incurred by any such Indemnified Person in connection with, or arising out of,
this Commitment Letter, the Fee Letter, the Engagement Letter, the Financing
or the Transaction under consideration, the documentation related thereto, any
other financing related thereto, any actions or failures to act in connection
therewith, and any and all environmental liabilities and legal costs and
expenses arising out of or incurred in connection with any disputes between or
among any parties to any of the foregoing, and any investigation, litigation,
or proceeding related to any such matters. Notwithstanding the preceding
sentence, indemnitors shall not be liable for any indemnification to an
Indemnified Person to the extent that any such suit, action, proceeding,
claim, damage, loss, liability or expense results primarily from that
Indemnified Person's gross negligence or willful misconduct, as finally
determined by a court of competent jurisdiction. Under no circumstances shall
GE Capital, GECMG, or any of their respective affiliates be liable to you or
any other person for any punitive, exemplary, consequential or indirect
damages in connection with this Commitment Letter, the Fee Letter, the
Engagement Letter, the Transaction, the Financing, the documentation related
thereto or any other financing, regardless of whether the commitment herein is
terminated or the Transaction or the Financing closes. Without limiting any
obligation under the Engagement Letter or otherwise, Odyssey shall have no
obligations under this paragraph.
Odyssey, Holdco and Agent hereby expressly waive any right to trial by jury of
any claim, demand, action or cause of action arising in connection with this
Commitment Letter, the Fee Letter, the Engagement Letter, any transaction
relating hereto or thereto, or any other instrument, document or agreement
executed or delivered in connection herewith or therewith, whether sounding in
contract, tort or otherwise. Odyssey, Holdco and Agent consent and agree that
the state or federal courts located in New York County, City of New York, New
York, shall have exclusive jurisdiction to hear and determine any claims or
disputes between or among any of the parties hereto pertaining to this
Commitment Letter, the Fee Letter, the Engagement Letter, the Financing or the
Transaction under consideration, any other financing related thereto, and any
investigation, litigation, or proceeding related to or arising out of any such
matters, provided, that Odyssey, Holdco and Agent acknowledge that any appeals
from those courts may have to be heard by a court located outside of such
jurisdiction. Odyssey, Holdco and Agent expressly submit and consent in
advance to such jurisdiction in any action or suit commenced in any such
court, and hereby waive any objection which either of them may have based upon
lack of personal jurisdiction, improper venue or inconvenient forum.
Odyssey and Holdco acknowledge that GE Capital has entered into this
Commitment Letter and the Fee Letter in reliance on, among other things, that
Holdco would be entitled to payment of a breakup fee and reimbursement of
certain expenses from the Company pursuant to Section 6.4 of the draft of June
23, 1998 of the Merger Agreement. Odyssey and Holdco agree that (i) the
definitive Merger Agreement executed by the parties shall include the breakup
<PAGE>
fee and the expense reimbursement provisions in favor of Holdco as set forth
in the above-referenced draft Merger Agreement and that such provisions shall
not be amended, modified or waived without the prior
<PAGE>
written consent of GE Capital, and (ii) GE Capital shall have no obligation to
incur any expenses in connection with the Transaction unless and until such
definitive Merger Agreement is executed by the parties.
This Commitment Letter is governed by and shall be construed in accordance
with the laws of the State of New York applicable to contracts made and
performed in that State.
GE Capital shall have access to all relevant facilities, personnel and
accountants, and copies of all documents which GE Capital may request,
including business plans, financial statements (actual and pro forma), books,
records, and other documents.
This Commitment Letter shall be of no force and effect unless and until this
Commitment Letter and the Fee Letter are each executed and delivered to GE
Capital on or before 5:00 p.m. New York City time on June 24, 1998 at 335
Madison Avenue, 12th Floor, New York, New York 10017. Once effective, GE
Capital's commitment to provide financing in accordance with the terms of this
Commitment Letter shall cease if the Transaction does not close, or the
Financing is not funded for any reason, on or before November 30, 1998 and
neither GE Capital nor any of its affiliates shall have any liability to any
person in connection with its refusal to fund the Financing or any portion
thereof after such date.
We look forward to continuing to work with you toward completing this
transaction.
Sincerely,
GENERAL ELECTRIC CAPITAL CORPORATION
By: Eileen McColgan
Its Duly Authorized Signatory
<PAGE>
SCHEDULE I
APPLICABLE MARGINS
<TABLE>
<CAPTION>
If Total Leverage Ratio (to be Level of
defined but excluding Holdco Applicable Margins:
Notes) is:
<S> <C>
LESS THAN 4.5 Level I
LESS THAN 5.25, but GREATER THAN 4.5 Level II
LESS THAN 6.0, but GREATER THAN 5.25 Level III
LESS THAN 6.75, but GREATER THAN 6.0 Level IV
GREATER THAN 6.75 Level V
- --------------------------------------- --------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Applicable Margins(1)
Level I Level II Level III Level IV Level V
------- -------- ------------------- -------- -------
<S> <C> <C> <C> <C> <C>
Applicable Revolver 0.50% 0.75% 1.0% 1.25% 1.50%
Index Margin
Applicable Revolver LIBOR 1.75% 2.00% 2.25% 2.50% 2.75%
Margin
Applicable Capex Index 0.50% 0.75% 1.0% 1.25% 1.50%
Margin
Applicable Capex LIBOR 1.75% 2.00% 2.25% 2.50% 2.75%
Margin
Applicable L/C Margin 1.75% 2.00% 2.25% 2.50% 2.75%
Applicable Unused Revolver .50% .50% .50% .50% .50%
Facility Fee Margin
Applicable Unused Capex .50% .50% .50% .50% .50%
Facility Fee Margin
</TABLE>
- ----------------------
(1.) Each of the rates set forth herein (other than the Applicable
Unused Revolver Facility Fee Margin and the Applicable Unused Capex
Facility Fee Margin) shall be increased by 25 basis points if required by
the fifth bullet point under the heading "Other Conditions" contained in this
Commitment Letter.
<TABLE>
<CAPTION>
USES
- --------------------------------------------------------------------------------
<S> <C>
Seller Consideration $157,600,000
- ------------------------------------------------- -----------------------------
Capital Leases 83,100,000
- ------------------------------------------------- -----------------------------
Existing Debt 18,900,000
- ------------------------------------------------- -----------------------------
Fees & Expenses 19,900,000
TOTAL
- ------------------------------------------------- -----------------------------
$279,500,000
</TABLE>
<PAGE>
SCHEDULE II
SOURCES AND USES
<TABLE>
<CAPTION>
SOURCES
<S> <C>
- --------------------------------------------------------------------------------
Capital Lease Obligations $ 83,100,000
- ------------------------------------------------- -----------------------------
Revolver 7,400,000
- ------------------------------------------------- -----------------------------
Subordinated Bridge Notes 100,000,000
- ------------------------------------------------- -----------------------------
Holdco Bridge Notes 25,000,000
- ------------------------------------------------- -----------------------------
Odyssey and Other Investors Cash 57,600,000
Equity
- ------------------------------------------------- -----------------------------
Management Rollover 6,400,000
TOTAL
- ------------------------------------------------- -----------------------------
$279,500,000
</TABLE>
<PAGE>
Exhibit 99 (b) (2)
Confidential
- --------------------------------------------------------------------------------
Materials Prepared for the Board of Directors
June 22, 1998
WASSERSTEIN
PERELLA & CO
-------------------------
<PAGE>
CELADON GROUP, INC.
- --------------------------------------------------------------------------------
Table of Contents
<TABLE>
<S> <C>
Executive Summary............................................. A
Odyssey Financing Plan........................................ B
Valuation Summary............................................. C
Appendix...................................................... D
Comparable Company Valuation Analysis....................... 1
Discounted Cash FLow Analysis............................... 2
Premium Analysis............................................ 3
Selected Company Financial Information...................... 4
Draft Opinion Letter........................................ 5
</TABLE>
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
CELADON GROUP, INC.
- --------------------------------------------------------------------------------
--------------------------------------
Executive Summary
--------------------------------------
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
1
<PAGE>
CELADON GROUP, INC. Executive Summary
- --------------------------------------------------------------------------------
Transaction Process
- Celadon engaged WP&Co. to explore selected strategic alternatives
- Motivation stemmed from management's concern over certain long-term
strategic issues facing the Company
- Revenue growth is imperative to achieve economics of scale
inherent in the industry and route density to optimize resource
utilization
- Additional capital is needed for internal growth and acquisitions
- Public equity valuation is too low, while present leverage is
significant
- Company could benefit from a financial sponsor's assistance to
pursue an aggressive acquisition strategy
- Management team, built over last two years, is in place to create value
through expertise in driver recruitment, route optimization, and asset
utilization
- Desire of new management team to remain in place
- Low public market valuation and poor liquidity would make it difficult
for larger shareholders to sell a meaningful stake
- Initial objective was to seek a strategic private placement of capital
for growth/acquisitions
- Subsequently, focus shifted to a going private transaction
- WP&Co., in consultation with management, created a list of
strategic financial sponsors with requisite qualifications
- Management specified not to solicit interest from operating
companies
- WP&Co. contacted over 30 eligible financial sponsors, 19 of whom
expressed interest in reviewing the confidential information
memorandum
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
2
<PAGE>
CELADON GROUP, INC. EXECUTIVE SUMMARY
- -------------------------------------------------------------------------------
Transaction Process, Cont'd.
FINANCIAL SPONSORS CONTACTED BY WP&CO.
<TABLE>
<CAPTION>
CURRENTLY EXCLUSIVE NEGOTIATIONS CONTACT DECLINED (23 TOTAL) CONTACT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Odyssey Investment Partners/GE Capital(1) Brian Kwait/ American Industrial Partners Ken Diekroeger
John Malfettone Aurora Capital Partners L.P. Richard Crowell
Bastion Capital Daniel Villanueva
Beacon Capital Alex Lynch
INDICATED INTEREST IN STARTING DUE DILIGENCE Brentwood Associates Gleeson Van Riet
Apollo Advisors, L.P. Tony Ressler Castle Harlan Partners Marcer Fournier
Joseph Littlejohn & Levy Paul Levy Cerberus Capital Management, L.P. Kevin Genda
The Cypress Group Jeffrey Hughes
EOS Partners, L.P. Brian Young
CONTINUED TO EXPRESS POSSIBLE INTEREST Fremont Group L.L.C. Bob Jaunick
BEFORE TOLD OF EXCLUSIVE NEGOTIATIONS (5 TOTAL) Golder, Thoma, Cressey, Raunder, Inc. Joseph Nolan
Bain Capital Marc Wolpow Hicks, Muse, Tate & Furst, Inc. Jeff Fronterhouse
Code, Hennessy & Simmons, LLC Thomas Formolo Kelso & Company Michael Goldberg
Kohlberg, Kravis & Roberts Todd Fisher Keystone, Inc. J. Taylor Crandall
Monitor Clipper Partners Robert Calhoun Madison Dearborn Partners, Inc. Tim Hurd
Vestar Capital Partners James Kelley Palladium Equity Partners Marcos Rodriguez
Pegasus Investor Craig Cogut
Riordan, Lewis & Haden Chris Lewis
Saratoga Partners Kirk Ferguson
Stonington Partners Scott Shaw
Texas Pacific Group James Coulter
Thomas H. Lee Company Renny Smith
William E. Simon & Sons Robert MacDonald
</TABLE>
3
<PAGE>
CELADON GROUP, INC. Executive Summary
- --------------------------------------------------------------------------------
Transaction Process, Cont'd.
- Odyssey Investment Partners LLC contacted WP&Co. to commence
discussions
- First offer (4/29/98): $18.50 per share
- Second offer (4/30/98): $20.00 per share
- Celadon Board pursues discussions with Odyssey
- Exclusivity agreement for 37 days
- Board of Directors agreed to allow WP&Co. to negotiate
exclusively with Odyssey based on belief that Odyssey's
valuation indication was unlikely to be exceeded by another
financial buyer
- Due diligence and management discussions
- On June 16, Odyssey presented a Draft Agreement and Plan of Merger
outlining a $20 per share cash acquisition
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
4
<PAGE>
CELADON GROUP, INC. Comparable Company Valuation Analysis
- ----------------------------------------------------------------------------
Celadon Group, Inc.
[Graph]
Wasserstein Perella & Co.
- -----------------------------------------------------------------------------
5
<PAGE>
CELADON GROUP, INC. Executive Summary
- --------------------------------------------------------------------------------
Deal Structure
<TABLE>
<S> <C>
Transaction Consideration and Structure: - Each holder of Celadon common stock will receive $20.00 per share in cash.
- Transaction is structured as a merger of an Odyssey affiliate with the Company
whereby not more than 97.4% of the common stock of Celadon will be redeemed
for $20 per share in cash
- At least 2.6% of shares, which are held by management, will remain outstanding
("Roll-Over Shares")
- 200,000 shares plus / / options
Implied Purchase Price: - Approximately $157.9 million for 100% of equity (including in-the-money value of
options and warrants) plus the assumption of approximately $101.0 million of
Celadon indebtedness net of cash
Financing: Sources ($MM) Uses ($MM)
---------------------- -------------------------
Odyssey Equity $60 Purchase of Equity $158
Roll-Over Shares 4 Repayment of Debt 104
Capital Leases 36 Fee & Expenses 13
Senior Sub Debt 150
Holding Co. Debt 25
------- -------
$275 $275
Break-Up Fees: - [$6 million plus $2 million expense reimbursement]
Material Conditions: - Subject to financing letters from major financial institutions [to come]
No Solicitation Condition: - No other offers for the Company may be solicited, thought the Board can respond to
unsolicited offers and terminate the Merger Agreement subject to the break-up fee
in order to accept a superior proposal
Accounting Treatment: - Recap accounting which requires Roll-Over Shares and results in no goodwill
Tax Treatment: - Cash received by shareholders will be taxable
</TABLE>
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
6
<PAGE>
CELADON GROUP, INC. Executive Summary
- --------------------------------------------------------------------------------
Timetable and Process Going Forward
- Announce signing of Agreement and Plan of Merger on June 22 if
transaction is approved by Board of Directors
- One step cash merger
- File preliminary proxy with SEC as soon as practicable
- Transaction termination date of March 31, 1999
- Realistic timetable of obtaining financing subsequent to year-end
audit receipt ( August 20, 1998); thus likely October closing
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
7
<PAGE>
CELADON GROUP, INC. EXECUTIVE SUMMARY
- -----------------------------------------------------------------------
IMPLIED TRANSACTION VALUATION AND PREMIUM ($MM, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
<S> <C>
Offer Price Per Share $20.00
Shares Outstanding 7.72
Fully Diluted Options @ $20.00 Per Share 0.18
------
Implied Equity Value $157.9
Assumed Net Indebtedness as of 6/30/98 101.1
------
Implied Firm Value $259.0
------
------
</TABLE>
<TABLE>
<CAPTION>
PREMIUM ANALYSIS
Stock Price Implied Premium
Date Average to Offer Price
- ---- ----------- ---------------
<S> <C> <C>
Close (6/17/98) $14.25 40.4%
1 Week Average $13.88 44.1%
4 Week Average $14.05 42.4%
3 Month Average $14.57 37.3%
</TABLE>
<TABLE>
<CAPTION>
MULTIPLES(1)
Implied
Implied Firm Value: $259.0 EBITDA Multiple
-------- --------
<S> <C> <C> <C>
Expected Fiscal 1998 Adjusted $35.4 7.3x
Calendar 1998 Adjusted $37.1 7.0x
Net Implied
Implied Equity Value: $157.9 Income Multiple
------- --------
Expected Fiscal 1998 Adjusted $7.9 20.0x
Calendar 1998 Adjusted $9.3 17.1x
</TABLE>
- --------------------------
(1) For a description of the adjustment see page 24.
WASSERSTEIN PERELLA & CO.
- -------------------------------------------------------------------------------
8
<PAGE>
CALADON GROUP, INC. EXECUTIVE SUMMARY
- -------------------------------------------------------------------------------
VALUATION SUMMARY ($MM, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
EBITDA EPS
------ -----
<S> <C> <C> <C> <C> <C> <C>
Expected Fiscal 1998 Adjusted............... $35.4 $1.01
Calendar 1998 Adjusted...................... $37.1 $1.19
METHOD
- ------
EXPECTED F1998 ADJUSTED C1998 ADJUSTED
----------------------- --------------
COMPARABLE ACQUISITIONS
EBITDA Multiple Range..................... 6.6x - 8.1x
Enterprise Value Range.................... $234.4 - $286.5
Less: Net Debt............................ 101.1 - 101.1
------ ------
Implied Equity Value Range................ $133.3 - $185.3
------ ------
IMPLIED PRICE PER SHARE................... $16.87 - $23.47
------ ------
COMPARABLE TRADING MULTIPLES
EBITDA Multiple Range..................... 6.1x - 7.4x 4.8x - 5.9x
Enterprise Value Range.................... $214.2 - $261.8 $178.6 - $218.3
Less: Net Debt............................ 101.1 - 101.1 101.1 - 101.1
------ ------ ------ ------
Implied Equity Value Range................ $113.1 - $160.7 $ 77.5 - $117.2
IMPLIED PRICE PER SHARE................... $14.32 - $20.35 $ 9.81 - $14.84
SMALLER CAP EBITDA MULTIPLE RANGE......... 5.1x - 6.2x 4.3x - 5.2x
------ ------ ------ ------
IMPLIED PRICE PER SHARE................... $10.05 - $15.13 $ 7.22 - $11.67
------ ------ ------ ------
PE Multiple Range......................... 14.3x - 17.5x 13.4x - 16.4x
IMPLIED PRICE PER SHARE................... $14.45 - $17.66 $15.98 - $19.53
SMALLER CAP PE MULTIPLE RANGE............. 14.0x - 17.1x 12.4x - 15.1x
------ ------ ------ ------
IMPLIED PRICE PER SHARE................... $14.16 - $17.31 $14.75 - $18.03
------ ------ ------ ------
DISCOUNTED CASH FLOW ANALYSIS
DISCOUNT RATE 11.0% 12.0% 13.0%
----------------- ----------------- -----------------
Terminal Value LTM EBITDA Multiple Range.. 6.0x - 7.0x 6.0x - 7.0x 6.0 x - 7.0x
Enterprise Value Range.................... $261.1 - $306.8 $249.3 - $293.0 $238.1 - $279.9
Less: Net Debt............................ 101.1 - 101.1 101.1 - 101.1 101.1 - 101.1
------ ------ ------ ------ ------ ------
Implied Equity Value Range................ $160.0 - $205.7 $148.2 - $191.8 $137.0 - $178.8
IMPLIED PRICE PER SHARE................... $20.26 - $26.04 $18.76 - $24.29 $17.35 - $22.63
DOWNSIDE SCENARIO/90% EBITDA:
IMPLIED PRICE PER SHARE................... $15.11 - $20.29 $13.82 - $18.77 $12.60 - $17.34
WASSERSTEIN PERELLA & CO.
- --------------------------------------------------------------------------------------------------------------------
9
</TABLE>
<PAGE>
CELADON GROUP, INC. EXECUTIVE SUMMARY
- -------------------------------------------------------------------------------
COMPARABLE COMPANY ANALYSIS ($MM, EXCEPT PER SHARE DATA) (1)
<TABLE>
<CAPTION>
MARKET DATA
- -----------
EPS P/E MULTIPLES EBITDA MULTIPLE 2 YEAR CAGR
PRICE MARKET FIRM ----------------- ------------------ --------------- ------------------
6/17/98 VALUE VALUE LTM 1998 1999 LTM 1998 1999 LTM 1998 1999 SALES EBIT EPS
------- ----- ----- --- ---- ---- --- ---- ---- --- ---- ---- ----- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SMALLER CAP COMPANIES:
Celedon Group(2)........... $14.25 $110.5 $202.9 $0.73 $1.19 $1.65 19.4x 12.0x 8.6x 7.6x 5.5x 4.5x 28.1% 19.6% 38.4%
Covenant Transport......... 17.38 233.9 326.6 1.09 1.24 1.48 15.9 14.0 11.7 5.7 4.6 3.9 32.2% 25.8% 24.9%
Knight Transportation...... 16.81 251.5 252.6 0.75 0.85 1.05 22.5 19.8 16.0 8.6 7.4 6.0 37.5% 33.8% 8.0%
M.S. Carriers.............. 26.25 325.2 424.7 1.68 1.85 2.10 15.6 14.2 12.5 5.4 4.5 3.9 15.0% 22.3% 28.9%
Transportation Corp. of
America................. 16.88 115.4 167.7 1.22 1.40 1.64 13.8 12.1 10.3 5.0 4.4 3.9 15.5% 25.6% 23.9%
USA Truck.................. 14.75 139.8 172.4 0.95 1.09 1.25 15.5 13.5 11.8 5.7 4.9 4.1 14.4% 24.1% 23.8%
U.S. Express Enterprises(3) 16.59 250.5 373.9 1.20 1.38 1.67 13.8 12.0 9.9 7.6 5.4 4.5 24.7% 152.0% 995.4%
LARGER CAP COMPANIES:
Heartland Express.......... $22.00 $660.0 $574.1 $1.04 $1.16 $1.33 21.1x 19.0x 16.5x 9.2x 8.4x 7.4x 18.6% 19.5% 22.8%
L.B. Hunt Transport
Services................ 29.38 1,046.2 1,442.8 0.56 1.36 1.63 NM 21.6 18.0 7.7 6.0 5.3 8.9% 21.7% 61.1%
Swift Transportation....... 19.88 850.7 939.7 1.06 1.17 1.35 18.8 17.0 14.7 7.8 6.9 5.9 27.9% 31.6% 30.8%
Werner Enterprises......... 18.63 891.7 936.8 1.08 1.19 1.37 17.2 15.7 13.6 5.9 5.3 4.7 17.8% 17.6% 6.1%
MEDIAN: SMALLER CAP EXCL. CELADON..................................... 15.6x 13.8x 11.8x 5.7x 4.7x 4.0x 20.1% 25.7% 24.4%
MEDIAN: LARGER CAP.................................................... 18.8x 18.0x 15.6x 7.8x 6.5x 5.6x 18.2% 20.6% 26.8%
MEDIAN: TOTAL......................................................... 16.6x 14.2x 12.5x 7.6x 5.4x 4.5x 18.6% 24.1% 24.9%
MEDIAN: TOTAL EXCL. CELADON........................................... 15.9x 14.9x 13.0x 6.7x 5.3x 4.6x 18.2% 24.8% 24.4%
</TABLE>
<TABLE>
<CAPTION>
LTM OPERATING DATA
- ------------------
FISCAL LAST
YEAR FINANCIAL NET NET TOTAL 1998 1999
END STATEMENT SALES EBITDA EBIT INCOME DEBT DEBT EBITDA EBITDA
-------- --------- ----- ------ ---- ------ ---- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SMALLER CAP COMPANIES:
Celadon Group (2)............. 6/30/97 3/31/98 $215.0 $ 26.7 $14.6 $ 5.7 $ 92.4 $ 94.1 $ 37.1 $ 44.7
Covenant Transport............ 12/31/97 3/31/98 315.1 57.5 29.6 14.5 92.7 100.0 71.4 83.3
Knight Transportaion.......... 12/31/97 3/31/98 106.2 29.2 19.0 11.1 1.1 2.0 34.3 42.3
M.S. Carriers................. 12/31/97 3/31/98 440.4 78.9 36.9 20.6 99.5 101.4 94.3 108.4
Transportation Corp
of America.................. 12/31/97 3/31/98 192.4 33.5 17.3 8.2 52.4 59.2 38.2 42.8
USA Truck..................... 12/31/97 3/31/98 134.1 30.4 16.1 9.0 32.6 35.4 35.2 41.9
U.S. Express Enterpises (3)... 3/31/97 3/31/98 466.2 49.3 33.4 16.5 123.4 129.4 69.2 83.2
LARGER CAP COMPANIES:
Heartland Express............. 12/31/97 3/31/98 $269.5 $62.6 $44.5 $31.3 ($85.9) $0.0 $68.5 $77.1
J.B. Hunt Transport
Services.................... 12/31/97 3/31/98 1602.4 187.0 57.2 20.3 396.6 406.0 238.5 269.8
Swift Transportation.......... 12/31/97 3/31/98 749.2 120.3 79.9 44.8 89.0 98.2 136.6 159.5
Werner Enterprises............ 12/31/97 3/31/98 799.8 159.2 84.3 51.8 45.1 70.0 176.9 199.8
NET DEBT/
RETURN ON EBITDA/ NET INCOME/ -------------------
EQUITY SALES SALES FIRM VALUE EBITDA
--------- ------- ----------- ---------- ------
<S> <C> <C> <C> <C> <C>
Celadon Group (2)............. 11.1% 12.4% 2.6% 45.5% 3.5x
Covenant Transport............ 14.8% 18.3% 4.6% 28.4% 1.6
Knight Transportaion.......... 18.5% 27.5% 10.4% 0.4% 0.0
M.S. Carriers................. 11.3% 17.9% 4.7% 23.4% 1.3
Transportation Corp
of America.................. 15.7% 17.4% 4.3% 31.2% 1.6
USA Truck..................... 16.3% 22.7% 6.7% 18.9% 1.1
U.S. Express Enterpises (3)... 12.5% 10.6% 3.5% 33.0% 2.5
LARGER CAP COMPANIES:
Heartland Express............. 19.4% 23.2% 11.6% (15.0%) (1.4)x
J.B. Hunt Transport
Services.................... 5.9% 11.7% 1.3% 27.5% 2.1
Swift Transportation.......... 15.8% 16.1% 6.0% 9.5% 0.7
Werner Enterprises............ 12.8 19.9% 6.5% 4.8% 0.3
</TABLE>
- -----------------------------
(1) Projections are for calendar years.
(2) Celadon CAGR is taken from F1995 to F1997.
(3) U.S. Express CAGR is taken from F1996 to F1998.
WASSERSTEIN PERELLA & CO.
- -------------------------------------------------------------------------------
10
<PAGE>
CELADON GROUP, INC. EXECUTIVE SUMMARY
- -------------------------------------------------------------------------------
COMPARABLE ACQUISITION ANALYSIS (LAST FIVE YEARS, TRANSACTION
VALUE: $50MM+, $MM)
<TABLE>
<CAPTION>
Target
Date Equity Firm
Announced Value Value Target Name Target Description Acquiror Name
- ---------- ------- --------- ---------------------- --------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
01/10/95 $158.0 $268.9 Mayflower Group Moving company with two divisions: Mayflower Laidlaw
Contract (logistics) and Mayflower Transit
(trucking and busing).
03/14/95 $199.8 $331.0 Leaseway Transportation Customized transportation and logistics Penske Truck Leasing
Corp. support to manufacturers, retailers and
distributors
07/10/95 $142.2 $143.5 WorldWay Corp. Coast to coast and regional less than truck- Arkansas Best Corp.
load (for motorfreight), full truckload and
logistics
10/06/97 $2,471.4 $2,681.2 Caliber Systems Inc. Trucking holding company with three divisions: Federal Express Corp.
Viking (longer haul), Roberts Express (time-
sensitive, shorter haul) and Caliber logistics.
02/11/98 $195.0 $251.7 MTL Inc. Tank truck carrier; Longer/medium haul, FTL Apollo Management LP
transportation of bulk liquids through a network
of affiliates and independent owner-operators.
02/25/98 $107.0 $156.2 Matlack Systems Longer/medium haul, FTL Transportation of bulk Apollo Management LP(1)
commodities in tank trailers and tank containers
to chemical and dry bulk shippers; Operates
approximately 1,100 tractors and 2,800 trailers
</TABLE>
<TABLE>
<CAPTION>
Last 12 Months
------------------- Equity
Date Net EBITDA Value/
Announced EBITDA Income Multiple Net Income
- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
01/10/95 $35.7 $1.6 7.5x NM
03/14/95 $35.1 $5.0 9.4x 40.0x
07/10/95 $24.7 ($14.9) 5.8x NM
10/06/97 $244.6 $60.5 11.0x 40.8x
02/11/98 $35.8 $10.1 7.0x 19.3x
02/25/98 $21.7 $2.8 7.2x 38.2x
</TABLE>
<TABLE>
<CAPTION>
Equity
EBITDA Value/
Multiple Net Income
-------- ----------
<S> <C> <C>
High 11.0x 40.8x
Mean 8.0x 29.9x
Median 7.4x 29.6x
Most Comparable Co. Median(2) 7.1x 28.8x
Low 5.8x 19.3x
</TABLE>
- ------------------------------------
(1) Represents valuation based on letter of intent. Transaction was not
completed.
(2) Comprised of MTL and Matlack Systems (not completed)
WASSERSTEIN PERELLA & CO.
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11
<PAGE>
CELADON GROUP, INC. EXECUTIVE SUMMARY
- -------------------------------------------------------------------------------
PREMIUM ANALYSIS (1)
TIME HORIZON: Last 12 months
TRANSACTION TYPE: Control acquisitions
TARGET'S TRANSACTION VALUE RANGE: $200-$300 million
DEBT/EQUITY RATIO RANGE: 0%-100%
COMPANY UNIVERSE: 29 Public companies
<TABLE>
<CAPTION>
PREMIUM Premium Paid Over Respective Stock Prices
Prior to Announcement
-----------------------------------------
1 month 1 week 1 day
-------- ------ ------
<S> <C> <C> <C>
High 92.0% 72.3% 67.3%
Mean 40.1% 32.4% 24.8%
Median 34.9% 30.5% 22.4%
Low 6.7% -8.6% -2.4%
Celadon Offer 37.9% 45.5% 40.4%
</TABLE>
OFFER PRICE PREMIUM COMPARES FAVORABLY TO CONTROL PREMIUMS
PAID FOR A BROAD RANGE OF U.S. TARGET COMPANIES.
- --------------------------------
(1) Please refer to the PREMIUM ANALYSIS section of the Appendix for detailed
information.
WASSERSTEIN PERELLA & CO.
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12
<PAGE>
CELADON GROUP, INC. Executive Summary
- --------------------------------------------------------------------------------
Risk Factors of Not Selling for Cash Today
- Exogenous events could negatively impact Celadon's earnings and/or
valuation in the near term
- Subject to significant fixed costs and operating leverage, long
haul trucking is dependent on the general level of economic
activity, making it vulnerable to slowdowns
- Dependence on Mexico which is subject to political or
macroeconomic risks
- Almost 30% of revenues come from Chrysler, making Celadon
vulnerable to a Chrysler slowdown (e.g. strike last year) or
change in transportation needs (e.g. procurement outside of the
North-South/U.S.-Mexico corridor)
- Current GM strike highlights the risk of a Chrysler strike
- Improvement in the current U.S. railway congestion could result in
stronger competition from railroad companies
- Celadon only hedges a small portion of its fuel price exposure,
leaving it vulnerable to price increases
- Seating Celadon's currently empty or additional tractors remains a
formidable challenge due to industry-wide driver shortages,
despite Celadon's success in recently seating empty trucks
- Larger, better capitalized trucking companies could aggressively
pursue the North-South/Canada-U.S.-Mexico lane, perhaps by
acquiring a competitor of Celadon's in this lane
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
13
<PAGE>
CELADON GROUP, INC.
- --------------------------------------------------------------------------------
------------------------------------------
Odyssey Financing Plan
------------------------------------------
Wasserstein Perella & Co.
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14
<PAGE>
CELADON GROUP, INC. Odyssey Financing Plan
- --------------------------------------------------------------------------------
Capital Structure ($MM)
<TABLE>
<CAPTION>
Assumed
Sources Interest Rate Uses
- ------- ------------- ----
<S> <C> <C> <C> <C>
Odyssey Equity $ 60 Purchase of Equity $158
Roll-Over Shares 4 Repayment of Debt 104
Capital Leases 36 6.0% Fee & Expenses 13
Senior Sub Debt 150 9.5%
Holding Co. Debt 25 11.5%
------ ------
$275 $275
Acquisition Financing Line $200
</TABLE>
Wasserstein Perella & Co.
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15
<PAGE>
CELADON GROUP, INC. ODYSSEY FINANCING PLAN
- -------------------------------------------------------------------------------
LBO ANALYSIS ($MM)
<TABLE>
<CAPTION>
INITIAL EQUITY INVESTMENT: $64
EQUITY RETURN:
6.5 X TERMINAL % OF EBITDA
EBITDA MULTIPLE ----------------------------------------
80.0% 90.0% 100.0% 110.0%
----- ----- ------ ------
<S> <C> <C> <C> <C>
DEBT........ 8.5% 2.9% 17.3% 26.8% 34.2%
COUPON........ 9.5% 1.4% 16.4% 26.2% 33.6%
10.5% -0.2% 15.5% 25.5% 33.1%
<CAPTION>
7.0 X TERMINAL % OF EBITDA
EBITDA MULTIPLE ----------------------------------------
80.0% 90.0% 100.0% 110.0%
----- ----- ------ ------
<S> <C> <C> <C> <C>
DEBT........ 8.5% 10.3% 22.5% 31.2% 38.0%
COUPON........ 9.5% 9.2% 21.8% 30.6% 37.6%
10.5% 8.0% 21.0% 30.0% 37.1%
<CAPTION>
7.5 X TERMINAL % OF EBITDA
EBITDA MULTIPLE ----------------------------------------
80.0% 90.0% 100.0% 110.0%
----- ----- ------ ------
<S> <C> <C> <C> <C>
DEBT........ 9.5% 16.2% 27.0% 35.0% 41.5%
COUPON........ 8.5% 15.3% 26.3% 34.5% 41.1%
9.5% 14.3% 25.7% 34.0% 40.6%
</TABLE>
WASSERSTEIN PERELLA & CO.
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16
<PAGE>
CELEDON GROUP, INC. ODYSSEY FINANCING PLAN
- -------------------------------------------------------------------------------
INCOME STATEMENT PROJECTIONS ($MM, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Fiscal Years Ending 6/30
1997E 1998P 1999P 2000P 2001P 2002P 2003P
----- ----- ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Total Revenue $190.7 $228.9 $284.1 $325.9 $373.7 $415.1 $455.3
% Growth 20.1% 24.1% 14.7 14.6% 11.1% 9.7%
Operating Expensess 168.1 199.3 246.2 274.4 309.0 344.9 378.3
EBITDA 22.6 29.6 37.9 51.5 64.6 70.2 76.9
% Margin 11.8% 12.9% 13.3% 15.8% 17.3% 16.9% 16.9%
Depreciation 10.1 12.8 14.0 17.5 21.3 21.9 24.0
Goodwill Amortization 0.0 0.5 0.5 0.5 0.5 0.5 0.5
EBIT 12.4 16.3 23.3 33.5 42.8 47.7 52.4
Interest Expense (5.1) (6.3) (20.4) (21.4) (23.8) (25.2) (26.3)
Capitalized Indterest 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Interest Income 0.1 0.4 0.0 0.0 0.0 0.0 0.0
Joint Venture Income 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Minority Interest in Income Subsidiary 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other Income 0.0 0.1 0.0 0.0 0.0 0.0 0.0
- -----------------------------------------------------------------------------------------------------------------------------
Pre-tax Income 7.5 10.5 3.0 12.1 19.0 22.5 26.1
Provisions for Income Taxes 3.0 4.0 1.3 4.9 7.7 9.1 10.5
Tax Rate 40.0% 38.1% 36.8% 39.0% 39.5% 39.5% 39.5%
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $4.5 $6.5 $1.7 $7.2 $11.3 $13.4 $15.6
EBITDA/Gross Interest 4.4x 4.7x 1.9x 2.4x 2.7x 2.8x 2.9x
EBITDA/Cash Interest 2.2x 2.8x 3.2x 3.3x 3.5x
Debt/EBITDA 2.9 3.5x 5.7x 5.0x 4.2x 4.1x 3.9x
Net Debt/EBITDA 2.8x 3.4x 5.6x 4.9x 4.2x 4.1x 3.8x
</TABLE>
WASSERSTEIN PERELLA & CO.
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17
<PAGE>
CELADON GROUP, INC. ODYSSEY FINANCING PLAN
- -------------------------------------------------------------------------------
BALANCE SHEET PROJECTIONS ($MM)
<TABLE>
<CAPTION>
FISCAL YEARS ENDING 6/30
-----------------------------------------------------------
1997E 1998P 1999P 2000P 2001P 2002P 2003P
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash & Equivalents $1.8 $3.2 $2.0 $2.0 $2.0 $2.0 $2.0
Accounts Receivable 29.4 44.0 48.6 50.6 51.9 51.9 51.9
Inventories 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other Current 12.7 13.6 13.6 13.9 14.1 14.1 14.1
TOTAL CURRENT ASSETS 43.9 60.9 64.2 66.5 68.0 68.0 68.0
PP&E (net) 83.8 113.2 119.0 164.7 193.7 221.7 247.7
Tires in Service 2.1 2.2 2.2 2.2 2.2 2.2 2.2
Joint Venture Investment 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Goodwill 5.6 11.0 10.5 10.0 9.5 9.0 8.5
Other 3.8 3.1 3.1 3.1 3.1 3.1 3.1
TOTAL ASSETS 139.2 190.3 199.0 246.5 276.5 304.1 329.5
Accounts Payable 19.5 22.3 25.1 25.8 26.6 26.6 26.6
Accrued Expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other Current 7.8 10.9 10.5 10.4 10.3 10.3 10.3
TOTAL CURRENT LIABILITIES 27.3 33.2 35.6 36.3 37.0 37.0 37.0
Bank Revolver 23.8 42.7 1.7 38.2 52.6 62.8 68.2
Term Debt 0.0 0.0 177.9 181.1 184.7 188.6 193.1
Capital Leases 42.2 61.6 36.0 36.0 36.0 36.0 36.0
Minority Interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Deferred Taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL LIABILITIES 93.4 137.6 251.2 291.5 310.2 324.4 334.3
Total Stockholders' Equity 45.8 52.8 (52.2) (45.0) (33.7) (20.3) (4.7)
TOTAL LIABILITIES AND EQUITY 139.2 190.3 199.0 246.5 276.5 304.1 329.5
</TABLE>
WASSERSTEIN PERELLA & CO.
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18
<PAGE>
CELADON GROUP, INC. ODYSSEY FINANCING PLAN
- -------------------------------------------------------------------------------
CAHS FLOW STATEMENT PROJECTIONS ($MM)
<TABLE>
<CAPTION>
FISCAL YEARS ENDING 6/30,
--------------------------------------------------------------------
1997E 1998P 1999P 2000P 2001P 2002P 2003P
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income $1.7 $7.2 $11.3 $13.4 $15.6
D & A (includes Goodwill) 14.5 18.0 21.8 22.4 24.5
(Increase) Decrease in Working Capital (2.2) (1.7) (0.8) (0.0) 0.0
Minority Interest in Income of Subsidiary 0.0 0.0 0.0 0.0 0.0
Joint Venture Income 0.0 0.0 0.0 0.0 0.0
Change in Deferred Taxes 0.0 0.0 0.0 0.0 0.0
Other 0.0 0.0 0.0 0.0 0.0
Net Cash Provided (Used) By Operating 14.1 23.5 32.3 35.9 40.1
Activities
Capital Expenditures (19.8) (63.2) (50.3) (50.0) (50.0)
Capitalized Interest 0.0 0.0 0.0 0.0 0.0
Other2 0.0 0.0 0.0 0.0 0.0
Other3 0.0 0.0 0.0 0.0 0.0
Net Cash Provided (Used) By Investing (19.8) (63.2) (50.3) (50.0) (50.0)
Activities
Cash Dividends (Paid) 0.0 0.0 0.0 0.0 0.0
Increase (Decrease) in Capital Leases 0.0 0.0 0.0 0.0 0.0
Increase (Decrease) in Term Debt 2.9 3.2 3.6 4.0 4.4
Distributions to Minority Holders - - - - -
Distributions from Joint Venture 0.0 0.0 0.0 0.0 0.0
Call Premium (Paid) 0.0 0.0 0.0 0.0 0.0
Proceeds from Stock Issue 0.0 0.0 0.0 0.0 0.0
Other 0.0 0.0 0.0 0.0 0.0
Net Cash Provided (Used) By Financing 2.9 3.2 3.6 4.0 4.4
Activities
Cash Available to Repay Revolver ($2.9) ($36.5) ($14.5) ($10.2) ($5.5)
Issuance (Repayment) of Revolver (41.0) 36.5 14.5 10.2 5.5
CHANGE IN CASH AND EQUIVALENTS ($43.9) $0.0 $0.0 $0.0 $0.0
</TABLE>
WASSERSTEIN PERELLA & CO.
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19
<PAGE>
CELADON GROUP, INC.
- --------------------------------------------------------------------------------
------------------------------------------
Valuation Summary
------------------------------------------
Wasserstein Perella & Co.
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20
<PAGE>
CELADON GROUP, INC. Valuation Summary
- --------------------------------------------------------------------------------
Summary of Valuation Methodologies
- Standard valuation methodologies normally entail the application of one
or more of the following techniques:
- Application of trailing and forward market multiples of comparable
publicly traded companies;
- Application of acquisition multiples paid in purchases of
comparable industry and/or sized companies by third parties;
- Discounted cash flow analysis.
Comparable Trading Multiple Analysis
- The comparable company trading market multiples normally used in
evaluating a trucking company include:
- Enterprise Value/EBITDA. This ratio compares the total enterprise
value the market assigns to a given level of EBITDA (defined as
Earnings Before Interest, Taxes, Depreciation, and Amortization),
which is an accounting proxy for cash generated by the going
concern enterprise.
- Share Price to Earnings Per Share ("P/E"). Since earnings are
assessed on a leveraged basis, comparable companies should have
similar capital structures and debt ratios in order for these
multiples to be comparable. This multiple is not as useful for
comparing Celadon and small cap long haul trucking companies due
to the their varying use of leverage, with Firm Value to Net Debt
ratios ranging from approximately 0% to over 45% for these
companies.
- Other common valuation measures such as Price to Book Value or
Asset Value, or Firm Value to EBIT (defined as Earnings Before
Interest and Taxes), are not often used for small cap long haul
trucking stocks and are not employed in this analysis.
- Forward year multiples are useful in comparing market valuation
given the various dynamic elements of the small cap long haul
trucking industry, including acquisitions, the growth of equipment
and resources, expansion of existing or new routes, and
competitive entry to existing markets. Trailing year multiples are
useful to value earnings levels which a company has actually
achieved, given the risk of competitive entry/increased rivalry
within a company's routes or the uncertainty surrounding
additional driver recruitment.
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
21
<PAGE>
CELADON GROUP, INC. Valuation Summary
- --------------------------------------------------------------------------------
Summary of Valuation Methodologies, Cont'd.
- Since Celadon is a public company, we estimate the fully distributed
trading value based on the stock price trading performance of
comparable public companies. There are no publicly traded companies
that are completely comparable to Celadon because of its unique
characteristics, including its set of routes in the North-South and
Canada-U.S.-Mexico traffic flow lanes, customer base, management depth,
information technology infrastructure, and driver recruitment strategy.
As a result, our valuation is based on comparison to publicly traded
small cap long haul trucking companies with similar business lines,
growth prospects, and management depth.
- Comparable companies' median valuation ratios are multiplied by Celadon
EBITDA to indicate Firm Value. Current Net Debt is subtracted from Firm
Value to indicate Equity Value.
Comparable Acquisitions and Premiums Analysis
- Recent acquisitions are analyzed to gain a reference range for the
valuation multiples and the premiums over recent share prices paid by
third parties to acquire control of companies:
- Premiums paid over recent trading share prices are measured across
a range of industries for control transactions within a similar
Purchase Price range in order to gain a macro perspective for the
purchase price premiums (or discounts) over public market
valuations
- Purchase price valuation multiples are measured for recent control
transactions in the small cap trucking industry in order to
measure the range of purchase prices other potential small cap
trucking asset acquirors have been willing to pay
Wasserstein Perella & Co.
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22
<PAGE>
CELADON GROUP, INC. Valuation Summary
- --------------------------------------------------------------------------------
Summary of Valuation Methodologies, Cont'd.
Discounted Cash Flow Analysis
- Discounted Cash Flow ("DCF") analysis determines the value of an asset
or company based on the net present value of future economic benefits
- Cash flows are defined as unlevered net income less capital
expenditures and changes in working capital plus non-cash
expenses, such as depreciation and amortization
- Cash flows are discounted to the present using a weighted average
cost of expected debt and equity rates of return
- Cash flows are discounted for five years--the number of years for
which projections were provided and which theoretically get the
company closer to a steady state
- At the end of the discounting period, a terminal value for the
asset is determined by a simple capitalization of EBITDA. The
capitalization ratio, which in the small cap long haul trucking
industry is usually Firm Value to EBITDA, is based on trailing
multiples for the comparable companies
- The terminal value is discounted to present using the firm's
estimated weighted average cost of capital
- The discounted cash flows and terminal value are added together to
determine a firm value
- Current net debt is subtracted from firm value to indicate the
equity value
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
23
<PAGE>
CELADON GROUP, INC. Valuation Summary
- --------------------------------------------------------------------------------
Application and Limitations on Valuation Methodologies for Celadon
Adjustments to Celadon's Historical Financials and Projections
- Two respective EBITDA and Net Income figures are employed to determine
the valuation multiple range implied by the Purchase Price; these have
been the key financial figures used to negotiate the Merger Agreement.
Such figures were adjusted and pro forma in an attempt to more
accurately depict Celadon's most recent financial results, while adding
the results Celadon may have achieved if it actually operated the
recent acquisitions--General Electric Transportation Services ("GETS")
and Gerth Transport ("Gerth")--for a full year.
- Pro Forma Adjusted Fiscal Year 1998 (ending 6/30/98): Derived by
a) estimating the Celadon fiscal year results for 7/1/97 to
6/30/98, excluding Gerth results, b) adding two additional months
of results for GETS which was acquired on 9/1/97 and thus has only
10 months of results included in the Celadon fiscal year results,
c) adding the estimated 12 months results for Gerth for 7/1/97 to
6/30/98, and d) adjusting for the conversion of certain trailer
leases from operating to capital leases.
- Pro Forma Calendar 1998 (ending 12/31/98): Derived by adding the
projected calendar 1998 Celadon results (excluding Gerth results)
to the current run rate results for Gerth (which was acquired in
May 1998) assuming Celadon's ownership.
- Celadon's five year projections as estimated by Celadon's management
are used
- These projections have not been adjusted by WP&Co. though WP&Co.
has had due diligence discussions with management concerning these
projections and feels that such projections are reasonable under
current market and operating conditions.
- However, the projected financial results are subject to numerous
risks, including those outlined on Pg. 13, "Risk Factors of Not
Selling for Cash Today"
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
24
<PAGE>
CELADON GROUP, INC. Valuation Summary
- --------------------------------------------------------------------------------
Application and Limitations on Valuation Methodologies for Celadon, Cont'd.
Application of Valuation Methods
- The comparable trading multiple approach compares Celadon's Purchase
Price to EBITDA multiple (both, as outlined above) to the Median Range
(defined below) of its small cap trucking peers
- This comparison is useful in determining how the Purchase Price
compares to what valuations the public markets are awarding to
EBITDA of companies in similar businesses
- The Median Range is defined at the median plus and minus one
standard deviation of the set of multiples for the peers; this
method also reduces the effects of outliers
- Using the trailing EBITDA multiple is useful to gauge what
valuations are awarded to actual EBITDA results, which avoids the
uncertainty of the projections
- Using the forward EBITDA multiple is also useful because both
Celadon and many of its peers project growth for calendar 1998 in
EBITDA; using projections for one year reduces some of the
uncertainty of the projections
- Pro Forma Adjusted Fiscal Year 1998 (ending 6/30/98): These EBITDA
and Net Income figures use the Comparable Companies' last twelve
months multiples
- Pro Forma Calendar 1998 (ending 12/31/98): These EBITDA and Net
Income figures use the Comparable Companies' 1998 multiples
Wasserstein Perella & Co.
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25
<PAGE>
CELADON GROUP, INC. Valuation Summary
- --------------------------------------------------------------------------------
Application and Limitations on Valuation Methodologies for Celadon, Cont'd.
- The comparable acquisitions method is useful for assessing control
premiums
- Comparing purchases of similar sized companies gives a broad
distribution of control premiums paid
- Examining transactions in the trucking industry gives some
valuation benchmarks, though the small universe of these
transactions limits the level of comfort we can derive from this
data
- No other acquisitions of this size has been made in the
pure-play long haul trucking industry in recent years
- Matlack and MTL are the closest comparables, though their
businesses focus of transporting bulk liquids is arguably
different from Celadon's, and the Matlack transaction was not
completed
Wasserstein Perella & Co.
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26
<PAGE>
CELADON GROUP, INC.
- --------------------------------------------------------------------------------
---------------------------------
Appendix
---------------------------------
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
27
<PAGE>
CELADON GROUP, INC.
- --------------------------------------------------------------------------------
----------------------------------------
Comparable Company Valuation Analysis
----------------------------------------
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
28
<PAGE>
CELADON GROUP, INC. Comparable Company Valuation Analysis
- --------------------------------------------------------------------------------
Comparable Company Analysis ($MM, except per share data)(1)
Market Data
<TABLE>
<CAPTION>
EPS
Price Market Firm ---------------------------
6/17/98 Value Value LTM 1998 1999
------- ------ ------ --- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Smaller Cap Companies:
Celadon Group (2) $14.25 $110.5 $202.9 $0.73 $1.19 $1.65
Covenant Transport 17.38 233.9 326.6 1.09 1.24 1.48
Knight Transportation 16.81 251.5 252.6 0.75 0.85 1.05
M.S. Carriers 26.25 325.2 424.7 1.68 1.85 2.10
Transportation Corp. of America 16.88 115.4 167.7 1.22 1.40 1.64
USA Truck 14.75 139.8 172.4 0.95 1.09 1.25
U.S. Express Enterprises (3) 16.59 250.5 373.9 1.20 1.38 1.67
Larger Cap Companies:
Heartland Express $22.00 $660.0 $574.1 $1.04 $1.16 $1.33
J.B. Hunt Transport Services 29.38 1046.2 1442.8 0.56 1.36 1.63
Swift Transportation 19.88 850.7 939.7 1.06 1.17 1.35
Werner Enterprises 18.63 891.7 936.8 1.08 1.19 1.37
Median: Smaller Cap Excl. Celadon
Median: Larger Cap
Median: Total
Median: Total Excl. Celadon
</TABLE>
<TABLE>
<CAPTION>
P/E Multiples EBITDA Multiple 2 Year CAGR
--------------------- ------------------ -------------------------
LTM 1998 1999 LTM 1998 1999 Sales EBIT EPS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Smaller Cap Companies:
Celadon Group (2) $19.4x 12.0x 8.6x 7.6x 5.5x 4.5x 28.1% 19.6% 38.4%
Covenant Transport 15.9 14.0 11.7 5.7 4.6 3.9 32.2% 25.8% 24.9%
Knight Transportation 22.5 19.8 16.0 8.6 7.4 6.0 37.5% 33.8% 8.0%
M.S. Carriers 15.6 14.2 12.5 5.4 4.5 3.9 15.0% 22.3% 28.9%
Transportation Corp. of America 13.8 12.1 10.3 5.0 4.4 3.9 15.5% 25.6% 23.9%
USA Truck 15.5 13.5 11.8 5.7 4.9 4.1 14.4% 24.1% 23.8%
U.S. Express Enterprises (3) 13.8 12.0 9.9 7.6 5.4 4.5 24.7% 152.0% 995.4%
Larger Cap Companies:
Heartland Express 21.1x 19.0x 16.5x 9.2x 8.4x 7.4x 18.6% 19.5% 22.8%
J.B. Hunt Transport Services NM 21.6 18.0 7.7 6.0 5.3 8.9% 21.7% 61.1%
Swift Transportation 18.8 17.0 14.7 7.8 6.9 5.9 27.9% 31.6% 30.8%
Werner Enterprises 17.2 15.7 13.6 5.9 5.3 4.7 17.8% 17.6% 6.1
----- ----- ----- ---- ---- ---- ----- ----- -----
Median: Smaller Cap Excl. Celadon 15.6x 13.8x 11.8x 5.7x 4.7x 4.0x 20.1% 25.7% 24.4%
Median: Larger Cap 18.8x 18.0x 15.6x 7.8x 6.5x 5.6x 18.2% 20.6% 26.8%
Median: Total 16.6x 14.2x 12.5x 7.6x 5.4x 4.5x 18.6% 24.1% 24.9%
Median: Total Excl. Celadon 15.9x 14.9x 13.0x 6.7x 5.3x 4.6x 18.2% 24.8% 24.4%
----- ----- ----- ---- ---- ---- ----- ----- -----
</TABLE>
LTM Operating Data
<TABLE>
<CAPTION>
Fiscal Last
Year Finacial Net Net Total
End Statement Sales EBITDA EBIT Income Debt Debt
--- --------- ----- ------ ---- ------ ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Smaller Cap Companies:
Celadon Group (2) 6/30/97 3/31/98 $215.0 $26.7 $14.6 $5.7 $92.4 $94.1
Covenant Transport 12/31/97 3/31/98 315.1 57.5 29.6 14.5 92.7 100.0
Knight Transportation 12/31/97 3/31/98 106.2 29.2 19.0 11.1 1.1 2.0
M.S. Carriers 12/31/97 3/31/98 440.4 78.9 36.6 20.6 99.5 101.4
Transportation Corp. of America 12/31/97 3/31/98 192.4 33.5 17.3 8.2 52.4 59.2
USA Truck 12/31/97 3/31/98 134.1 30.4 16.1 9.0 32.6 35.4
U.S. Express Enterprises (3) 3/31/98 3/31/98 466.2 49.3 33.4 16.5 123.4 129.4
Larger Cap Companies:
Heartland Express 12/31/97 3/31/98 $269.5 $62.6 $44.5 $31.3 ($85.9) $0.0
J.B. Hunt Transport Services 12/31/97 3/31/98 1602.4 187.0 57.2 20.3 396.6 406.0
Swift Transportation 12/31/97 3/31/98 749.2 120.3 79.9 44.8 89.0 98.2
Werner Enterprises 12/31/97 3/31/98 799.8 159.2 84.3 51.8 45.1 70.0
</TABLE>
<TABLE>
<CAPTION>
Net Debt/
1998 1999 Return on EBITDA/ Net Income/ --------------------
EBITDA EBITDA Equity Sales Sales Firm Value EBITDA
------ ------ ------ ----- ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Smaller Cap Companies:
Celadon Group (2) $37.1 $44.7 11.1% 12.4% 2.6% 45.5% 3.5x
Covenant Transport 71.4 83.3 14.8% 18.3% 4.6% 28.4% 1.6
Knight Transportation 34.3 42.3 18.5% 27.5% 10.4% 0.4% 0.0
M.S. Carriers 94.3 108.4 11.3% 17.9% 4.7% 23.4% 1.3
Transportation Corp. of America 38.2 42.8 15.7% 17.4% 4.3% 31.2% 1.6
USA Truck 35.2 41.9 16.3% 22.7% 6.7% 18.9% 1.1
U.S. Express Enterprises (3) 69.2 83.2 12.5% 10.6% 3.5% 33.0% 2.5
Larger Cap Companies:
Heartland Express $68.5 $77.1 19.4% 23.2% 11.6% (15.0%) (1.4)x
J.B. Hunt Transport Services 238.5 269.8 5.9% 11.7% 1.3% 27.5% 2.1
Swift Transportation 136.6 159.5 15.8% 16.1% 6.0% 9.5% 0.7
Werner Enterprises 176.9 199.8 12.8% 19.9% 6.5% 4.8% 0.3
</TABLE>
- ----------
(1) Projections are for calendar years.
(2) Celadon CAGR is taken from F1995 to F1997.
(3) U.S. Express CAGR is taken from F1996 to F1998.
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
29
<PAGE>
CELADON GROUP, INC. Comparable Company Valuation Analysis
- ----------------------------------------------------------------------------
Celadon Group, Inc.
<TABLE>
<CAPTION>
LFY Recent Q Past Q LTM Estimates
6/30/97 3/31/98 3/31/98 3/31/98 1998 1999
------- -------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sales $191.0 $164.7 $140.8 $215.0
Growth 17.0%
EBITDA 22.6 21.2 17.0 26.7 37.1 44.7
Margin 11.8% 12.9% 12.1% 12.4%
JV EBITDA
EBIT 12.4 11.7 9.5 14.6
Margin 6.5% 7.1% 6.8% 6.8%
Interest Expense 4.9 4.6 3.8 5.7
EBITDA/Interest 4.6x 4.6x 4.5x 4.7x
Net Income 4.5 4.7 3.5 5.7 9.2 12.7
EPS $0.59 $0.61 $0.46 $0.73 $1.19 $ 1.65
Book Value 51.0 51.0
</TABLE>
<TABLE>
<CAPTION>
Executives Board of Directors
- ---------- ------------------
<S> <C> <C>
Stephen Russell Chairman, President, CEO Joel Smilow
Ronald Roman COO,SVP Stephen Russell
Bob Goldberg CFO Paul Biddleman
Michael Miller
Kilin To
</TABLE>
<TABLE>
<CAPTION>
Ownership
- ---------
<S> <C>
Insiders (10 persons): 17.4%
Hanseatic Corp: 13.1%
Dimensional fund: 6.6%
Citicorp Venture Capital: 5.8%
</TABLE>
<TABLE>
<CAPTION>
Book Capitalization (3/31/98) Amount %
- ----------------------------- ------ --
<S> <C> <C>
Cash & Equivalents $1.7
Short-Term Debt $18.9 13.0%
Long-Term Debt 75.2 51.8%
Preferred Stock 0.0 0.0%
Minority Interest 0.0 0.0%
Shareholders Equity 51.0 35.2%
---- -----
Total Capitalization $145.1 100.0%
</TABLE>
<TABLE>
<CAPTION>
Market Capitalization
- ---------------------
<S> <C>
Share Price $14.25
Shares Outstanding(MM) 7.7
Options 0.3
Average Exercise Price 12.37
-----
Market Equity value $110.5
Debt 94.1
Preferred Stock 0.0
Minority Interest 0.0
Less: Cash & Equivalents (1.7)
Net Debt 92.4
----
Enterprise Value $202.9
</TABLE>
<TABLE>
<CAPTION>
LTM 1998 1999
--- ---- ----
<S> <C> <C> <C>
Enterprise Value/EBITDA 7.6x 5.5x 4.5x
Price/Earnings Ratio 19.4x 12.0x 8.6x
</TABLE>
30
<PAGE>
CELADON GROUP, INC. Comparable Company Valuation Analysis
- --------------------------------------------------------------------------------
Covenant Transport
<TABLE>
<CAPTION>
Estimates
LFY Recent Q Past Q LTM --------------
12/31/97 3/31/98 3/31/98 3/3/98 1998 1999
--------- -------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sales $297.9 $ 79.8 $62.6 $315.1
Growth
EBITDA 54.6 13.5 10.6 57.5 71.4 83.3
Margin 18.3% 18.3%
JV EBITDA
EBIT 28.1 5.8 4.3 29.6
Margin 9.4% 9.4%
Interest Expense 6.3 1.5 1.4 6.4
EBITDA/Interest 8.7x 9.0x
Net Income 13.7 2.7 1.8 14.5 16.6 19.8
EPS $1.03 $0.20 $0.14 $1.09 $1.24 $1.48
Book Value 98.3 98.3
</TABLE>
<TABLE>
<CAPTION>
Book Capitalization (3/31/98) Amount %
- ------------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
Cash & Equivalents $ 7.4
Short-Term Debt $ 1.6 0.8%
Long-Term Debt 98.4 49.6%
Preferred Stock 0.0 0.0%
Minority Interest 0.0 0.0%
Shareholders Equity 98.3 49.6%
Total Capitalization $ 198.3 100.0%
Market Capitalization
- -------------------------------------------------------------------------
Share Price $ 17.83
Shares Outstanding (MM) 13.4
Options 0.2
Option Strike Price $ 8.89
Market Equity Value $ 233.9
Debt 100.0
Preferred Stock 0.0
Minority Interest 0.0
Less: Cash & Equivalents (7.4)
Net Debt 92.7
----------- ---------
Enterprise Value $ 326.6
</TABLE>
<TABLE>
<S> <C> <C> <C>
LTM 1998 1999
--------- --------- ---------
Enterprise Value/EBITDA 5.7x 4.6x 3.9x
Price/Earnings Ratio 15.9x 14.0x 11.7x
</TABLE>
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
31
<PAGE>
CELADON GROUP, INC. Comparable Company Valuation Analysis
- -------------------------------------------------------------------------------
Knight Transportation
<TABLE>
<CAPTION>
Estimates
LFY Recent Q Past Q LTM ----------------------
12/31/97 3/31/98 3/31/97 3/31/98 1998 1999
-------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sales $99.2 $28.3 $21.3 $106.2
Growth
EBITDA 27.0 7.8 5.7 29.2 34.3 42.3
Margin 27.2% 27.7% 26.5% 27.5%
JV EBITDA
EBIT 17.5 5.0 3.5 19.0
Margin 17.6% 17.8% 16.6% 17.9%
Interest Expense NA 0.0 0.0 NA
EBITDA/Interest
Net Income 10.3 2.9 2.1 11.1 12.7 15.7
EPS $0.69 $0.20 $0.14 $0.75 $0.85 $1.05
Book Value 59.8 59.8
</TABLE>
<TABLE>
<CAPTION>
Book Capitalization (3/31/98) Amount %
- ----------------------------- ------ -------
<S> <C> <C>
Cash & Equivalents $0.9
Short-Term Debt $2.0 3.3%
Long-Term Debt 0.0 0.0%
Preferred Stock 0.0 0.0%
Minority Interest 0.0 0.0%
Shareholders Equity 59.8 96.7%
------ -------
Total Capitalization $61.9 100.0%
Market Capitalization
- ---------------------
Share Price $16.81
Shares Outstanding (MM) 14.9 split
Options 0.0
Option Strike Price $12.09
------
Market Equity Value $251.5
Debt 2.0
Preferred Stock 0.0
Minority Interest 0.0
Less: Cash & Equivalents (0.9)
Net Debt 1.1
------
Enterprise Value $252.6
</TABLE>
<TABLE>
<CAPTION>
LTM 1998 1999
----- ----- -----
<S> <C> <C> <C>
Enterprise Value/EBITDA 8.6x 7.4x 6.0x
Price/Earnings Ratio 22.5x 19.8x 16.0x
</TABLE>
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
32
<PAGE>
CELADON GROUP, INC. Comparable Company Valuation Analysis
- -------------------------------------------------------------------------------
Transportation Corporation of America
<TABLE>
<CAPTION>
ESTIMATES
LFY RECENT Q PAST Q LTM --------------
12/31/97 3/31/98 3/31/97 3/31/98 1998 1999
-------- -------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sales $186.4 $ 49.5 $ 43.5 $192.4
Growth
EBITDA 31.7 7.6 5.7 33.5 38.2 42.8
Margin 17.0% 15.3% 13.1% 17.4%
JV EBITDA
EBIT 16.2 3.1 2.0 17.3
Margin 8.7% 6.4% 4.6% 9.0%
Interest Expense 3.3 1.1 0.7 3.8
EBITDA/Interest 9.6x 6.8x 8.6x 8.9x
Net Income 7.8 1.3 0.8 8.2 9.4 11.0
EPS $ 1.15 $ 0.19 $ 0.12 $ 1.22 $ 1.40 $ 1.64
Book Value 52.5 52.5
</TABLE>
<TABLE>
<CAPTION>
BOOK CAPITALIZATION (3/31/98) AMOUNT %
- ----------------------------- ---------- ---------
<S> <C> <C>
Cash & Equivalents $ 6.9
Short-Term Debt $ 19.4 17.3%
Long-Term Debt 39.8 35.7%
Preferred Stock 0.0 0.0%
Minority Interest 0.0 0.0%
Shareholders Equity 52.5 47.0
----------- ---------
Total Capitalization $ 111.7 100.0
</TABLE>
<TABLE>
<CAPTION>
MARKET CAPITALIZATION
- ---------------------
<S> <C>
Share Price $ 16.88
Shares Outstanding (MM) 6.7
Options 0.2
Option Strike Price $ 7.28
----------
Market Equity Value $ 115.4
Debt 59.2
Preferred Stock 0.0
Minority Interest 0.0
Less: Cash & Equivalents (6.9)
Net Debt 52.4
----------
Enterprise Value $ 167.7
</TABLE>
<TABLE>
<CAPTION>
LTM 1998 1999
----- ----- -----
<S> <C> <C> <C>
Enterprise Value/EBITDA 5.0x 4.4x 3.9x
Price/Earnings Ratio 13.8x 12.1x 10.3x
</TABLE>
Wasserstein Parella & Co.
- --------------------------------------------------------------------------------
33
<PAGE>
CELADON GROUP, INC. Comparable Company Valuation Analysis
- --------------------------------------------------------------------------------
USA Truck
<TABLE>
<CAPTION>
Estimates
LFY Recent Q Past Q LTM --------------
2/31/97 3/31/98 3/31/98 3/3/98 1998 1999
------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sales $129.5 $35.2 $30.7 $134.1
Growth
EBITDA 27.8 8.1 5.5 30.4 35.2 41.9
Margin 21.4% 23.1% 17.9% 22.7%
JV EBITDA
EBIT 14.2 4.2 2.3 16.1
Margin 10.9% 12.0% 7.6% 12.0%
Interest Expense 1.4 0.4 0.2 1.6
EBITDA/Interest 20.1x 20.6x 26.6x 19.4x
Net Income 7.9 2.3 1.3 9.0 10.3 11.8
EPS $0.84 $0.25 $0.14 $0.95 $1.09 $1.25
Book Value 55.0 55.0
</TABLE>
<TABLE>
<CAPTION>
Book Capitalization (3/31/98) Amount %
- ------------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
Cash & Equivalents $2.8
Short-Term Debt $6.2 6.9%
Long-Term Debt 29.2 32.3%
Preferred Stock 0.0 0.0%
Minority Interest 0.0 0.0%
Shareholders Equity 55.0 60.8%
---------- ---------
Total Capitalization $90.4 100.0%
Market Capitalization
- -------------------------------------------------------------------------
Share Price $14.75
Shares Outstanding (MM) 9.4
Options 0.1
Option Strike Price $6.25
----------
Market Equity Value $139.8
Debt 35.4
Preferred Stock 0.0
Minority Interest 0.0
Less: Cash & Equivalents (2.8)
Net Debt 32.6
----------
Enterprise Value $172.4
</TABLE>
<TABLE>
<CAPTION>
LTM 1998 1999
----- ------ ------
<S> <C> <C> <C>
Enterprise Value/EBITDA 5.7x 4.9x 4.1x
Price/Earnings Ratio 15.5x 13.5x 11.8x
</TABLE>
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
34
<PAGE>
CELADON GROUP, INC. Comparable Company Valuation Analysis
- --------------------------------------------------------------------------------
U.S. Xpress Enterprises, Inc.
<TABLE>
<CAPTION>
Estimates
LFY Recent Q Past Q LTM --------------
3/31/98 3/31/98 3/31/97 3/31/98 1998 1999
------ -------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sales $466.2 $466.2
Growth
EBITDA 49.3 49.3 69.2 83.2
Margin 10.6% 10.6%
JV EBITDA
EBIT 33.4 33.4
Margin 7.2% 7.2%
Interest Expense 5.9 5.9
EBITDA/Interest 8.3x 8.3x
Net Income 16.5 16.5 20.8 25.1
EPS $1.20 $1.20 $1.38 $1.67
Book Value 132.1 132.1
</TABLE>
<TABLE>
<CAPTION>
Book Capitalization (3/31/98) Amount %
- ------------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
Cash & Equivalents $6.0
Short-Term Debt $4.3 1.7%
Long-Term Debt 125.1 47.8%
Preferred Stock 0.0 0.0%
Minority Interest 0.0 0.0%
Shareholders Equity 132.1 50.5%
----------- ---------
Total Capitalization $261.5 100.0%
Market Capitalization
- ------------------------------------------------------------------------- ----------- ---------
Share Price $16.59
Shares Outstanding (MM) 15.0
Options 0.1
Option Strike Price $5.50
-----------
Market Equity Value $250.5
Debt 129.4
Preferred Stock 0.0
Minority Interest 0.0
Less: Cash & Equivalents (6.0)
Net Debt 123.4
-----------
Enterprise Value $373.9
</TABLE>
<TABLE>
<S> <C> <C> <C>
LTM 1998 1999
--------- --------- ---------
Enterprise Value/EBITDA 7.6x 5.4x 4.5x
Price/Earnings Ratio 13.8x 12.0x 9.9x
</TABLE>
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
35
<PAGE>
CELADON GROUP, INC. Comparable Company Valuation Analysis
- --------------------------------------------------------------------------------
Heartland Express, Inc.
<TABLE>
<CAPTION>
Estimates
LFY Recent Q Past Q LTM --------------
12/31/97 3/31/98 3/31/97 3/3/98 1998 1999
------ -------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sales $262.5 $66.8 $59.9 $269.5 $290.2 $333.8
Growth
EBITDA 59.9 15.6 12.9 62.6 68.5 77.1
Margin 22.8% 23.4% 21.6% 23.2% 23.6% 23.1%
JV EBITDA
EBIT 43.2 11.0 9.6 44.5
Margin 16.5% 16.4% 16.1% 16.5%
Interest Expense 0.0 0.0 0.0 0.0
EBITDA/Interest NM NM NM NM
Net Income 30.1 7.8 6.6 31.3 34.8 39.9
EPS $1.00 $0.26 $0.22 $1.04 $1.16 $1.33
Book Value 161.5 161.5
</TABLE>
<TABLE>
<CAPTION>
Amount %
----------- ---------
<S> <C> <C>
Book Capitalization (3/31/98)
- -----------------------------
Cash & Equivalents $85.9
Short-Term Debt $0.0 0.0%
Long-Term Debt 0.0 0.0%
Preferred Stock 0.0 0.0%
Minority Interest 0.0 0.0%
Shareholders Equity 161.5 100.0%
Total Capitalization $161.6 100.0%
-------- ------
Market Capitalization
- -----------------------------
Share Price $22.00
Shares Outstanding (MM) 30.0
Options 0.0
Option Strike Price $0.00
--------
Market Equity Value $660.0
Debt 0.0
Preferred Stock 0.0
Minority Interest 0.0
Less: Cash & Equivalents (85.9)
Net Debt (85.9)
-----------
Enterprise Value $574.1
</TABLE>
<TABLE>
<S> <C> <C> <C>
LTM 1998 1999
--------- --------- ---------
Enterprise Value/EBITDA 9.2x 8.4x 7.4x
Price/Earnings Ratio 21.1x 19.0x 16.5x
</TABLE>
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
36
<PAGE>
CELADON GROUP, INC. Comparable Company Valuation Analysis
- --------------------------------------------------------------------------------
J.B. Hunt Transport Services
<TABLE>
<CAPTION>
Estimates
LFY Recent Q Past Q LTM --------------
12/31/97 3/31/98 3/31/98 3/3/98 1998 1999
------ -------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sales $1,554.3 $413.5 $365.4 $1,602.4
Growth
EBITDA 173.5 54.1 40.6 187.0 244.4 290.1
Margin 11.2% 13.1% 11.1% 11.7%
JV EBITDA
EBIT 42.9 21.7 7.3 57.2
Margin 2.8% 5.2% 2.0% 3.6%
Interest Expense 24.7 6.6 6.4 24.9
EBITDA/Interest 7.0x 8.2x 6.3x 7.5x
Net Income 11.4 9.5 0.6 20.3 49.0 58.9
EPS $0.31 $0.27 $0.02 $0.56 $1.38 $1.66
Book Value 341.2 341.2
</TABLE>
<TABLE>
<CAPTION>
Book Capitalization (3/31/98) Amount %
- ------------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
Cash & Equivalents $9.4
Short-Term Debt $88.7 11.9%
Long-Term Debt 317.3 42.5%
Preferred Stock 0.0 0.0%
Minority Interest 0.0 0.0%
Shareholders Equity 341.2 45.7%
Total Capitalization $747.2 100.0%
Market Capitalization
- -------------------------------------------------------------------------
Share Price $29.19
Shares Outstanding (MM) 35.5
Options 0.3
Option Strike Price $16.52
Market Equity Value $1,039.5
Debt 406.0
Preferred Stock 0.0
Minority Interest 0.0
Less: Cash & Equivalents (9.4)
Net Debt 396.6
-----------
Enterprise Value $1,436.1
</TABLE>
<TABLE>
<S> <C> <C> <C>
LTM 1998 1999
--------- --------- ---------
Enterprise Value/EBITDA 7.7x 5.9x 5.0x
Price/Earnings Ratio 52.1x 21.2x 17.6x
</TABLE>
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
37
<PAGE>
CELADON GROUP, INC. Comparable Company Valuation Analysis
- --------------------------------------------------------------------------------
Swift Transportation
<TABLE>
<CAPTION>
Estimates
LFY Recent Q Past Q LTM --------------
12/31/97 3/31/98 3/31/97 3/31/98 1998 1999
-------- -------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sales $713.6 $191.6 $156.1 $749.2
Growth
EBITDA 111.9 28.0 19.6 120.3 136.6 159.5
Margin 15.7% 14.6% 12.6% 16.1%
JV EBITDA
EBIT 74.0 16.9 11.1 79.9
Margin 10.4% 8.8% 7.1% 10.7%
Interest Expense 4.5 1.3 0.8 5.0
EBITDA/Interest 25.1x 20.9x 24.1x 24.1x
Net Income 41.6 9.4 6.2 44.8 50.0 57.7
EPS $0.99 $0.22 $0.15 $1.06 $1.17 $1.35
Book Value 284.2 284.2
</TABLE>
<TABLE>
<CAPTION>
Book Capitalization (3/31/98) Amount %
- ----------------------------- ----------- ---------
<S> <C> <C>
Cash & Equivalents $9.2
Short-Term Debt $6.0 1.6%
Long-Term Debt 92.2 24.1%
Preferred Stock 0.0 0.0%
Minority Interest 0.0 0.0%
Shareholders Equity 284.2 74.3%
----------- ---------
Total Capitalization $382.3 100.0%
Market Capitalization
- ---------------------
Share Price $19.88
Shares Outstanding (MM) 42.7 split
Options 0.1
Option Strike Price $3.78
-----------
Market Equity Value $850.7
Debt 98.2
Preferred Stock 0.0
Minority Interest 0.0
Less: Cash & Equivalents (9.2)
Net Debt 89.0
-----------
Enterprise Value $939.7
</TABLE>
<TABLE>
<S> <C> <C> <C>
LTM 1998 1999
--------- --------- ---------
Enterprise Value/EBITDA 7.8x 6.9x 5.9x
Price/Earnings Ratio 18.8x 17.0x 14.7x
</TABLE>
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
38
<PAGE>
CELADON GROUP, INC. Comparable Company Valuation Analysis
- --------------------------------------------------------------------------------
Werner Enterprises
<TABLE>
<CAPTION>
Estimates
LFY Recent Q Past Q LTM --------------
12/31/97 3/31/98 3/31/98 3/3/98 1998 1999
------ -------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sales $772.1 $199.7 $172.0 $799.8
Growth
EBITDA 150.3 37.6 28.7 159.2 176.9 199.8
Margin 19.5% 18.8% 16.7% 19.9%
JV EBITDA
EBIT 77.6 18.1 11.5 84.3
Margin 10.1% 9.1% 6.7% 10.5%
Interest Expense 3.0 1.0 0.4 3.6
EBITDA/Interest 50.1x 37.4x 64.2x 44.7x
Net Income 48.4 10.9 7.4 51.8 56.9 65.5
EPS $1.02 $0.22 $0.16 $1.08 $1.19 $1.37
Book Value 406.2 406.2
</TABLE>
<TABLE>
<CAPTION>
Book Capitalization (3/31/98) Amount %
- ------------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
Cash & Equivalents $24.9
Short-Term Debt $0.0 0.0%
Long-Term Debt 70.0% 14.7%
Preferred Stock 0.0 0.0%
Minority Interest 0.0 0.0%
Shareholders Equity 406.2 85.3%
------ ------
Total Capitalization $476.2 100.0%
Market Capitalization
- -------------------------------------------------------------------------
Share Price $18.63
Shares Outstanding (MM) 47.8 split
Options 0.3
Option Strike Price $14.19
Market Equity Value $891.7
Debt 70.0
Preferred Stock 0.0
Minority Interest 0.0
Less: Cash & Equivalents (24.9)
Net Debt 45.1
-----------
Enterprise Value $936.8
</TABLE>
<TABLE>
<S> <C> <C> <C>
LTM 1998 1999
--------- --------- ---------
Enterprise Value/EBITDA 5.9x 5.3x 4.7x
Price/Earnings Ratio 17.2x 15.7x 13.6x
</TABLE>
Wasserstein Perella & Co.
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39
<PAGE>
CELADON GROUP, INC.
- --------------------------------------------------------------------------------
----------------------------------------
Discounted Cash FLow
Analysis
----------------------------------------
Wasserstein Perella & Co.
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40
<PAGE>
CELADON GROUP, INC. Discounted Cash Flow Analysis
- -------------------------------------------------------------------------------
WACC Comparison of Selected Trucking Companies ($MM)(1)
<TABLE>
<S> <C>
Assumptions:
Marginal Tax Rate 40.0%
Risk Free Rate of Return 5.5%
Market Risk Premium 7.7%
</TABLE>
<TABLE>
<CAPTION>
Predicted Total Market Value Debt/ Unlevered
Beta(1) Debt 6/17/98 Equity Beta
--------- ----- ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Selected Companies
Heartland Express 0.73 $0.0 $660.0 0.0% 0.73
J.B. Hunt Transport Services 0.88 $406.0 $1,046.2 38.8% 0.71
Swift Transportation 0.67 $98.2 $850.7 11.5% 0.63
Werner Enterprises 0.71 $70.0 $891.7 7.9% 0.68
-------------------------------------------------------
Mean 0.75 14.5% 0.69
Median 0.72 9.7% 0.70
-------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Capital Structure Cost of Equity Cost of Debt
-------------------------------- ------------------- -------------------
Total Firm Debt/ Levered Cost of BT Cost AT Cost
Debt Value Firm Value Beta Equity of Debt of Debt WACC
------- -------- ------------ ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Selected Companies
Heartland Express $0.0 $574.1 0.0% 0.73 11.1% 6.5% 3.9% 11.1%
J.B. Hunt Transport Services $406.0 $1,442.8 28.1% 0.88 12.2% 6.3% 3.8% 9.9%
Swift Transportation $98.2 $939.7 10.4% 0.67 10.7% 6.5% 3.9% 10.0%
Werner Enterprises $70.0 $936.8 7.5% 0.71 11.0% 6.3% 3.8% 10.5%
-----------------------------------------------------------------------------------------
Mean 11.5% 0.75 11.3% 6.4% 3.8% 10.3%
Median 9.0% 0.72 11.0% 6.4% 3.8% 10.2%
-----------------------------------------------------------------------------------------
</TABLE>
- -----------------------
(1) Source: BARRA Beta Book.
Wasserstein Perella & Co.
- -------------------------------------------------------------------------------
41
<PAGE>
CELADON GROUP, INC. Discounted Cash Flow Analysis
- --------------------------------------------------------------------------------
Adjustment Rationale for the Celadon Beta Provided by Statistical Services
- Why adjustments to observed betas are necessary for small cap,
leveraged companies(1)
- No commercial beta reporting service provides estimates of
systematic risk that accounts for the lagged price response of
small firms to marketwide information
- Small cap stocks trading may not be synchronized with general
market movements due to illiquidity, higher transactions costs,
less available public information, or fewer research analysts
- Ibbotson's research(1) indicates that beta estimates for small
firms are biased severely downward
- Small firm betas should be generally higher than large firm
betas due to the higher risks and returns historically
observed for small firms
- Using lagged returns on a market index (which is heavily weighted
toward large, high information, liquid firms) will capture the
delayed adjustment of small firms to market wide information
- Adjusted estimates of betas display the positive risk/return
trade-off implied by the CAPM
- If betas are not adjusted through statistical regressions, then they
may be adjusted by taking the unlevered beta mean of large cap
comparables and releveraging this beta for the target's capital
structure
- --------
(1) Source: Ibbotson, Roger G., et al. Journal of Portfolio Management
"Estimates of Small-Stock Betas Are Much Too Low," June 22, 1997.
Wasserstein Perella & Co.
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42
<PAGE>
CELADON GROUP, INC. Discounted Cash Flow Analysis
- --------------------------------------------------------------------------------
DCF Valuation Matrix ($MM, except per share data)
<TABLE>
<CAPTION>
Terminal Value LTM EBITDA
Multiple
Discount ----------------------------
Rate 6.0x 6.5x 7.0x
-------- -------- --------
<C> <S> <C> <C> <C>
11% PV of Cash Flow Stream ($12.8) ($12.8) ($12.8)
PV of Terminal Value 274.0 296.8 319.6
-------- -------- --------
Enterprise Value $ 261.1 $ 284.0 $ 306.8
Less: Net Debt 101.1 101.1 101.1
-------- -------- --------
PV of Equity Value $ 160.0 $ 182.8 $ 205.7
Implied Price Per Share $ 20.26 $ 23.15 $ 26.04
Implied Growth in Perpetuity 9.5% 9.6% 9.7%
12% PV of Cash Flow Stream ($12.6) ($12.6) ($12.6)
PV of Terminal Value 261.9 283.8 305.6
-------- -------- --------
Enterprise Value $ 249.31 $ 271.14 $ 292.97
Less: Net Debt 101.1 101.1 101.1
-------- -------- --------
PV of Equity Value $ 148.2 $ 170.0 $ 191.8
Implied Price Per Share $ 18.76 $ 21.53 $ 24.29
Implied Growth in perpetuity 10.5% 10.6% 10.7%
13% PV of Cash Flow Stream ($12.4) ($12.4) ($12.4)
PV of Terminal Value 250.6 271.4 292.3
-------- -------- --------
Enterprise Value $ 238.12 $ 259.00 $ 279.88
Less: Net Debt 101.1 101.1 101.1
-------- -------- --------
PV of Equity Value $ 137.0 $ 157.9 $ 178.8
Impied Price Per Share $ 17.35 $ 19.99 $ 22.63
Implied Growth in perpetuity 11.5% 11.6% 11.7%
</TABLE>
Wasserstein, Perella & Co.
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43
<PAGE>
CELADON GROUP, INC. Discounted Cash Flow Analysis
- -------------------------------------------------------------------------------
Unlevered Income Statement
<TABLE>
<CAPTION>
Fiscal Years Ending 6/30,
-------------------------------------------------------------------------
1997E 1998P 1999P 2000P 2001P 2002P 2003P
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Revenue $190.7 $228.9 $284.1 $325.9 $373.7 $415.1 $455.3
% Growth 20% 24% 15% 15% 11% 10%
Operating Expenses 168.1 199.3 246.2 274.4 309.0 344.9 378.3
EBITDA 22.6 29.6 37.9 51.5 64.6 70.2 76.9
% Margin
Depreciation 10.1 12.8 14.0 17.5 21.3 21.9 24.0
Goodwill Amortization 0.0 0.5 0.5 0.5 0.5 0.5 0.5
EBIT 12.4 16.3 23.3 33.5 42.8 47.7 52.4
Joint Venture Income 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other Income 0.0 0.1 0.0 0.0 0.0 0.0 0.0
- -----------------------------------------------------------------------------------------------------------
Pre-tax Income 12.5 16.4 23.3 33.5 42.8 47.7 52.4
Provision for Income Taxes 5.0 6.2 8.6 13.1 16.9 18.9 20.7
Tax Rate 40.0% 38.1% 36.8% 39.0% 39.5% 39.5% 39.5%
- -----------------------------------------------------------------------------------------------------------
Net Income $7.5 $10.1 $14.8 $20.4 $25.9 $28.9 $31.7
</TABLE>
Wasserstein Perella & Co.
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44
<PAGE>
CELADON GROUP, INC. Discounted Cash Flow Analysis
- --------------------------------------------------------------------------------
Unlevered Balance Sheet Projections
<TABLE>
<CAPTION>
Fiscal Years Ending 6/30,
-------------------------------------------------------------------------
1997E 1998P 1999P 2000P 2001P 2002P 2003P
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Accounts Receivable 44.0 48.6 50.6 51.9 51.9 51.9
Inventories 0.0 0.0 0.0 0.0 0.0 0.0
Other Current 13.6 13.6 13.9 14.1 14.1 14.1
TOTAL CURRENT ASSETS 57.7 62.2 64.5 66.0 66.0 66.0
PP&E (net) 113.2 119.0 164.7 193.7 221.7 247.7
Tires in Service 2.2 2.2 2.2 2.2 2.2 2.2
Joint Venture Investment 0.0 0.0 0.0 0.0 0.0 0.0
Goodwill 11.0 10.5 10.0 9.5 9.0 8.5
Other 3.1 3.1 3.1 3.1 3.1 3.1
TOTAL ASSETS 187.1 197.0 244.5 274.5 302.1 327.5
Accounts Payable 22.3 25.1 25.8 26.6 26.6 26.6
Accrued Expense 0.0 0.0 0.0 0.0 0.0 0.0
Other Current 10.9 10.5 10.4 10.3 10.3 10.3
TOTAL CURRENT LIABILITIES 33.2 35.6 36.3 37.0 37.0 37.0
Deferred Taxes 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL LIABILITIES 33.2 35.6 36.3 37.0 37.0 37.0
Equity @ BOY 110.0 153.9 161.4 208.2 237.6 265.1
Plus: Net Income 10.1 14.8 20.4 25.9 28.9 31.7
Less: Dividends (7.3) 26.4 3.4 (1.3) (6.2)
Equity @ EOY 153.9 161.4 208.2 237.6 265.1 290.6
TOTAL LIABILITIES AND EQUITY 187.1 197.0 244.5 274.5 302.1 327.5
</TABLE>
Wasserstein Perella & Co.
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45
<PAGE>
CELADON GROUP, INC. Discounted Cash Flow Analysis
- -------------------------------------------------------------------------------
Unlevered Cash Flow Projections
<TABLE>
<CAPTION>
Fiscal Years Ending 6/30,
-------------------------------------------------------------------------
1997E 1998P 1999P 2000P 2001P 2002P 2003P
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income $14.8 $20.4 $25.9 $28.9 $31.7
D & A (includes Goodwill) 14.5 18.0 21.8 22.4 24.5
(Increase) Decrease in Working Capital (2.2) (1.7) (0.8) 0.0 0.0
Joint Venture Income 0.0 0.0 0.0 0.0 0.0
Change in Deferred Taxes 0.0 0.0 0.0 0.0 0.0
Other 0.0 0.0 0.0 0.0 0.0
Net Cash Provided (Used) By Operating
Activities 27.1 36.8 46.9 51.3 56.2
- -------------------------------------------------------------------------------------------------------------------
Capital Expenditures (19.8) (63.2) (50.3) (50.0) (50.0)
Other2 0.0 0.0 0.0 0.0 0.0
Other3 0.0 0.0 0.0 0.0 0.0
Net Cash Provided (Used) by Investing
Activities (19.8) (63.2) (50.3) (50.0) (50.0)
- -------------------------------------------------------------------------------------------------------------------
Distributions from Joint Venture 0.0 0.0 0.0 0.0 0.0
Net Cash Provided (Used) by Financing 0.0 0.0 0.0 0.0 0.0
- -------------------------------------------------------------------------------------------------------------------
Unlevered Free Cash Flow 7.3 (26.4) (3.4) 1.3 6.2
</TABLE>
Wasserstein Perella & Co.
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46
<PAGE>
CELADON GROUP, INC.
- --------------------------------------------------------------------------------
-----------------------------------
Premium Analysis
-----------------------------------
Wasserstein Perella & Co.
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47
<PAGE>
CELADON GROUP, INC. Premium Analysis
- --------------------------------------------------------------------------------
Premium Analysis ($MM)
Transactions (1): Last 12 months, Range: $200-$300 MM, Control Acquisitions
<TABLE>
<CAPTION>
Premium (%)
Date Value of Target Business Debt/ ------------------------
Announced Transaction Acquiror Name Target Name Description Equity 1 month 1 week 1 day
- --------- ----------- ---------------------- ---------------------- ---------------------- ------ ------- ------ -----
<C> <C> <S> <C> <C> <C> <C> <C> <C>
06/16/97 275.2 United Dominion Core Industries Inc Manufacture electronic
Industries Ltd equip 26.0% 49.3 37.9 26.6
06/19/97 206.8 Gateway 2000 Inc Advanced Logic Mnfr microcomputer
Research Inc systems 0.0% 34.8 30.5 29.2
06/24/97 275.5 Louis Dreyfus Natural American Exploration Oil and gas
Gas Co exploration, prodn 46.0% 21.6 15.0 13.0
07/07/97 233.6 Meridian Resource Corp Cairn Energy USA Inc Oil and gas
exploration, prodn 43.0% 26.7 29.0 22.3
07/08/97 213.6 Jitney-Jungle Stores Delchamps Inc Own and operate
of Amer supermarkets 14.0% 6.7 (0.8) (2.4)
07/09/97 273.9 CDSI Holding Corp Control Data Systems Mnfr computers,
Inc peripherals 0.0% 35.0 30.6 29.1
07/15/97 244.4 Paxar Corp Intl Imaging Materials Mnfr thermal transfer
ribbons 2.0% 64.9 60.2 67.3
07/22/97 219.9 Sanmina Corp Elexsys International Manufacture circuit
Inc boards 77.0% 40.2 (8.6) 1.5
08/08/97 278.1 USF&G Corp Titan Holdings Inc Auto,property,casualty
ins co 36.0% 24.9 19.1 16.0
08/14/97 233.2 Omnicare Inc American Medserve Corp Wholesale
pharmaceuticals 14.0% 25.8 16.1 2.5
08/14/97 298.6 Madison Dearborn Tuesday Morning Corp Own, operate giftware
Partners stores 49.0% 11.1 25.8 22.7
08/15/97 210.9 Fulton Finl Keystone Heritage Bank holding company
Corp.Lancaster,PA Group 0.0% 65.1 49.9 43.8
08/25/97 288.1 Perkin-Elmer Corp PerSeptive Biosystems Mnfr chromatography
Inc equipment 48.0% 50.4 24.9 16.8
09/08/97 231.0 Graham-Field Health Fuqua Enterprises Manufacture tanned
Products Inc leather 59.0% 78.8 52.8 42.3
09/12/97 266.0 Patriot Amer Hosp/ WHG Resorts & Casino Own,op resorts and
Wyndham Intl Inc casino 32.0% 78.5 72.3 35.1
09/19/97 217.6 Marshall Industries Sterling Electronics Whl electronic
Corp components 80.0% 57.0 30.2 16.3
10/13/97 269.4 ICG Communications Inc Netcom On-Line Internet service
Communication provider 3.0% 78.5 70.9 49.8
10/23/97 234.7 Harbinger Corp Premenos Technology Develop EDI software
Corp 0.0% 27.8 49.1 55.2
11/04/97 250.3 Parametric Technology Computer Vision Corp Mnfr computers,
Corp peripherals 0.0% 18.6 69.9 28.3
11/13/97 240.8 Investor Group Chartwell Leisure Inc Own,op hotels and
motels 48.0% 11.3 4.5 11.3
12/01/97 253.7 AXENT Technologies Raptor Systems Inc Develop security mgmt
Inc software 0.0% 16.5 20.7 5.4
12/16/97 209.4 One Valley Bancorp FFVA Financial Corp. Savings and loans
Inc. WV VA 0.0% 30.0 27.3 22.4
12/19/97 201.7 Cable Systems IPC Information Mnfr
International Systems Inc telecommunications
equip 16.0% 14.3 31.3 14.3
01/27/98 245.2 Sage Group PLC State of the Art Inc Develop financial
software 0.0% 35.4 35.4 33.3
02/11/98 250.1 Sombrero Acquisition MTL Inc Pvd tank truck carrier
Corp svcs 66.0% 56.1 38.5 37.9
02/19/98 276.9 First Security Corp, California State Bank Bank holding company
Utah 0.0% 18.8 14.0 11.4
02/24/98 232.9 Baxter International Somatogen Inc Dvlp human blood
Inc substitutes 0.0% 92.0 39.8 35.8
03/16/98 212.9 PLATINUM Technology Logic Works Inc Develop client/server
Inc software 0.0% 57.1 36.2 13.0
04/08/98 269.7 Huntsman Packaging Blessings Corp Mnfr plastic film
Corp products 41.0% 34.9 18.3 18.7
High 92.0% 72.3% 67.3%
Mean 40.1% 32.4% 24.8%
Median 34.9% 30.5% 22.4%
Low 6.7% -8.6% -2.4%
</TABLE>
- ----------------------------------------
(1) List compiled from transaction data available from Securities Database
Corporation.
Wasserstein Perella & Co.
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48
<PAGE>
CELADON GROUP, INC.
- --------------------------------------------------------------------------------
---------------------------------------
Selected Company
Financial Information
---------------------------------------
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
49
<PAGE>
<TABLE>
<CAPTION>
CELADON GROUP, INC. Selected Company Financial Information
- --------------------------------------------------------------------------------
Celadon Group, Inc. Income Statement Summary Pro Forma Fiscal 1998 (in thousands)
Estimated GETS Jul- Pro Forma
6/30/98 LTM Aug. Adj. Total GETS
----------- --------- --------- ----------
<S> <C> <C> <C> <C>
Operating Revenue
CTSI $188,654 $4,233 $4,233
Celadon Air Mex 525
Gerth 3,217
Jaguar 8,500
Cheetah 23,375
----------- --------- --------- ----------
Total 226,271 $4,233 $4,233
Growth %
Operating Income
CTSI 15,652 129 200 329
Celadon Air Mex 73
Gerth 244
Jaguar 931
Cheetah 1,316
----------- --------- --------- ----------
Op. Income Subtotal 18,216 129 200 329
Corporate Expenses 2,031
----------- --------- --------- ----------
Consolidated Operating Income 16,185 129 200 329
Interest Income (433)
Interest Expense 6,385 92 92
Other Expense (Income) (86)
----------- --------- --------- ----------
Pre-Tax Income 10,319 129 107 236
Tax Expense 3,947 49 41 90
----------- --------- --------- ----------
Net Income $ 6,372 $ 80 $ 66 $ 146
----------- --------- --------- ----------
Shares--Diluted 7,800 7,800 7,800 7,800
EPS--Diluted $ 0.82 $ 0.01 $ 0.01 $ 0.02
----------- --------- --------- ----------
Depreciation & Amortization $ 13,252 $ 232 $ 232
EBITDA $ 29,437 $ 361 $ 561
Margin % 13.0% 8.5% 13.2%
<CAPTION>
Gerth Est. 6 Mos. Trlr. Pro Forma
6/30/98 LTM Gerth Adj. Total Gerth Conv. Fiscal 1998
----------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Operating Revenue
CTSI $192,887
Celadon Air Mex $30,627 $30,627 525
Gerth 33,844
Jaguar 8,500
Cheetah 25,375
----------- ---------- ----------- ------ -----------
Total 30,627 30,627 261,132
Growth %
Operating Income
CTSI 1,192 17,173
Celadon Air Mex 73
Gerth 950 1,652 2,602 2,846
Jaguar 931
Cheetah 1,316
----------- ---------- ----------- ------ -----------
Op. Income Subtotal 950 1,652 2,602 1,192 22,338
Corporate Expenses 2,031
----------- ---------- ----------- ------ -----------
Consolidated Operating Income 950 1,652 2,602 1,192 20,307
Interest Income (433)
Interest Expense 354 480 834 754 8,065
Other Expense (Income) (86)
----------- ---------- ----------- ------ -----------
Pre-Tax Income 596 1,172 1,768 438 12,761
Tax Expense 226 445 672 166 4,875
----------- ---------- ----------- ------ -----------
Net Income $ 369 $ 727 $ 1,096 $ 272 $ 7,886
----------- ---------- ----------- ------ -----------
Shares--Diluted 7,800 7,800 7,800 7,800 7,800
EPS--Diluted $ 0.05 $ 0.09 $ 0.14 $ 0.03 $ 1.01
----------- ---------- ----------- ------ -----------
Depreciation & Amortization $ 224 $ 631 $ 855 $ 714 $ 15,503
EBITDA $ 1,174 $2,283 $ 3,456 $1,906 $ 35,360
Margin % 3.8% 11.3% 13.5%
</TABLE>
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50
<PAGE>
CELADON GROUP, INC. Selected Company Financial Information
- --------------------------------------------------------------------------------
Celadon Group, Inc. Income Statement Summary Pro Forma Calendar 1998 (in
thousands)
<TABLE>
<CAPTION>
GETS 4 Gerth 12 Pro Forma
Actual Annual Mos. Mos. Total Previous
--------- --------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue
CTSI $ 91,793 $ 183,586 $ 8,750 $ 192,336 $ 192,336
Celadon Air Mex 309 619 619 619
Gerth 39,342 39,342 35,344
Jaguar 4,009 8,018 8,018 8,018
Cheetah 12,569 25,138 25,138 25,138
--------- --------- ----------- ----------- ----------- ---------
Total 108,680 217,360 8,750 39,342 265,452 261,555
Growth %
Operating Income
CTSI 7,354 14,709 600 15,309 15,309
Celadon Air Mex (4) (8) (8) (8)
Gerth 4,185 4,185 2,707
Jaguar 397 794 794 794
Cheetah 673 1,346 1,346 1,346
--------- --------- ----------- ----------- ----------- ---------
Op. Income Subtotal 8,420 16,841 600 4,185 21,626 20,148
Corporate Expense 826 1,652 1,652 1,652
--------- --------- ----------- ----------- ----------- ---------
Consolidated Operating Income 7,594 15,188 600 4,185 19,973 18,495
Interest Income (348) (696) (696) (696)
Interest Expense 2,773 5,547 959 6,506 6,506
Other Expense (Income) 2 4 4 4
--------- --------- ----------- ----------- ----------- ---------
Pre-Tax Income 5,167 10,334 600 3,226 14,160 12,681
Tax Expense 1,982 3,964 240 1,291 5,495 4,903
--------- --------- ----------- ----------- ----------- ---------
Net Income $ 3,185 $ 6,369 $ 360 $ 1,936 $ 8,665 $ 7,778
--------- --------- ----------- ----------- ----------- ---------
Shares--Diluted 7,751 7,751 7,751 7,751 7,751 7,751
EPS--Diluted $ 0.41 $ 0.82 $ 0.05 $ 0.25 $ 1.12 $ 1.00
--------- --------- ----------- ----------- ----------- ---------
Depreciation & Amortization $ 6,115 $ 12,230 $ 423 $ 757 $ 13,410 $ 13,410
EBITDA $ 13,709 $ 27,419 $ 1,023 $ 4,942 $ 33,383 $ 31,905
Margin % 12.6% 12.6% 11.7% 12.6% 12.6% 12.2%
<CAPTION>
Pro Forma
Calendar
Var. 1998
--------- -----------
<S> <C> <C>
Operating Revenue
CTSI ($ 0) $ 198,141
Celadon Air Mex 216
Gerth 3,898 39,342
Jaguar 10,800
Cheetah 25,656
--------- -----------
Total 3,898 274,154
Growth %
Operating Income
CTSI (0) $ 17,711
Celadon Air Mex 77
Gerth 1,478 4,186
Jaguar 0 1,193
Cheetah (0) 1,282
--------- -----------
Op. Income Subtotal 1,478 24,448
Corporate Expense 2,005
--------- -----------
Consolidated Operating Income 1,478 22,443
Interest Income (85)
Interest Expense 1 7,627
Other Expense (Income) 0 (88)
--------- -----------
Pre-Tax Income 1,479 14,989
Tax Expense (592) 5,736
--------- -----------
Net Income $ 887 $ 9,253
--------- -----------
Shares--Diluted 7,751 7,800
EPS--Diluted $ 0.11 $ 1.19
--------- -----------
Depreciation & Amortization $ 14,657
EBITDA $ 37,100
Margin % 13.5%
</TABLE>
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51
<PAGE>
CELADON GROUP, INC.
- --------------------------------------------------------------------------------
-----------------------------------------
Draft Opinion Letter
-----------------------------------------
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
52
<PAGE>
PRIVILEGED AND CONFIDENTIAL
DRAFT TO BE CIRCULATED FOR
COMMENTS SOLELY AS TO FORM
June [22], 1998
Board of Directors
Celadon Group, Inc.
One Celadon Drive
Indianapolis, IN 46236-4207
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the holders of the common stock, par value $0.033
per share (the "Shares") of Celadon Group, Inc. (the "Company") (other than a
portion of such shares held by certain officers and employees of the Company as
set forth on Schedule A to the Merger Agreement (as herein after defined) (the
"Rollover Shares")) of the consideration to be received by such holders pursuant
to the terms of the Agreement and Plan of Merger, dated as of June [22], 1998
(the "Merger Agreement"), by and among the Company, and [Merger Sub] ("Sub").
The Merger Agreement provides for, among other things, a merger of Sub with and
into the Company pursuant to which each outstanding Share (other than the
Rollover Shares and Treasury Securities (as defined in the Merger Agreement)),
will be converted into the right to receive $20.00 in cash (the "Transaction").
The terms and conditions of the Transaction are set forth in more detail in the
Merger Agreement.
In connection with rendering our opinion, we have reviewed drafts of the
Merger Agreement and related documents, and for purposes hereof, we have assumed
that the final forms of these documents will not differ in any material respect
from the drafts provided to us. We have also reviewed and analyzed certain
publicly available business and financial information relating to the Company
for recent years and interim periods to date, as well as certain internal
financial and operating information, including financial forecasts, analyses and
projections prepared by or on behalf of the Company and provided to us for
purposes of our analysis, and we have met with management of the Company to
review and discuss such information and, among other matters, the Company's
business, operations, assets, financial condition and future prospects.
We have reviewed and considered certain financial and stock market data
relating to the Company, and we have compared that data with similar data for
certain other companies, the securities of which are publicly traded, that we
believe may be relevant or comparable in certain respects to the Company or one
or more of its businesses or assets, and we have reviewed and considered the
financial terms of certain recent acquisitions and business combination
transactions in the trucking industry specifically, and in other industries
generally, that we believe to be reasonably comparable to the Transaction or
otherwise relevant to our inquiry. We have also performed such other financial
studies, analyses, and investigations and reviewed such other information as we
considered appropriate for purposes of this opinion.
<PAGE>
Board of Directors of Celadon Group, Inc.
June 22, 1998
Page 54
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We have also assumed and relied upon the reasonableness and
accuracy of the financial projections, forecasts and analyses provided to us,
and we have assumed that such projections, forecasts and analyses were
reasonably prepared in good faith and on bases reflecting the best currently
available judgments and estimates of the Company's management. We express no
opinion with respect to such projections, forecasts and analyses or the
assumptions upon which they are based. In addition, we have not reviewed any of
the books and records of the Company, or assumed any responsibility for
conducting a physical inspection of the properties or facilities of the Company,
or for making or obtaining an independent valuation or appraisal of the assets
or liabilities of the Company, and no such independent valuation or appraisal
was provided to us. We also have assumed that the transactions described in the
Merger Agreement will be consummated without waiver or modification of any of
the material terms or conditions contained therein by any party thereto. Our
opinion is necessarily based on economic and market conditions and other
circumstances as they exist and can be evaluated by us as of the date hereof.
It should be noted that in the context of our engagement by the Company, we
were authorized only to solicit indications of interest in acquiring all or any
part of the Company from private investment groups.
In the ordinary course of our business, we may actively trade the debt and
equity securities of the Company for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
We are acting as financial advisor to the Company in connection with the
proposed Transaction and will receive a fee for our services, which is
contingent upon the consummation of the Transaction.
Our opinion addresses only the fairness from a financial point of view to
the shareholders of the Company (other than the holders of the rollover shares)
of the consideration to be received by such shareholders pursuant to the
Transaction, and we do not express any views on any other terms of the
Transaction. Specifically, our opinion does not address the Company's underlying
business decision to effect the transactions contemplated by the Merger
Agreement. In addition, our opinion does not address the solvency of the Company
or any other entity following consummation of the Transaction or at any time.
It is understood that this letter is for the benefit and use of the Board of
Directors of the Company in its consideration of the Transaction and except for
inclusion in its entirety in any proxy statement required to be circulated to
shareholders of the Company relating to the Transaction, may not be quoted,
referred to or reproduced at any time or in any manner without our prior written
consent. This opinion does not constitute a recommendation to any shareholder
with respect to
<PAGE>
Board of Directors of Celadon Group, Inc.
June 22, 1998
Page 55
how such holder should vote with respect to the Transaction, and should not be
relied upon by any shareholder as such.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that as of the date hereof,
the $20.00 per Share cash consideration to be received by the shareholders of
the Company pursuant to the Transaction is fair to such shareholders (other than
the holders of the Rollover Shares) from a financial point of view.
Very truly yours,
WASSERSTEIN PERELLA & CO., INC.
<PAGE>
Exhibit 99(c)(2)
Page
----
EXECUTION COPY
VOTING AGREEMENT
AGREEMENT dated as of June 23, 1998 by and between LAREDO ACQUISITION
CORP., a Delaware corporation ("Acquisition"), and the other parties
signatory hereto (each a "Stockholder").
RECITALS
A. Concurrently herewith, Acquisition, and Celadon Group, Inc., a
Delaware corporation (the "Company"), are entering into an Agreement and Plan
of Merger of even date herewith (as such agreement may be amended from
time to time, the "Merger Agreement"; capitalized terms used but not
defined herein shall have the meanings set forth in the Merger Agreement)
pursuant to which (and subject to the terms and conditions specified
therein) Acquisition will be merged with and into the Company (the "Merger").
B. As a condition to Acquisition entering into the Merger Agreement,
Acquisition requires that each Stockholder enter into, and each such
Stockholder hereby agrees to enter into, this Agreement.
AGREEMENT
To implement the foregoing and in consideration of the mutual
agreements contained herein, the parties hereby agree as follows:
3. Representations and Warranties of Stockholders. Each Stockholder hereby
severally and not jointly represents and warrants to Acquisition as follows:
A. Ownership of Shares.
i. Such Stockholder is the record holder or beneficial owner of
the number of shares of Company Common Stock as is set forth opposite
such Stockholder's name on Schedule I hereto (such shares shall
constitute the "Existing Shares", and together with any shares of
Company Common Stock acquired of record or beneficially by such
Stockholder in any capacity after the date hereof and prior to the
termination hereof, whether upon exercise of options, conversion of
convertible securities, purchase, exchange or otherwise, shall
<PAGE>
constitute the "Shares").
ii. On the date hereof, the Existing Shares set forth opposite
such Stockholder's name on Schedule I hereto constitute all of the
outstanding shares of Company Common Stock owned of record or
beneficially by such Stockholder. Such Stockholder does not have
record or beneficial ownership of any Shares not set forth on Schedule
I hereto.
iii. Such Stockholder has sole power of disposition with respect
to all of the Existing Shares set forth opposite such Stockholder's
name on Schedule I and sole voting power with respect to the matters
set forth in Section 2 hereof and sole power to demand appraisal
rights, in each case with respect to all of the Existing Shares set
forth opposite such Stockholder's name on Schedule I, with no
restrictions on such rights, subject to applicable federal securities
laws and the terms of this
<PAGE>
Page
----
Agreement.
iv. Such Stockholder will have sole power of disposition with
respect to Shares other than Existing Shares, if any, which become
beneficially owned by such Stockholder and will have sole voting power
with respect to the matters set forth in Section 2 hereof and sole
power to demand appraisal rights, in each case with respect to all
Shares other than Existing Shares, if any, which become beneficially
owned by such Stockholder with no restrictions on such rights, subject
to applicable federal securities laws and the terms of this Agreement.
B. Organization; Power; Binding Agreement. If such Stockholder is a
corporation, such Stockholder is a corporation duly formed, validly existing
and in good standing under the laws of its jurisdiction of its organization.
If such Stockholder is a corporation, such Stockholder has the necessary
corporate power and authority to enter into and perform all of such
Stockholder's obligations under this Agreement and has taken all corporate
action necessary to execute and deliver this Agreement, to consummate the
transactions contemplated hereby and to perform its obligations hereunder,
and no other corporate proceedings on the part of such Stockholder are
necessary to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated
hereby. If such Stockholder is an individual, such Stockholder has the legal
capacity, power and authority to enter into and perform all of such
Stockholder's obligations under this Agreement. This Agreement has been duly
and validly executed and delivered by such Stockholder and constitutes a
valid and binding agreement of such Stockholder, enforceable against such
Stockholder in accordance with its terms. If such Stockholder is married and
such Stockholder's Shares constitute community property, this Agreement has
been duly authorized, executed and delivered by, and constitutes a valid
and binding agreement of, such Stockholder's spouse, enforceable against
such person in accordance with its terms.
C. No Conflicts. Except for filings under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), if
applicable, and any required amendments to any Schedule 13D filed by any
such Stockholder, (A) no filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Stockholder and the
consummation by such Stockholder of the transactions contemplated hereby
and (B) neither the execution, delivery or performance of this Agreement
by such Stockholder nor the consummation by such Stockholder of the
transactions contemplated hereby nor compliance by such Stockholder with
any of the provisions hereof shall (x) conflict with or result in any breach
of any applicable certificate of incorporation, bylaws, trust,
partnership agreement or other agreements or organizational documents
applicable to such Stockholder, (y) result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or
give rise to any third party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement
<PAGE>
or other instrument or obligation of any kind to which such Stockholder
is a party or by which such Stockholder or any of such Stockholder's
properties or assets may be bound or (z) violate any order, writ,
injunction, decree, judgment, law, statute, rule or regulation applicable to
such Stockholder or any of such Stockholder's properties or assets.
D. No Transfer. Except as described on Schedule II, such Stockholder's
Shares and the certificates representing such Shares are now and at all
times during the term hereof will be held by such Stockholder, or by a
nominee or custodian for the benefit of such Stockholder, free and clear
of all liens, claims, security interests, proxies, voting trusts or
agreements, understandings or arrangements or any other
<PAGE>
Page
----
encumbrances whatsoever, except for any such encumbrances or proxies arising
hereunder.
E. No Finders. No broker, investment banker, financial adviser or
other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of such
Stockholder in his or her capacity as such.
F. Acknowledgment. Such Stockholder understands and acknowledges that
Acquisition is entering into the Merger Agreement in reliance upon
such Stockholder's execution and delivery of this Agreement.
1. Agreement To Vote; Proxy.
2. Voting. Each Stockholder hereby severally and not jointly agrees that,
until the Termination Date (as defined in Section 7 hereof), at any
meeting of the stockholders of the Company, however called, or in
connection with any written consent of the stockholders of the Company,
such Stockholder shall vote (or cause to be voted) the Shares held of
record or beneficially by such Stockholder (i) in favor of the Merger and
adoption of the Merger Agreement, the execution and delivery by the
Company of the Merger Agreement and the approval of the terms thereof
and in favor of each of the other actions contemplated by the Merger
Agreement and this Agreement and any actions required in furtherance
hereof and thereof; (ii) against any action or agreement that would (or would
be reasonably likely to) result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement or this Agreement; and (iii) except
as specifically requested in writing by Acquisition in advance, against the
following actions (other than the Merger and the transactions contemplated
by the Merger Agreement): (1) any extraordinary corporate transaction,
such as a merger, consolidation or other business combination involving
the Company or any of its subsidiaries; (2) a sale, lease or transfer
(whether by merger, consolidation, operation of law or otherwise) of a
material amount of assets of the Company or any of its subsidiaries
or a reorganization, recapitalization, dissolution or liquidation of the
Company or any of its subsidiaries; (3) (a) any change in the majority of the
board of directors of the Company; (b) any change in the present
capitalization of the Company or any amendment of the Company's certificate
of incorporation or by-laws; (c) any other material change in the
Company's corporate structure or business; or (d) any other action which is
intended, or could reasonably be expected, to impede, interfere with,
delay, postpone, discourage or materially adversely affect the Merger
or the transactions contemplated by the Merger Agreement or this
Agreement or the contemplated economic benefits of any of the foregoing.
Such Stockholder shall not enter into any agreement or understanding with
any person or entity prior to the Termination Date to vote or give
instructions after the Termination Date in any manner inconsistent with
clauses (i), (ii) or (iii) of the preceding sentence.
3. PROXY. EACH STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS, ACQUISITION AND
<PAGE>
BRIAN KWAIT, PRESIDENT OF ACQUISITION, AND DOUGLAS HITCHNER, VICE PRESIDENT
OF ACQUISITION, IN THEIR RESPECTIVE CAPACITIES AS OFFICERS OF ACQUISITION,
AND ANY INDIVIDUAL WHO SHALL HEREAFTER SUCCEED TO ANY SUCH OFFICE OF
ACQUISITION, AND ANY OTHER DESIGNEE OF ACQUISITION, EACH OF THEM
INDIVIDUALLY, SUCH STOCKHOLDER'S IRREVOCABLE (UNTIL THE TERMINATION DATE)
PROXY AND ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE THE
SHARES AS INDICATED IN SECTION 2.1 ABOVE. EACH STOCKHOLDER INTENDS THIS
PROXY
<PAGE>
Page
----
TO BE IRREVOCABLE (UNTIL THE TERMINATION DATE) AND COUPLED WITH AN INTEREST
AND WILL TAKE SUCH FURTHER ACTION AND EXECUTE SUCH OTHER INSTRUMENTS AS
MAY BE NECESSARY TO EFFECTUATE THE INTENT OF THIS PROXY AND HEREBY REVOKES
ANY PROXY PREVIOUSLY GRANTED BY SUCH STOCKHOLDER WITH RESPECT TO SUCH
STOCKHOLDER'S SHARES.
4. Certain Covenants of Stockholders. Except in accordance with the terms
of this Agreement, each Stockholder hereby severally covenants and
agrees as follows:
5. No Solicitation. Prior to the Termination Date, no Stockholder shall, in
its capacity as such, directly or indirectly (including through advisors,
agents or other intermediaries), solicit (including by way of furnishing
information) or respond to any inquiries or the making of any proposal by
any person or entity (other than Acquisition or any Affiliate thereof)
with respect to the Company that constitutes or could reasonably be
expected to lead to an Acquisition Proposal (as defined in Section 6.4 in
the Merger Agreement). If any Stockholder in its capacity as such receives
any such inquiry or proposal, then such Stockholder shall promptly
inform Acquisition of the terms and conditions, if any, of such inquiry or
proposal and the identity of the person making it. Each Stockholder, in its
capacity as such, will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. Notwithstanding the
foregoing, nothing in this Section 3.1 shall restrict a Stockholder who is
also a director of the Company from taking actions in such Stockholder's
capacity as a director to the extent and in the circumstances permitted by
Section 6.4 of the Merger Agreement.
6. Restriction on Transfer, Proxies and Noninterference; Restriction
on Withdrawal. Prior to the Termination Date, no Stockholder shall,
directly or indirectly: (i) except pursuant to the terms of the Merger
Agreement and to Acquisition pursuant to this Agreement, offer for sale,
sell, transfer (whether by merger, consolidation, operation of law or
otherwise), tender, pledge, encumber, assign or otherwise dispose of,
enforce or permit the execution of the provisions of any redemption
agreement with the Company or enter into any contract, option or other
arrangement or understanding with respect to or consent to the offer for
sale, sale, transfer (whether by merger, consolidation, operation of law or
otherwise), tender, pledge, encumbrance, assignment or other disposition of,
or exercise any discretionary powers to distribute, any or all of such
Stockholder's Shares or any interest therein, (ii) except as
contemplated by this Agreement, grant any proxies or powers of attorney
with respect to any Shares, deposit any Shares into a voting trust or
enter into a voting agreement with respect to any Shares; or (iii) take any
action that would make any representation or warranty of such Stockholder
contained herein untrue or incorrect or have the effect of preventing or
disabling such Stockholder from performing such Stockholder's obligations
under this Agreement. Acquisition acknowledges the circumstances
described on Schedule II which shall not be construed as a breach of this
covenant.
<PAGE>
7. Waiver of Appraisal Rights. Each Stockholder hereby waives any rights
of appraisal from the Merger that such Stockholder may have.
8. Agreement to Roll-Over. Each Stockholder listed on Schedule A to the
Merger Agreement understands and acknowledges that Sub is entering into
the Merger Agreement in reliance upon the conversion of their shares
into the right to receive the Surviving Corporation Common Stock and
agree to such conversion pursuant to Section 3.2 of the Merger Agreement.
Each Stockholder hereby agrees to
<PAGE>
Page
----
rollover the number of shares of Company Common Stock set forth opposite
such Stockholder's name on Schedule A to the Merger Agreement.
9. Confidentiality, No Hire.
A. Each Stockholder agrees that for a period ending five years
after the Effective Time of the Merger, such Stockholder will not
disclose to any other party, unless required to do so by law, any
Confidential Information relating to the Company or to any subsidiary
or affiliate thereof which information was acquired during the course of
such Stockholder's relationship with the Company. As used in this
Agreement, the term "Confidential Information" means information that is
not generally known or available to the public and that is used, developed
or obtained by the Company or its subsidiaries or affiliates in
connection with its businesses, including but not limited to, (i) products
or services; (ii) fees, costs and pricing structures; (iii) designs; (iv)
computer software, including operating systems, applications and program
listings; (v) flow charts, manuals and documentation; (vi) data bases;
(vii) accounting and business methods; (viii) inventions, devices, new
developments, methods and processes, whether patentable or unpatentable
and whether or not reduced to practice; (ix) customers or customer
requirements, order levels or projections and customer or client lists; (x)
other copyrightable works; (xi) all technology and trade secrets; and
(xii) all similar and related information in whatever form. Confidential
Information will not include any information that has been published in a
form generally available to the public prior to the date the Stockholder
proposes to disclose or use such information.
B. Each Stockholder agrees that for a period ending two years
after the Effective Time of the Merger, without the prior written
consent of the Company, neither such Stockholder nor any business or
enterprise with which such Stockholder is associated as an officer, director
or controlling shareholder or other investor (in each case, with the power to
direct or cause the direction of the management of such business or
enterprise) will employ or attempt to employ an employee of the Company or
any of its Subsidiaries or joint ventures.
1. Hanseatic Agreement. Each Stockholder that is a party to that
certain Stockholders Agreement dated as of October 8, 1992 and as amended as
of July 3, 1996 (the "Stockholders Agreement") by and among the Company,
Stephen Russell, and Hanseatic Corporation agrees that, from the date
hereof until the date the Merger Agreement is terminated in accordance with
its terms, the Stockholders Agreement shall be of no force or effect to
the extent that the Stockholders Agreement is inconsistent with this
Agreement, the Merger Agreement or the transactions contemplated hereby or
thereby and that such Stockholder shall not, and shall not attempt to,
either directly or indirectly, exercise any of its rights under the
Stockholders Agreement in any manner inconsistent with this Agreement,
the Merger Agreement or the transactions contemplated hereby or thereby
(it being agreed that, without limitation, the exercise of any rights
under Article II of the Stockholders Agreement by any Stockholder in
connection with the transactions contemplated by the Merger Agreement would
be inconsistent with this Agreement, the Merger Agreement and the
transactions contemplated
<PAGE>
hereby and thereby). Each Stockholder that is party to the
Stockholders Agreement further agrees that the Stockholder Agreement shall
terminate as of the Closing and to execute such additional documents and
agreements to effect the foregoing. Acquisition acknowledges that
Hanseatic Corporation's representations and warranties set forth in
Sections 1(a)(ii), 1(a)(iii) and 1(a)(iv) shall not be deemed to have been
breached as a result of the existence of the Stockholders Agreement.
2. Further Assurances. From time to time, at the other party's request
and without further consideration,
<PAGE>
Page
----
each party hereto shall execute and deliver such additional documents and
take all such further action as may be necessary or desirable to consummate
and make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement.
3. Certain Events. Each Stockholder agrees that this Agreement and
the obligations thereunder shall attach to such Stockholder's Shares and
shall be binding upon any person or entity to which legal or beneficial
ownership of such Shares shall pass, whether by operation of law or
otherwise, including without limitation such Stockholder's heirs, guardians,
administrators or successors or as a result of any divorce.
4. Stop Transfer. Each Stockholder agrees with, and covenants to,
Acquisition that such Stockholder shall not request that the Company
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of such Stockholder's Shares,
unless such transfer is made in compliance with this Agreement.
5. Termination. The obligations of the Stockholders under this Agreement
shall terminate upon the date the Merger Agreement is terminated in
accordance with its terms. The termination of this Agreement shall not
relieve any party from liability for any breach of this Agreement.
6. Miscellaneous.
7. Entire Agreement; Assignment. This Agreement (i) constitutes the
entire agreement between the parties with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof and (ii) shall not be assigned by operation of law or otherwise
without the prior written consent of the other parties, provided that
Acquisition may assign, in its sole discretion, its rights and
obligations hereunder to any affiliate of Acquisition, but no such
assignment shall relieve Acquisition of its obligations hereunder if such
assignee does not perform such obligations.
8. Amendments. This Agreement may not be modified, amended, altered
or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto; provided that Schedule I may be
supplemented by Acquisition by adding the name and other relevant
information concerning any stockholder of the Company who is or agrees
to be bound by the terms of this Agreement without the agreement of any
other party hereto, and thereafter such added stockholder shall be treated
as a "Stockholder" for all purposes of this Agreement.
9. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly received if so given) by hand delivery,
telegram, telex or telecopy, or by mail (registered or certified mail,
postage prepaid, return receipt requested) or by any courier service,
such as Federal Express, providing proof
<PAGE>
of delivery. All communications hereunder shall be delivered to the
Stockholders at the addresses set forth on Schedule I hereto. All
communications hereunder shall be delivered to Acquisition as follows:
c/o Odyssey Investment Partners, LLC
280 Park Avenue
West Tower, 38th Floor
<PAGE>
Page
----
New York, New York 10017
Attn: Brian Kwait
copy to:
Latham & Watkins
885 Third Avenue, Suite 1000
New York, New York 10022
Attn.: Richard Trobman
or to such other address as the person to whom notice is given may
have previously furnished to the others in writing in the manner set forth
above.
10. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
11. Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and
to enforce specifically the terms and provisions of this Agreement.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but
both of which shall constitute one and the same Agreement.
13. Descriptive Headings. The descriptive headings used herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
14. Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion
of any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision in such
jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision or portion of any provision had never been
contained herein.
15. Definitions; Construction. For purposes of this Agreement:
A. "beneficially own" or "beneficial ownership" with respect to
any securities shall mean having "beneficial ownership" of such
securities (as determined pursuant to Rule 13d-3 under the Exchange Act),
including pursuant to any agreement, arrangement or understanding, whether
or not in writing. Without
<PAGE>
duplicative counting of the same securities by the same holder,
securities beneficially owned by a Person shall include securities
beneficially owned by all other Persons with whom such Person would
constitute a "group" as described in Section 13(d)(3) of the Exchange Act.
B. "Person" shall mean an individual, corporation, partnership,
joint venture, association, trust,
<PAGE>
Page
----
unincorporated organization or other entity.
C. In the event of a stock dividend or distribution, or any change
in the Company Common Stock by reason of any split-up,
subdivision, recapitalization, combination, exchange of shares or the like,
the term "Shares" shall be deemed to refer to and include the Shares
as well as all stock distributed pursuant to such stock dividends and
distributions and any shares into which or for which any or all of the
Shares may be changed, exchanged, split, subdivided, combined or
recapitalized.
1. Stockholder Capacity. Notwithstanding anything herein to the contrary,
no person executing this Agreement who is, or becomes during the term
hereof, a director of the Company makes any agreement or understanding
herein in his or her capacity as such director, and the agreements set
forth herein shall in no way restrict any director in the exercise of his or
her fiduciary duties as a director of the Company. Each Stockholder has
executed this Agreement solely in his or her capacity as the record or
beneficial holder of such Stockholder's Shares.
[Signature Page Follows]
<PAGE>
Page
----
IN WITNESS WHEREOF, Acquisition and each Stockholder have caused
this Agreement to be duly executed as of the day and year first above written.
LAREDO ACQUISITION CORP.
By:
-----------------------
Name:
---------------------
Title:
--------------------
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE>
Page
----
STOCKHOLDERS:
Stephen Russell
--------------------------
Hanseatic Corporation
By:
-----------------------
Name:
---------------------
<PAGE>
Page
----
Title:
--------------------
<PAGE>
Page
----
Schedule I
----------
<TABLE>
<CAPTION>
Name Number of Existing Shares
<S> <C>
Stephen Russell 924,804
Hanseatic Corporation 947,232*
*Exclusive of 12,121 shares issuable upon exercise of warrants, which for
purposes of this Agreement shall be deemed Shares solely in the event
of exercise of such warrants.
</TABLE>
<PAGE>
Page
----
Schedule II
-----------
Hanseatic Americas LDC and certain clients of Hanseatic Corporation
have economic rights with respect to the Shares beneficially owned by
Hanseatic Corporation. However, such rights do not impair or limit Hanseatic
Corporation's record and beneficial ownership power of disposition, voting
power or power to demand appraisal rights with respect to its Shares.
<PAGE>
AMENDMENT NO. 1 TO
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
/X/ Filing by the Registrant
/ / Filing by a party other than the Registrant
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CELADON GROUP,
INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock (par value $0.033 per share) of CELADON GROUP, INC.
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
7,857,135 (a) shares of Common Stock of CELADON GROUP, INC.
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): $20.00(b)
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $151,584,421 (b)
-----------------------------------------------------------------------
(5) Total fee paid: $30,310 (b)
-----------------------------------------------------------------------
(a) This represents 7,406,989 shares of common stock, par value $0.033 per
share, of Celadon Group, Inc. (the "Celadon Common Stock") (other than
320,000 shares to be retained by certain stockholders of Celadon
(including an officer and director and an entity affiliated with a
director)), options to purchase 438,025 shares of Celadon Common Stock,
and warrants to purchase 12,121 shares of Celadon Common Stock, all of
which are estimated to be outstanding as of September 18, 1998.
(b) Pursuant to Rule 0-11, the filing fee was computed as set forth in the
following table:
<TABLE>
<CAPTION>
CONSIDERATION AGGREGATE
NUMBER PER UNIT CONSIDERATION
---------- ------------- --------------
<S> <C> <C> <C>
Celadon Common Stock....................................................... 7,406,989 $ 20.00 $ 148,139,780
Options to purchase Celadon Common Stock................................... 438,025 $ 7.61* $ 3,333,370
Warrants to purchase Celadon Common Stock.................................. 12,121 $ 9.18** $ 111,271
</TABLE>
- ------------------------
* Based on the weighted average exercise price of such options.
** Based on the exercise price of such warrants.
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
PRELIMINARY COPY
[LETTERHEAD OF CELADON GROUP, INC.]
, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Celadon Group, Inc. ("Celadon" or the "Company") to be held at a.m. on
, 1998 at (the "Special Meeting").
At this meeting, you will be asked to consider and vote upon a proposal to
approve and adopt the Agreement and Plan of Merger, dated as of June 23, 1998
(the "Merger Agreement"), by and between Celadon and Laredo Acquisition Corp.
("Merger Sub"). Merger Sub is a newly-formed Delaware corporation controlled by
Odyssey Investment Partners Fund, L.P. ("Odyssey"). The material terms of the
Merger Agreement are described below and in the Proxy Statement attached as
Annex A hereto. The descriptions of the Merger (defined below) and the Merger
Agreement herein and in the Proxy Statement do not purport to be complete and
are subject to, are qualified in their entirety by reference to, the text of the
Merger Agreement.
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 the Options (defined below) and the Hanseatic
Warrants (defined below), 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 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.
Notwithstanding the material uncertainty as to whether 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.
Upon the terms and subject to the conditions of the Merger Agreement, at the
effective time of the transactions contemplated thereby (the "Effective Time"),
(a) Merger Sub will be merged into Celadon
<PAGE>
(the "Merger"), with Celadon continuing as the surviving corporation (the
"Surviving Corporation"); (b) the current directors of Celadon will be replaced
by the directors of Merger Sub (and a majority of the directors of the Surviving
Corporation will be designees of Odyssey); (c) the shares of common stock of
Merger Sub held by Odyssey will be converted into shares of common stock of the
Surviving Corporation, representing approximately 90% of the outstanding shares
of common stock of the Surviving Corporation immediately following the Effective
Time; (d) Citicorp Venture Capital, Ltd. ("Citicorp"), a significant stockholder
of Celadon, and Stephen Russell, President, Chief Executive Officer and Chairman
of Celadon will retain an aggregate of 320,000 shares of common stock of Celadon
(the "Rollover Shares"), which represent approximately 4.1% of the outstanding
shares of common stock of Celadon and which will represent approximately 10% of
the outstanding shares of common stock of the Surviving Corporation immediately
after the Effective Time; (e) each share of common stock of Celadon outstanding
immediately prior to the Effective Time (except for the Rollover Shares,
treasury shares held by Celadon, and shares held by dissenting stockholders who
have properly exercised their rights pursuant to Section 262 of the Delaware
General Corporation Law) will be converted into the right to receive $20.00 per
share in cash (the "Cash Merger Price"); (f) the warrants granted to Hanseatic
Corporation, an entity affiliated with a director of Celadon ("Hanseatic," and
such warrants, the "Hanseatic Warrants") will be canceled and Hanseatic shall
thereafter have the right to receive cash in an amount equal to the product of
the number of shares of common stock of Celadon previously subject to the
Hanseatic Warrants and the excess of the Cash Merger Price per share over the
exercise price per share of the Hanseatic Warrants; and (g) except for certain
Options (defined below) to be retained by Stephen Russell, Ronald S. Roman,
Robert Goldberg, Michael Archual, and Nancy Morris (collectively, the
"Management Team" and, such Options, the "Rollover Options") which represent the
right to purchase approximately % of the common stock of Celadon and which
will represent the right to purchase approximately % of the common stock of
the Surviving Corporation immediately following the Effective Time, each
outstanding employee or director stock option (the "Options") granted under the
1994 Celadon Stock Option Plan and the 1996 Non-Employee Director Stock Option
Plan (collectively, the "Stock Option Plans") will be canceled and the former
holder thereof shall thereafter have the right to receive cash in an amount
equal to the product of the number of shares of common stock of Celadon
previously subject to such Option and the excess of the Cash Merger Price per
share over the exercise price per share of such Option. Applicable withholding
taxes will be deducted from all payments made in respect of the Options and the
Hanseatic Warrants.
Stephen Russell and the other members of the Management Team will enter into
new employment agreements, which will have a term of four years with respect to
Stephen Russell and three years with respect to each other member of the
Management Team and provide for severance payments under certain circumstances.
In addition, an annual bonus plan, and a stock option plan with respect to an
aggregate of 7.5% of the common stock of the Surviving Corporation, will be
instituted for approximately twenty of the Company's executives, including the
Management Team, and the Management Team will receive signing bonuses
aggregating $1.1 million. The chart below describes the interests of Stephen
Russell and the other members of the Management Team in the Company both prior
to and following the Merger, and the benefits to be received by the Management
Team upon consummation of the Merger:
<TABLE>
<CAPTION>
SHARES HELD OPTIONS HELD
PRIOR TO ROLLOVER PRIOR TO ROLLOVER NEW SIGNING
NAME MERGER SHARES MERGER OPTIONS OPTIONS BONUS
- ----------------------------------------- ----------- --------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stephen Russell.......................... 924,804 200,000 70,000 70,000 [100,000] $ 500,000
Ronald S. Roman.......................... 1,000 0 45,000 10,000 42,000
Robert Goldberg.......................... 0 0 20,000 20,000
Michael Archual.......................... 4,200 0 17,500 12,000
Nancy Morris............................. 1,000 0 14,000 5,000 20,000
</TABLE>
The interests of the Company's management in the Merger are described in the
accompanying Proxy Statement under the headings "Summary--Interests of Certain
Persons in the Merger" and "Special Factors--Interests of Certain Persons in the
Merger."
2
<PAGE>
Two substantially similar litigations have been filed by the same law firm
in the Delaware Court of Chancery challenging the proposed Merger. In sum, these
putative class actions allege (a) that the payment of $20.00 per share to public
stockholders upon consummation of the Merger would constitute an acquisition of
such shares by management of the Company for less than fair and adequate
consideration and (b) that the Company's directors breached their fiduciary
duties to the Company and its stockholders. The above-mentioned actions are
described in the accompanying Proxy Statement under the heading "Litigation."
The affirmative vote of a majority of the issued and outstanding shares of
common stock of Celadon entitled to vote thereon is required to approve and
adopt the Merger Agreement. Stephen Russell and Hanseatic, as stockholders of
Celadon, have entered into a Voting Agreement, dated as of June 23, 1998, with
Merger Sub pursuant to which they appointed certain persons designated by Merger
Sub as proxy to vote each of their respective shares of common stock of Celadon
in favor of the Merger Agreement at the Special Meeting. As of June 23, 1998,
the shares of common stock of Celadon held by such stockholders represented
approximately 25% of the outstanding shares of common stock of Celadon.
The Board of Directors of the Company has unanimously approved the Merger
Agreement and has determined that the Merger is fair to, and in the best
interests of, the holders of Celadon's common stock (other than the holders of
the Rollover Shares) and recommends that stockholders vote FOR the approval and
adoption of the Merger Agreement. The rights of dissenting stockholders are
described in the accompanying Proxy Statement and a copy of Section 262 of the
Delaware General Corporation Law is included as Annex B with the Proxy
Statement.
The approval and determination of the Board was based on a number of
factors, described in the accompanying Proxy Statement, including the opinion of
Wasserstein Perella & Co. ("Wasserstein Perella"), the Company's financial
advisor, to the effect that, based upon and subject to various considerations
set forth in such opinion, as of the date of such opinion, the consideration to
be received by the holders of Celadon's common stock in connection with the
Merger was fair to such holders (other than the holders of the Rollover Shares)
from a financial point of view. The opinion of Wasserstein Perella is included
as Annex C to the Proxy Statement and should be read in its entirety.
Your vote is important. Regardless of whether you plan to attend the Special
Meeting, please sign and date the enclosed proxy and return it in the envelope
provided in order that your shares may be represented at the Special Meeting. If
you decide to attend the Special Meeting, you may revoke your proxy and vote
your shares in person.
Sincerely,
Stephen Russell
Chairman of the Board
3
<PAGE>
PRELIMINARY COPY
CELADON GROUP, INC.
ONE CELADON DRIVE
INDIANAPOLIS, INDIANA 46235-4207
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
To the Stockholders of Celadon Group, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Celadon
Group, Inc. ("Celadon") will be held at a.m., local time, on , 1998,
at for the following purposes:
(1) To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of June 23, 1998 (the "Merger
Agreement"), by and between Celadon and Laredo Acquisition Corp. ("Merger
Sub"), a newly formed Delaware corporation controlled by Odyssey Investment
Partners Fund, LP ("Odyssey"), and the transactions contemplated thereby.
Upon the terms and subject to the conditions of the Merger Agreement at the
effective time of the transaction contemplated (the "Effective Time"), (a)
Merger Sub will be merged into Celadon, with Celadon continuing as the
surviving corporation (the "Surviving Corporation"); (b) the current
directors of Celadon will be replaced by the directors of Merger Sub (and a
majority of the directors of the Surviving Corporation will be designees of
Odyssey); (c) the shares of common stock of Merger Sub held by Odyssey will
be converted into shares of common stock of the Surviving Corporation,
representing approximately 90% of the outstanding shares of common stock of
the Surviving Corporation immediately following the Effective Time; (d)
Citicorp Venture Capital, Ltd ("Citicorp"), a significant stockholder of
Celadon, and Stephen Russell, President, Chief Executive Officer and
Chairman of Celadon will retain existing shares of common stock in Celadon
(the "Rollover Shares"), which now represent approximately 4.1% of the
outstanding shares of common stock of Celadon and will represent
approximately 10% of the outstanding shares of common stock of the Surviving
Corporation immediately after the Effective Time; (e) each share of common
stock of Celadon outstanding immediately prior to the Effective Time (except
for the Rollover Shares, treasury shares held by Celadon, and shares held by
dissenting stockholders who have properly exercised their rights pursuant to
Section 262 of the Delaware General Corporation Law), will be converted into
the right to receive $20.00 per share in cash (the "Cash Merger Price"); (f)
the warrants granted to Hanseatic Corporation ("Hanseatic", and such
warrants, the "Hanseatic Warrants") will be canceled and Hanseatic shall
thereafter have the right to receive cash in an amount equal to the product
of the number of shares of common stock of Celadon previously subject to the
Hanseatic Warrants and the excess of the Cash Merger Price per share over
the exercise price per share of the Hanseatic Warrants, reduced by
applicable withholding taxes or other taxes required by law to be withheld;
(g) except for certain Options (defined below) to be retained by Stephen
Russell, Ronald S. Roman, Robert Goldberg, Michael Archual and Nancy Morris
(collectively, the "Management Team" and such Options, the "Rollover
Options") which represent the right to purchase approximately % of the
common stock of Celadon and which will represent the right to purchase
approximately % of the common stock of the Surviving Corporation
immediately following the Effective Time, each outstanding employee or
director stock option (the "Options") granted under the 1994 Celadon Stock
Option Plan and the 1996 Non-Employee Director Stock Option Plan (the "Stock
Option Plans") will be canceled and the former holder thereof shall
thereafter have the right to receive cash in an amount equal to the product
of the number of shares of common stock of Celadon previously subject to
such Option and the excess of the Cash Merger Price per share over the
exercise price per share of such Option, less applicable withholding taxes;
and (h) Stephen Russell and the other members of the Management Team will
enter into new employment agreements which will (i) have a term of four
years with respect to Stephen Russell and three years with respect to each
other member of the Management Team and (ii) provide for severance payments
to the members of the Management Team under certain circumstances. In
addition, an annual bonus plan, and a stock option plan with respect to an
aggregate amount of 7.5% of the common stock of the Surviving Corporation,
will be instituted for approximately twenty of the Company's executives,
including members of the Management Team.
<PAGE>
Upon consummation of the Merger and the other transactions contemplated by
the Merger Agreement, (i) options with respect to 3.0% of the common stock
of the Surviving Corporation will be granted to Stephen Russell pursuant to
the stock option plan described in the preceding sentence, and options with
respect to 4.0% of such common stock will be distributed among designated
executives, including the other members of the Management Team and (ii)
signing bonuses in an aggregate amount of $1.1 million will be distributed
to the Management Team, including approximately $500,000 to be distributed
to Stephen Russell. The interests of the Company's management in the Merger
are described in the accompanying Proxy Statement under the headings
"Summary--Interests of Certain Persons in the Merger" and "Special
Factors--Interests of Certain Persons in the Merger".
(2) To consider and vote upon a proposal to adjourn or postpone the
Special Meeting in the event that the number of proxies obtained is not
sufficient to ensure the success of the proposal to adopt and approve the
Merger Agreement.
(3) To transact such other business as may properly come before the
meeting or any continuation, adjournment or postponement thereof.
Two substantially similar litigations were filed by the same law firm in the
Delaware Court of Chancery challenging the proposed Merger. In sum, these
putative class actions allege (a) that the payment of $20.00 per share to public
stockholders upon consummation of the Merger would constitute an acquisition of
such shares by management of the Company for less than fair and adequate
consideration and (b) that the Company's directors breached their fiduciary
duties to the Company and its stockholders. These actions have recently been
consolidated into a single action. The above-mentioned litigation is described
in the accompanying Proxy Statement under the heading "Litigation."
A copy of the Merger Agreement appears as Annex A to, and is described in,
the accompanying Proxy Statement. Rights of dissenting stockholders, are
described in the accompanying Proxy Statement and a copy of Section 262 of the
Delaware General Corporations Law appears as Annex B thereto.
All stockholders are cordially invited to attend the meeting, although only
those stockholders of record at the close of business on , 1998, are
entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof.
By Order of the Board of Directors
Paul Will, Secretary
Dated: October , 1998
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON, PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ACCOMPANYING ENVELOPE. YOUR PROXY MAY BE REVOKED AT ANY TIME
BEFORE IT IS VOTED AT THE SPECIAL MEETING BY DELIVERING WRITTEN NOTICE OF
REVOCATION TO THE SECRETARY OF THE COMPANY, BY SUBMITTING TO THE SECRETARY OF
THE COMPANY A LATER DATED PROXY OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
2
<PAGE>
Exhibit 99(g)
CELADON GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Three years ended June 30, 1997 with
Report of Independent Auditors
Contents
<TABLE>
<S> <C>
Report of Independent Auditors..................................................
Audited Consolidated Financial Statements:
Consolidated Balance Sheets............................................
Consolidated Statements of Operations..................................
Consolidated Statements of Cash Flows..................................
Consolidated Statements of Stockholders' Equity........................
Notes to Consolidated Financial Statements.............................
</TABLE>
1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Celadon Group, Inc.
We have audited the accompanying consolidated balance sheets of Celadon
Group, Inc. as of June 30, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of
the three years in the period ended June 30, 1997. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Celadon Group, Inc. at June 30, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended June 30, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information
set forth therein.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
August 26, 1997
2
<PAGE>
CELADON GROUP, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................... $ 1,845 $ 5,246
Trade receivables, net of allowance for doubtful accounts of $2,773
and $5,432 in 1997 and 1996, respectively............................ 27,736 33,642
Accounts receivable-- other............................................. 1,616 4,338
Prepaid expenses and other current assets............................... 3,972 3,247
Tires in service........................................................ 2,987 2,814
Income tax recoverable.................................................. 4,198 3,926
Assets held for resale.................................................. --- 2,548
Deferred income tax assets.............................................. 1,568 3,404
Total current assets................................................. 43,922 59,165
Property and equipment, at cost............................................ 113,206 95,003
Less accumulated depreciation and amortization.......................... 29,424 22,715
Net property and equipment........................................... 83,782 72,288
Deposits................................................................... 523 809
Tires in service........................................................... 2,057 2,234
Advance to affiliate....................................................... 1,933 ---
Intangible assets.......................................................... 750 875
Goodwill, net of accumulated amortization.................................. 4,848 4,980
Other assets............................................................... 1,379 1,570
Total assets......................................................... $139,194 $ 141,921
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ 5,284 $ 8,707
Accrued expenses........................................................ 14,226 20,122
Bank borrowings and current maturities of long-term debt................ 309 4,029
Notes payable........................................................... --- 1,200
Current maturities of capital lease obligations......................... 11,376 7,356
Income taxes payable.................................................... --- 527
Current maturities of ESOP loan......................................... --- 185
Total current liabilities............................................ 31,195 42,126
Long-term debt, net of current maturities.................................. 11,959 26,552
Capital lease obligations, net of current maturities....................... 42,402 23,473
Deferred income tax liabilities............................................ 7,832 7,796
Total liabilities.................................................... 93,388 99,947
Minority interest.......................................................... 12 12
Commitments and contingencies.............................................. --- ---
Stockholders' equity:
Preferred stock, $1.00 par value, authorized 179,985 shares; issued
and outstanding zero shares............................................. --- ---
Common stock, $0.033 par value, authorized 12,000,000 shares; issued
7,750,580 shares in 1997 and 1996....................................... 256 256
Additional paid-in capital................................................. 56,281 56,281
Retained earnings (deficit)................................................ (9,531) (14,035)
Equity adjustment for foreign currency translation......................... (252) (355)
Debt guarantee for ESOP.................................................... --- (185)
Treasury stock, at cost, 128,000 shares and zero shares at June 30, 1997,
and 1996, respectively (960) ---
Total stockholders' equity.............................................. 45,794 41,962
Total liabilities and stockholders' equity.............................. $139,194 $14,192
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CELADON GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 1997, 1996 and 1995
(Dollars in thousands except per share
amounts)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating revenue................................................ $ 191,035 $166,544 116,360
Operating expenses:
Salaries, wages and employee benefits......................... 67,758 64,683 47,351
Fuel.......................................................... 30,854 28,037 19,528
Operating costs and supplies.................................. 13,482 12,944 11,246
Insurance and claims.......................................... 6,014 6,082 5,271
Depreciation and amortization................................. 10,135 7,365 5,744
Rent and purchased transportation............................. 35,604 32,107 9,194
Professional and consulting fees.............................. 1,536 2,001 1,292
Communications and utilities.................................. 3,102 2,544 1,793
Permits, licenses and taxes................................... 4,174 4,327 3,469
Employee stock ownership plan contribution.................... 59 100 25
(Gain) on sale of revenue equipment........................... --- (1,085) (490)
Selling expenses.............................................. 3,286 3,123 1,409
General and administrative.................................... 2,596 2,579 1,349
Total operating expenses................................... 178,600 164,807 107,181
Operating income................................................. 12,435 1,737 9,179
Other (income) expense:
Interest expense.............................................. 4,944 3,672 3,171
Minority interest in loss..................................... --- --- (5)
Other (income) expense, net................................... (37) 72 108
Income (loss) from continuing operations before
income taxes................................................ 7,528 (2,007) 5,905
Provision for income taxes (benefit).......................... 3,024 (411) 3,690
Income (loss) from continuing operations................... 4,504 (1,596) 2,215
Discontinued operations:
Loss from operations of freight forwarding division
(net of tax)............................................... --- (2,306) (3,142)
Loss on disposal of freight forwarding division (net of tax).. --- (12,815) ---
Income (loss) from operations of logistics division
(net of tax)............................................... --- (149) 536
Gain on disposal of logistics division (net of tax)........... --- 67 ---
Income (loss) from discontinued operations.................... --- (15,203) (2,606)
Net income (loss).......................................... $ 4,504 $(16,799) (391)
Earnings (loss) per Common Share:
Continuing operations......................................... $0.59 $(0.20) $0.31
Discontinued operations....................................... --- $(1.93) $(0.36)
Net income (loss).......................................... $0.59 $(2.13) $(0.05)
Weighted average number of common shares and common share
equivalents outstanding....................................... 7,653 7,879 7,192
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CELADON GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Continuing operations:
Cash flows from operating activities:
Net Income (loss) from continuing operations................... 4,504 (1,596) 2,215
Adjustments to reconcile net income (loss) to net cash.........
provided by operating activities:
Depreciation and amotization................................ 10,135 7,365 5,744
Provision for deferred income taxes......................... 267 2,295 876
Provision for doubtful accounts............................. 280 120 90
Net (gain) on sale of property and equipment................ --- (1,085) (490)
Net (gain) loss other....................................... --- 73 (5)
Changes in assets and liabilities:
(Increase) in trade receivables........................... (1,655) (9,328) (3,340)
(Increase) decrease in accounts receivable--other........ (442) 5,982 (5,239)
Decrease (increase) in income tax recoverable............. 1,963 (2,790) (350)
Decrease (increase) in tires in service................... 4 (699) (565)
(Increase) in prepaid expenses and other current assets... (782) (107) (1,023)
Decrease (increase) in other assets....................... 3,998 (3,031) (4,948)
(Decrease) increase in accounts payable and accrued
expenses........................................... (937) 9,749 1,380
(Decrease) increase in income taxes payable............... (145) (539) 522
Net cash provided by (used for) operating activities...... 17,190 6,409 (5,133)
Cash flows from investing activities:
Purchase of property and equipment.......................... (1,595) (9,578) (14,081)
Proceeds from sale of property and equipment................ 14,100 2,602 3,290
Proceeds from sale of investment in unconsolidated
affiliate............................................ --- --- (6,036)
Decrease (increase) in deposits............................. 286 388 (195)
Net cash provided by (used for) investing activities...... 12,791 (6,588) (17,022)
Cash flows from financing activities:
Proceeds from issuances of common stock..................... --- 136 16,127
Proceeds from issuance of redeemable common stock........... --- --- 3,614
Payment for redemption of redeemable common stock........... --- (1,550) ---
Purchase of treasury stock for cash......................... (235) --- ---
Proceeds from bank borrowings and debt...................... --- 41,626 38,625
Payments of bank borrowings and debt........................ 19,822) (29,951) (43,138)
Principal payments under capital lease obligations.......... 10,903) (7,782) (6,788)
Net cash (used for) provided by financing activities...... 30,960) 2,479 8,440
Net cash (used for) provided by continuing operations..... (979) 2,300 (13,715)
Discontinued Operations:
(Loss) from operations, net of income taxes................. --- (15,203) (2,606)
Change in net operating assets.............................. (2,422) 20,836 9,885
Operating activities........................................ (2,422) 5,633 7,279
Investing activities........................................ --- 3,286 (1,911)
Financing activities........................................ --- (7,782) 7,710
Net cash (used for) provided by discontinued operations... (2,422) 1,137 13,078
(Decrease) increase in cash and cash equivalents.................. (3,401) 3,437 (637)
Cash and cash equivalents at beginning of year.................... 5,246 1,809 2,446
Cash and cash equivalents at end of year.......................... 1,845 5,246 1,809
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CELADON GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended June 30, 1997, 1996 and 1995
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
Common Stock Additional Foreign Treasury Debt for Total
No.of Shares Paid-in Retained Currency Stock- Guarantee Stockholders'
Outstanding Amount Capital Earnings Translation Common ESOP Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994................. 6,552,116 $216 $39,203 $3,155 ($177) ($8) ($310) $42,079
Equity adjustments for foreign
currency translation.................... -- -- -- -- (1) -- -- (1)
Issuance of Common Stock in public
offering, net of $763 of issuance costs. 1,154,399 38 15,834 -- -- -- -- 15,872
Exercise of warrant...................... 35,851 1 249 -- -- -- -- 250
Exercise of incentive stock options...... 334 -- 5 -- -- -- -- 5
Retirement of treasury shares............ (1,453) -- (8) -- -- 8 -- --
Reduction of ESOP guarantee.............. -- -- -- -- -- -- 25 25
Net loss................................. -- -- -- (391) -- -- -- (391)
Balance as June 30, 1995................. 7,741,247 255 55,283 2,764 (178) -- 57,839
Equity adjustments for foreign currency
translation............................ -- -- -- -- (177) -- -- (177)
Exercise of incentive stock options...... 9,333 1 135 -- -- -- -- 136
Retirement of redeemable common stock.... -- -- 863 -- -- -- -- 863
Reduction of ESOP guarantee.............. -- -- -- (16,799) -- -- 100 100
Net loss................................. -- -- -- -- -- -- -- (16,799)
Balance at June 30, 1996................. 7,750,580 256 56,281 (14,035) (355) -- (185) 41,962
Equity adjustments for foreign currency
translation............................ -- -- -- -- 103 -- -- 103
Treasury stock purchases................. (128,000) -- -- -- -- (960) -- (960)
Reduction of ESOP guarantee.............. -- -- -- -- -- -- 185 185
Net income............................... -- -- -- -- -- -- -- 4,504
Balance at June 30, 1997................. 7,622,580 $256 $56,281 ($9,531) ($252) ($960) $ -- $45,794
--------- ---- ------- -------- ------ ------ ------ -------
--------- ---- ------- -------- ------ ------ ------ -------
</TABLE>
6
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Celadon Group, Inc. (the "Company") was formed on July 24, 1986
through the combination of two companies, Celadon Trucking Services, Inc.
and Celadon Logistics, Inc., each owned by the same principal
stockholders. The Company entered the freight forwarding business in July
1990 by purchasing International Freight Holding Corp. ("IFHC") and its
subsidiaries (collectively, "Randy International"). In fiscal year 1996,
the Company discontinued its freight forwarding business and the
logistics business. The Company is currently an international
transportation company primarily offering trucking services. The Company
specializes in providing long-haul, full truckload services between the
United States and Mexico. The Company expanded its presence in Mexico during
May 1995 by making an investment in Servicio de Transportacion Jaguar, S.A.
de C.V. ("Jaguar"), formerly known as Transportes RQF, S.A. de C.V., a
Mexican company formed to provide trucking services. In June 1995, the
Company acquired Cheetah Transportation Company and CLK, Inc.,
including its subsidiary Cheetah Brokerage, Inc. (collectively "Cheetah").
Cheetah provides flatbed trucking and brokerage services principally in the
United States.
Summary of Significant Accounting Policies
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of
Celadon Group, Inc. and its subsidiaries, which are wholly owned except
for Jaguar in which the Company has a 75% interest. Discontinued
operations relating to freight forwarding and logistics are set forth in
footnote 15. All significant intercompany accounts and transactions have
been eliminated in consolidation. Unless otherwise noted, all references to
annual periods in the footnotes refer to the respective fiscal years ended
June 30.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses and related disclosures at the date of the
financial statements and during the reporting period. Such estimates
include provisions for damage and liability claims, uncollectible accounts
receivable and losses associated with discontinued operations. Actual results
could differ from those estimates.
7
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased
with a maturity of three months or less to be cash equivalents.
Revenue Recognition
Trucking revenue is recognized as of the date the freight is
delivered by the Company. Amounts payable to drivers for wages and other
related trucking expenses on delivered shipments are accrued.
Tires in Service
Original and replacement tires on tractors and trailers are included
in tires in service and are amortized over 18 to 36 months.
Fuel
Fuel is generally expensed when purchased, except for the fuel
supplies at terminals and in truck tanks, which are classified as prepaid
expenses.
Property and Equipment
Property and equipment are stated at cost. Property and equipment
under capital leases are stated at the lower of the present value of
minimum lease payments at the beginning of the lease term or fair value at
the inception of the lease.
Depreciation of property and equipment and amortization of assets under
capital leases is generally computed using the straight-line method and is based
on the estimated useful lives (net of salvage value) of the related assets as
follows:
<TABLE>
<S> <C>
Revenue and service equipment................... 4-10 years
Furniture and office equipment.................. 4-15 years
Buildings....................................... 20-40 years
Leasehold improvements.......................... Lesser of life of lease or
useful life of improvement
</TABLE>
When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is recognized in income
8
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
for the period. The cost of maintenance and repairs, including
tractor overhauls, is charged to expense as incurred; costs incurred to
place assets in service and betterments are capitalized and depreciated over
the remaining life of each respective asset.
Initial delivery costs relating to placing tractors and trailers
in service, which are included in revenue and service equipment, are
being amortized on a straight-line basis over the lives of the assets and, in
the case of leased equipment, over the respective lease.
Intangibles
Intangibles reflect the amounts assigned to various assets
of businesses acquired. Amortization of intangibles is generally computed
using the straight line method for financial reporting purposes and is
based on the estimated useful lives of the related assets. Intangibles
consist of customer lists related to the Cheetah acquisition which are being
amortized over an eight year period. The net intangibles balance was $750
thousand and $875 thousand with related accumulated amortization of $250
thousand and $125 thousand at June 30, 1997 and 1996, respectively.
Goodwill
Goodwill reflects the excess of cost over net assets of
businesses acquired and is being amortized by the straight-line method over
40 years. The carrying value of the goodwill is reviewed if the facts
and circumstances suggest that it may be permanently impaired. Such
review is based upon the undiscounted expected future operating profit
derived from such businesses and, in the event such result is less than the
carrying value of the goodwill, the carrying value of the goodwill is
reduced to an amount that reflects the expected future benefit.
Investment in Unconsolidated Affiliate
In December 1996, the Company provided a loan to and acquired a
49% interest in NG Enterprises, Inc. ("NGE"), a company controlled by
Norman G. Grief, the former President and Chief Executive Officer of Randy
International, Inc. The investment was sold in July 1997. This investment
is being accounted for under the cost basis method of accounting. See
Note 13 "Investment in Unconsolidated Affiliate."
9
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
Insurance Reserves
The Company self insures the per occurrence deductible for (i)
personal injury and property damage claims up to $50,000, (ii) physical
damage claims up to $15,000 per unit, (iii) workers compensation claims up
to $150,000 and (iv) cargo loss up to $10,000 per occurrence, in each case at
June 30, 1997 and 1996. Reserves for known claims and incurred but not
reported claims up to these limits are accrued based upon information
provided by insurance adjusters and actuarial factors. Management considers
such reserves adequate. Such amounts are included in accrued expenses.
Income Taxes
Income taxes are accounted for using the liability method. Under
the asset and liability method. deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted tax rates in effect for
the year in which those temporary differences are expected to be recovered
or settled.
Credit Risk
Financial instruments which potentially subject the Company
to concentrations of credit risk consist primarily of trade
receivables. Concentrations of credit risk with respect to trade
receivables are generally limited due to the Company's large number of
customers and the diverse range of industries which they represent. Accounts
receivable balances due from Chrysler Corporation ("Chrysler") totaled $8.7
million or 33% and $7.5 million or 30% of the total continuing operations
gross trade receivables at June 30, 1997 and 1996, respectively. The
Company had no other significant concentrations of credit risk.
Foreign Currency Translation
Foreign financial statements are translated into U. S. dollars
in accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation." Assets and liabilities of the
Company's foreign operations are translated into U.S. dollars at year-end
exchange rates. Income statement accounts are translated at the average
exchange rate prevailing during the year. Resulting translation adjustments
are reported as a separate component of stockholders' equity.
10
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
Common Stock Dividend Policy
Although the Company has paid cash dividends on the Common Stock
from time to time, it has no present intention of paying cash dividends on
the Common Stock in the foreseeable future. Moreover, pursuant to its
credit agreements, the Company and certain of its subsidiaries may pay cash
dividends only up to certain specified levels and if certain financial
ratios are met.
Net Income (Loss) per Common Share
The net income (loss) per common share is based upon the
weighted average number of shares of common stock and common stock
equivalents, when dilutive, outstanding during the period.
Reclassifications
Certain reclassifications have been made to the 1996 and 1995
financial statements in order to conform to the 1997 presentation.
Implementation of New Financial Accounting Standards
Effective July 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." SFAS 121 requires that impairments, measured using fair
market value, are recognized whenever events or changes in circumstances
indicate that the carrying amount of long lived assets may not be recoverable
and the future undiscounted cash flows attributable to the asset are less
than its carrying value. Adoption of this statement did not affect the
Company's consolidated results of operations.
Effective July 1, 1996, the Company adopted SFAS No. 123, "Stock
Based Compensation." This statement requires the Company to choose
between two different methods of accounting for stock options. The
statement defines a fair-value-based method of accounting for stock options
but allows an entity to continue to measure compensation cost for stock
options using the accounting prescribed by APB Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees." The Company has elected to
continue using the accounting methods prescribed by APB No. 25 but has
included the pro forma disclosures required by SFAS No. 123 in Note 8.
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share, which is required to be
adopted for financial statements issued for periods ending after December
15, 1997. This statement establishes standards for computing and presenting
earnings per share (FPS). It requires dual presentation of basic and diluted
EPS on the face of the income statement and a reconciliation between the
computations. The Company has not yet determined the impact of Statement
128 on its reported earnings per share.
11
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
In June 1997, the Financial Accounting Standards Board issued
Statement No. 131, Disclosures about Segments of an Enterprise and Related
Information, which is effective for fiscal years beginning after December
15, 1997. This statement establishes requirements for reporting
information about operating segments. This statement may require a change
in the way the Company's segments are presently reported; however, the
extent of the change, if any, has not been determined.
(2) SEGMENT AND GEOGRAPHICAL INFORMATION; SIGNIFICANT CUSTOMER
The Company's continuing business is operated through two
divisions; truckhold and flatbed and the Company generates revenue from its
operations in the United States and Mexico.
The flatbed segment was acquired in June 1995 in a
transaction accounted for as a purchase. Consequently, there is no financial
data presented for this division for period prior to fiscal 1996.
Information as to the Company's operations by division is
summarized below (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating revenue:
Truckload............................................ $ 167,609 $ 148,167 $ 116,360
Flatbed.............................................. 23,426 18,377 ---
Total.......................................... 191,035 $ 166,544 $ 116,360
Operating income (loss):
Truckload............................................ $13,253 $5,205 $12,690
Flatbed.............................................. 1,145 768 ---
Total from operating divisions................. 14,398 5,973 12,690
Corporate expenses................................... 1,963 4,236 3,511
Interest expense..................................... 4,944 3,672 3,171
Other expense (income)............................... (37) (72) 103
Income (loss) from continuing operations
before income taxes............................ $7,528 ($2,007) $5,905
Total assets:
Truckload............................................ $119,273 $107,737 $86,884
Flatbed.............................................. 8,271 7,021 645
Total from operating divisions................. 127,544 114,758 87,529
Corporate............................................ 5,524 6,553 8,439
Discontinued operations.............................. 6,126 20,610 55,656
Total.......................................... $139,194 $141,921 $151,624
Capital expenditure (including capital leases):
</TABLE>
12
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
<TABLE>
<S> <C> <C> <C>
Total................................................. $ 191,035 $ 166,544 $ 116,360
Total................................................. $ 191,035 $ 166,544 $ 116,360
Operating income (loss):
Truckload............................................... $13,253 $5,205 $12,690
Flatbed................................................. 1,145 768 ---
Total from operating divisions....................... 14,398 5,973 12,690
Corporate expenses...................................... 1,963 4,236 3,511
Interest expense........................................ 4,944 3,672 3,171
Other expense (income).................................. (37) (72) 103
Income (loss) from continuing operations
before income taxes................................ $7,528 ($2,007) $5,905
before income taxes................................ $7,528 ($2,007) $5,905
Total assets:
Total assets:
Truckload............................................... $119,273 $107,737 $86,884
Flatbed................................................. 8,271 7,021 645
Truckload............................................... $35,415 $24,131 $26,248
Flatbed................................................. 32 18 --
Corporate............................................... -- 3 27
Total................................................ $35,447 $24,152 $26,285
Depreciation and amortization:
Truckload............................................... $9,826 $7,108 $5,733
Flatbed................................................. 238 238 --
Corporate............................................... 71 19 11
Total............................................... $10,135 $7,365 $5,744
</TABLE>
Information as to the Company's continuing operations by
geographical area is summarized below (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Operating revenue:
United States................................ $ 185,378 $ 161,605 $ 115,438
Mexico(1).................................... 5,657 4,939 922
---------- ----------- -----------
Total............................... $191,035 $166,544 $ 116,360
---------- ----------- -----------
---------- ----------- -----------
Income (loss) before income taxes:
United States................................ $ 7,221 $ (2,435) $5,799
Mexico(1).................................... 307 428 106
---------- ----------- -----------
Total............................... $ 7,528 $ (2,007) $5,905
---------- ----------- -----------
---------- ----------- -----------
Total assets:
United States................................ $131,398 $118,815 $ 94,908
Mexico(1).................................... 1,670 2,496 1,060
---------- ----------- -----------
Total............................... $133,068 $121,311 $ 95,968
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
- ----------------
(1) Relates to the Company's trucking operations in Mexico.
Revenue from Chrysler accounted for 47%, 54%, and 45% of the
Company's truckload revenue for 1997, 1996, and 1995, respectively. The
Company transports Chrysler after-market replacement parts and accessories
within the United States and Chrysler original equipment automotive parts
primarily between the United States and the Mexican border, which accounted
for
13
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
30% and 70%, respectively, of the Company's revenue from Chrysler in 1997 and
31% and 69%, respectively, in 1996. Chrysler business is covered by two
agreements, one of which covers the United States-Mexican business and the other
of which covers domestic business. The international contract was extended for
three years and now expires on December 31, 1999. The contract applicable to
domestic business has expired by is the basis for service provided while a new
contract is negotiated.
(3) PROPERTY, EQUIPMENT AND LEASES
Property, Equipment and Revenue Equipment Under Capital Leases
Property and equipment, at cost, consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Revenue equipment............................ $37,790 $40,413
Revenue equipment under capital leases....... 68,365 41,423
Furniture and office equipment............... 2,798 2,729
Land and buildings........................... 3,986 9,920
Service equipment............................ 84 362
Leasehold improvements....................... 183 156
---------- ---------
$113,206 $95,003
---------- ---------
---------- ---------
</TABLE>
Revenue and service equipment and revenue equipment under
capital leases include positioning costs which are amortized over the
shorter of the useful lives of the assets or the terms of the leases.
Included in accumulated depreciation was $10.8 million and $7.0
million in 1997 and 1996, respectively, related to revenue equipment
under capital leases.
Depreciation and amortization expense relating to property
and equipment and revenue equipment under capital leases was $9.9 million
in 1997, $7.0 million in 1996, $5.6 million in 1995.
Lease Obligations
The Company leases certain revenue and service equipment
under long-term lease agreements, payable in monthly installments with
interest at rates ranging from 5.3% to 10.6% per annum, maturing at various
dates through 2003.
14
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
The Company leases warehouse and office space under
noncancellable operating leases expiring at various dates through
September, 2016. Certain leases contain renewal options.
In September 1996, the Company entered into a
sale/leaseback transaction relating to its new headquarters facility in
Indianapolis, IN. The proceeds from the transaction were used to reduce by
approximately $6 million the borrowings outstanding under its bank credit
facility.
During the quarter ended December 31, 1996, the Company declared
its option to purchase certain revenue equipment previously financed with
operating leases at the end of the lease term. As a result of this
conversion, fixed assets and capital lease obligations uncreased $10.4
million. The Company also completed a sale leaseback of certain revenue
equipment previously owned. The proceeds from the sale and the increase to
capital lease obligations was $6.6 million.
Future minimum lease payments relating to capital leases and
to operating leases with initial or remaining terms in excess of one year
are as follows (in thousands):
<TABLE>
<CAPTION>
Year ended Capital Operating
June 30 Leases Leases
- ------------------- ----------- ------------
<S> <C> <C>
1998........................................ $15,124 $12,994
1999........................................ 15,592 11,626
2000........................................ 11,167 10,503
2001........................................ 10,222 7,098
2002........................................ 6,859 5,341
Thereafter.................................. 4,800 12,153
----------- ------------
Total minimum lease payments....... 63,764 $59,715
------------
------------
Less amounts representing interest.......... 9,986
-----------
Payment value of net minimum lease
payments........................... 53,778
Less current maturities............ 11,376
-----------
Non-current portion................ $42,402
-----------
-----------
</TABLE>
Total rental expense for operating leases is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ----------- ----------
<S> <C> <C> <C>
Revenue, service equipment and purchased $34,446 $32,579 $8,856
transportation.................................
</TABLE>
15
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
<TABLE>
<S> <C> <C> <C>
Office facilities and terminals.................... 1,158 460 338
--------- ----------- ---------
$35,604 $33,039 $9,194
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
(4) BANK BORROWINGS AND LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
-------- -------
(in thousands)
<S> <C> <C>
Outstanding amounts under lines of credit (collateralized
by certain trade receivables and revenue equipment)........... $11,500 $29,500
Long-term notes entered into for the purchase of tractors,
trailers and various equipment................................ --- 251
Other borrowings................................................. 459 830
------- ---------
11,959 30,581
Less current maturities.......................................... --- 4,029
-------- ---------
$11,959 $26,552
-------- ---------
-------- ---------
</TABLE>
Lines of Credit
The Company's line of credit for continuing operations for the
periods presented are as follows (in thousands):
<TABLE>
<CAPTION>
Total Lines of Credit Amount Borrowed Amount Available (ii)
- ---------------------------------- ---------------------------------- ----------------------------------
1997 1996 1997 1996 1997 1996
- ----------------- ---------------- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
(i)$30,000 $35,000 $11,500 $29,500 $16,300 $3,375
</TABLE>
- --------
(ii) Represents unused portion of Revolving Line of Credit net
of standby letters of credit not reflected in accompanying consolidated
financial statements of $2,200 thousand and $2,125 thousand at June 30,
1997 and 1996, respectively.
(i) Represents the Company's Revolving Line of Credit with NBD
Bank, N.A. and the First National Bank of Boston commencing June 1, 1994
(the "1994 Credit Agreement").
16
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
In June 1994, the Company refinanced the outstanding borrowings
under the 1994 Credit Agreement. During the year ended June 30, 1997,
the Credit Agreement was amended and modified. As amended during fiscal
1997, terms of the 1994 Credit Agreement (Credit Agreement) provide for
successive one year renewals, at the option of the banks, commencing
November 1, 1999 with an automatic conversion to a three year term loan
with a five year amortization if the Credit Agreement is not extended by
the banks. Interest is based, at the Company's options upon either the
banks prime rate or the London Interbank Offered Rate ("LIBOR") plus a
margin ranging from .625% to 1.625% depending upon performance by the
Company. At June 30, 1997, the interest rate charged on outstanding
borrowings was 7.56%. In addition, the Company pays a commitment fee of .5%
on the unused portion of the Credit Agreement.
Amounts available under the Credit Agreement are determined based
upon the Company's borrowing base, as defined. In addition, there are
certain covenants which restrict, among other things, the payment of cash
dividends, and require the Company to maintain certain financial ratios
and certain other financial conditions. Such borrowings are
collateralized by the Company's truckload trade receivables (approximately
$23.1 million at June 30, 1997) and certain revenue equipment (with a net
book value of approximately $12.4 million at June 30, 1997).
Maturities of long-term debt, assuming the Company exercises
the conversion feature within its Credit Agreement as modified in fiscal
1997, for the years ending June 30 are as follows (in thousands):
<TABLE>
<S> <C>
1998............................................ $ ---
1999............................................ 459
2000............................................ 1,725
2001............................................ 2,300
2002............................................ 2,300
Thereafter...................................... 5,175
$11,959
</TABLE>
No compensating balance requirements exist at June 30, 1997.
17
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
(5) EMPLOYEE BENEFIT PLANS
Employee Stock Ownership Plan
In July 1990, the Company established an Employee Stock Ownership
Plan (the "ESOP") for employees of certain of the Company's subsidiaries.
The ESOP borrowed $l million from a lending institution which was
guaranteed by the Company. The ESOP used the proceeds to purchase 129,500
shares of the Company's Common Stock, par value $.033 per share, from
stockholders.
The Company recognizes expense based on an amount equal to the
ESOP's cost of the shares allocated to the participants. The expense is in
proportion to annual principal and interest payments. During 1997, 1996
and 1995, the Company did not pay the ESOP dividends and made $25 thousand,
$100 thousand and $25 thousand, respectively, in Company contributions.
The loan from the lending institution bore interest at the
banks floating prime rate. The Company paid a 1% annual commitment
fee on the outstanding principal balance of the loan. The loan was secured
by the shares purchased by the ESOP and was guaranteed by the Company. In
April 1992, the loan agreement was amended to require principal payments of
$25 thousand per quarter commencing June 30, 1992, with the remaining
balance due April 1994. In April 1994, the loan agreement was extended with
principal payments of $25 thousand per quarter required commencing June 30,
1995, and the remaining balance was due March 30, 1997. In November, 1996,
the ESOP paid the loan in full with proceeds received by the ESOP from the
sale of shares in connection with the Company's common stock offering in
January 1995. Interest costs incurred amounted to approximately $4
thousand, $24 thousand and $29 thousand during 1997, 1996, 1995,
respectively. In connection with such loan, the Company issued to the
lender a warrant to purchase shares of Common Stock. See Note 7 -
"Stockholders' Equity".
401(k) Profit Sharing Plan
In July 1990, the Company established a 401(k) profit sharing
plan which permits employees of the Company to contribute up to 15% of
their annual compensation, up to certain Internal Revenue Service limits.
The contributions made by each employee are fully vested at all times and
are not subject to forfeiture. The Company makes a matching contribution
of 25% of the employee's contribution up to 5% of their annual
compensation and may make additional discretionary contributions. The
aggregate Company contribution may not exceed 5% of the employee's
compensation. Employees vest in the Company's contribution to the plan at
the rate of 20% per year from the date of contribution. Contributions
made by the Company during 1997, 1996 and 1995 amounted to $155 thousand,
$83 thousand and $83 thousand, respectively. No discretionary
contributions were made during 1997, 1996 or 1995.
18
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
Employee Stock Purchase Plan
On October 18, 1996, the Company's Board of Directors authorized
the sale of up to 250,000 shares of the Company's Common Stock to the Celadon
Group, Inc. Employee Stock Purchase Plan (the "Plan"), referred to
informally by the Company as the Celadon Hallmark Investment Plan ("CHIP").
The Common Stock, par value $0.33 per share, may be treasury shares or newly
issued shares, at a price equal to 85% of the fair market value of the
shares as of the day of purchase. There were approximately 200 active
participants in the Plan as of June 30, 1997. Participation in the Plan is
limited to employees who meet the eligibility requirements set forth in the
Plan and executive officers of the Company may not participate. As of June
30, 1997, 9,692 shares had been purchased under the Plan in open market
transactions for an average price of $11.30 per share. The Company's
contribution to the purchases made was $16 thousand.
(6) SENIOR SUBORDINATED CONVERTIBLE NOTE
In October 1992, the Company issued an $8 million, 9.25%
Senior Subordinated Convertible Note (the "9.25% Note") which was due and
payable on September 30,1998. On February 28, 1994, the holder converted
the 9.25% Note into 739,371 shares of Common Stock. In connection with
the issuance of the 9.25% Note, the Company issued a warrant to purchase
12,121 shares of Common Stock and entered into a registration rights
agreement covering shares issued from the conversion of the 9.25% Note or
warrant. See Note 7 - "Stockholders' Equity".
(7) STOCKHOLDERS' EQUITY
Common and Preferred Stock
On October 31, 1994, in connection with the formation of
Celadon/Jacky Maeder Company ("CJN"), Swissair Associated Companies,
Ltd. ("Swissair") purchased 200,000 shares of Common Stock, at $18.07 per
share. These shares were classified as redeemable common stock because
Swissair could require the Company to repurchase such shares at $18.07 per
share, plus 10% interest and one-half of the stock appreciation as defined
in the agreement, if the Company did not effect a shelf registration for
the benefit of Swissair prior to April 30, 1996. On February 7, 1996, the
Company's Board of Directors ("the Board") authorized the purchase of the
200,000 shares of the Company's Common Stock from Swissair Associated
Companies, Ltd. On February 21, 1996 these shares were purchased at a
negotiated price of $13.75 per share.
On January 31, 1995, the Company issued 1,000,000 shares of
Common Stock and granted to the underwriters an over-allotment option
to issue an additional 154 thousand shares of Common Stock pursuant to
an underwritten public offering. On February 2, 1995 the overallotment
option was exercised by the underwriters and the Company issued an
additional 154,399 shares of Common Stock. The aggregate proceeds from
these issuances of Common Stock were $16.6 million. In connection with
these issuances the Company incurred costs of $763 thousand.
19
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
On February 2, 1995, the Company retired 1,453 shares of Common
Stock held in treasury. In addition, on February 2, 1995 the Company
amended its Certificate of Incorporation by reducing the number of
authorized shares of Common Stock from 17,000,000 shares to 12,000,000
shares.
During fiscal year 1997, the Company purchased on the open
market 28,000 shares of the Company's Common Stock at an average price of
$8.40 per share and recorded these shares as treasury stock. In addition,
the Company received and recorded as treasury stock 100,000 shares of the
Company's Common Stock valued at $7.25 per share from the former President
of Celadon Group, Inc. as consideration for a portion of the sales price
paid by him to acquire the Company's South American warehousing,
logistics and distribution business operating under the name of Celsur,
Inc.
Stock Options
Stock options and performance awards have been granted to officers
and other executives and key employees. Stock options are granted at exercise
prices equal to the fair market value of the Company's stock at the dates
of grant. Generally, options vest in increments and become fully
exercisable three years from the date of grant and have a term of 10
years. See Note 8 - "Stock Options."
Warrants
Pursuant to the ESOP loan agreement, the Company issued to the
lender a warrant entitling the holder to purchase, in the aggregate, 2% of
the Company's outstanding Common Stock, subject to adjustment as defined in
the agreement, for a price of $500 thousand. On January 23, 1995, the
warrant holder exercised one half of the warrant by paying to the Company
$250 thousand upon the issuance of 35,851 shares by the Company. On
October 1, 1996, the Company's Board of Directors authorized the
extension of the expiration date for the warrant issued pursuant to the ESOP
loan agreement to November 1, 1997.
In connection with the issuance of the 9.25% Note, the Company
issued to the holder of the 9.25% Note a warrant to purchase 12,121
shares of the Common Stock at $10.82 per share, subject to certain
adjustments for dilution. The warrant is exercisable through September 30,
1998.
In connection with each of the warrants described above, the
Company has granted certain piggyback and demand registration rights with
respect to shares issued upon the exercise of such warrants.
(8) STOCK OPTIONS
In January 1994, the Company adopted a Stock Option Plan (the
"Plan") which provides for the granting of stock options, stock appreciations
rights and restricted stock awards to purchase not more than 250,000
shares of Common Stock, subject to adjustment under certain circumstances, to
20
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
select management and key employees of the Company and its subsidiaries.
During 1995, the Plan was amended to increase the number of shares under the
Plan from 250,000 to 500,000 shares, which amendment was approved by the
shareholders at the 1994 annual meeting.
In connection with the extension of an employment agreement with
the President and Chief Executive Officer of CJM (the "CJM Executive") in
February 1994, an option to purchase 100,000 shares of Common Stock was
granted at an exercise price of $14.50 per share. In connection with
the sale of certain freight forwarding assets to NG Enterprises Inc., a
company controlled by the CJM Executive, the options were canceled. See Note
15 - Discontinued Operations.
The Company has elected to follow Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees"
and related interpretations in accounting for its stock options. Under APB
No. 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. However, SFAS No. 123, "Accounting for
Stock-Based Compensation," requires presentation of pro forma net income
and earnings per share as if the Company had accounted for its employee stock
options granted subsequent to June 30, 1995, under the fair value method
of that statement. Under SFAS No. 123, total compensation expense for
stock-based awards of $650 thousand and $433 thousand in 1997 and 1996,
respectively, on a pro forma basis, would have been reflected in income on a
pretax basis. For purposes of pro forma disclosure, the estimated fair value
of the options is amortized to expense over the vesting period. Under the
fair value method, the Company's net income and earnings per share would
have been reduced as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Income..................................... $390 $260
Earnings per share............................. .05 .03
</TABLE>
Because SFAS No. 123 is applicable only to options granted subsequent to
June 30, 1995, and the options have a three-year vesting period, the pro
forma effect will not be fully reflected until fiscal year 1999.
The weighted-average per share fair value of the individual
options granted during fiscal year 1997 and 1996 is estimated as $5.73
and $6.78, respectively, on the date of grant. The fair values for
both years were determined using Black-Scholes option-pricing model with
the following weighted average assumptions:
21
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Dividend yield............................. 0 0
Volatility.................................... 56.2% 60.8%
Risk-free interest rate....................... 6.03% 6.73%
Forfeiture rate............................... 10% 36%
Expected life................................. 7 years 7 years
</TABLE>
Stock option activity during 1995-1997 is summarized below:
<TABLE>
<CAPTION>
Shares of Weighted
Common Stock Average
Attributable to Exercise Price
Options of Options
------------------- -------------------
<S> <C> <C>
Unexercised at July 1, 1994 299,650 $14.5584
Granted 239,000 16.3891
Exercised (334) 14.5000
Forfeited (8,566) 14.9378
-------------------
Unexercised at June 30, 1995 529,750 15.3782
Granted 171,800 10.2698
Exercised (9,333) 14.5000
Forfeited (102,600) 14.3307
-------------------
Unexercised at June 30, 1996 589,617 13.7468
Granted 98,000 8.9541
Exercised --- ---
Forfeited (257,817) 14.1815
-------------------
Unexercised at June 30, 1997 429,800 11.9919
-------------------
-------------------
</TABLE>
22
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
The following table summarizes information concerning outstanding and
exercisable options at June 30, 1997.
<TABLE>
<CAPTION>
Weighted-
Average
Range of Remaining Weighted- Weighted
Exercise Number Contractual Average Number Average-
Prices Outstanding Life Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C>
$5 - $10 221,500 8.4071 $ 9.2946 122,672 $ 9.6943
$10- $15 148,800 7.8223 13.3474 111,506 14.1547
$15- $20 59,500 7.1667 18.6429 59,500 18.6429
</TABLE>
Shares exercisable at June 30, 1997 and 1996, were 293,678 and
356,029, respectively.
(9) RELATED PARTY TRANSACTIONS
CJM's main warehouse facility in New York was leased from a
corporation owned by the CJM Executive and another employee of CJM. Rent in
the amounts of $148 thousand and $146 thousand was paid by the Company
in each of 1996 and 1995, respectively, under the terms of the lease
agreement, which expired in 1996.
Additionally, CJM's Israeli freight forwarding agent, which
had a profit sharing arrangement with the Company, is 30% owned by the CJM
Executive. The gross profits (freight forwarding revenue less direct
transportation of freight forwarding) in each of 1996 and 1995 earned by
the Israeli agent were approximately $302 thousand and $747 thousand,
respectively. In connection with this agency agreement which terminated
in June 1997, the Company agreed in fiscal 1994 to advance up to $500
thousand to its Israeli agent for advancing on behalf of Israeli customers
value added taxes and other prepaid charges incurred by such agent in its
business. As of June 30, 1997, there were no advances outstanding. In
connection with the winddown of the freight forwarding business segment, CJM
and the Company resolved certain disputed items with CJM's Israeli freight
forwarding agent. As a result, the Company recorded a $727,000 bad debt
write-off expense as a component of the loss on discontinued operations in
the fiscal year ended June 30, 1996.
The Company's Chief Executive Officer and the Company's
former President, prior to his resignation in July 1996, were
parties to a stockholders' agreement that required the parties thereto to
vote their shares of stock for the election as directors of the Company
certain designees of the other party to the agreement. The Company, the
Company's Chief Executive Officer (the "Company Executive"), and Hanseatic, a
significant shareholder, are parties to a stockholders agreement. This
agreement provides that, as long as Hanseatic or the Company Executive each
beneficially own at least five percent of the outstanding shares of
Common Stock, the Company shall use its best efforts to insure that one
member of the Company's board of directors is a designee of Hanseatic and
that
23
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
another member of the Company's board of directors is a designee of the
Company Executive. In addition, the Company Executive and Hanseatic have
agreed to vote all shares of Common Stock owned by them in favor of the
election of such nominees or, upon the death of the Company Executive,
for the designee of the holder of a majority of the Company Executive's
shares of Common Stock on the date of death.
On July 3, 1996, Leonard R. Bennett, former President, Chief
Operating Officer and a Director of the Company resigned as an Officer and
Director of the Company and all of its subsidiaries. At that time, he also
released the Company from its obligations under his employment contract.
The Company entered into a three year noncompete and consulting agreement
with Mr. Bennett which provided for annual payments of $269,396, which were
accrued as of June 30, 1996, and continuation of certain disability and
life insurance benefits. The agreement can be canceled by either party for
cause. Mr. Bennett acquired the Company's 80.5% interest in Celsur Inc.
for a total of 100,000 shares of Celadon Group, Inc. common stock and
$2,440,645 in the form of a personal note, bearing interest at the prime
commercial lending rate of The Chase Manhattan Bank, N.A. New York, New
York which was paid in full when due on October 3, 1996. On March 28, 1997,
the agreement was terminated and all other obligations of the parties, except
for the non-compete and confidentiality provisions and certain
indemnifications, ceased upon the payment by the Company of $365,565.
On July 3, 1996, Peter Bennett, former Executive Vice
President Administration of Celadon Trucking Services, Inc. ("CTSI"),
the Company's principal operating subsidiary, resigned as an officer and
employee of CTSI. The Company entered into a one year non-compete and
consulting contract with Mr. Bennett providing for an annual payment of
$60,000 which was accrued for as of June 30, 1996. On March 28, 1997, the
agreement was terminated and all other obligations of the parties,
except for the non-compete and confidentiality provisions and certain
indemnifications, ceased upon the payment by the Company of $30,692.
In July 1996, the Company guaranteed eight individual one year
bank loans to eight executives aggregating $270,000. The loans range in
amounts from $9,000 to $54,000, are full recourse to the individual executive
and are secured by a total of 30,000 shares of Celadon Group, Inc. common
stock owned by the executives individually. In February, 1997, one of the
original participants withdrew and was replaced by two additional
executives. On July 1, 1997, the bank loans and the Company's guarantee
were extended until January 1, 1999. The total amounts and ranges noted were
not affected.
(10) HEDGING ACTIVITIES, COMMITMENTS AND CONTINGENCIES
The Company has outstanding commitments to purchase approximately
$9.4 million of revenue equipment at June 30, 1997.
Standby letters of credit, not reflected in the accompanying
condensed consolidated financial statements, aggregated approximately $2.2
million at June 30, 1997.
24
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
The Company has employment and consulting agreements with various
key employees and former employees providing for minimum combined
annual compensation over the next four years ranging from $1.1 million in
1998 to $0.3 million in 2001.
There are various claims, lawsuits and pending actions against
the Company and its subsidiaries incidental to the operation of its
businesses. The Company believes many of these proceedings are covered in
whole or in part by insurance and that none of these matters will have a
material adverse effect on its consolidated financial position.
The Company, from time-to-time, enters into arrangements to
protect against fluctuations in the price of fuel used by its trucks. As
of June 30, 1997, the Company had contracts to purchase fuel for future
physical delivery in the months of November 1997 through April 1998.
These contracts represent approximately 22% of the anticipated fuel
requirements in those months. Additionally, the Company periodically
acquires exchange-traded petroleum futures contracts and various commodity
collar transactions. Gains and losses on transactions, not designated at
hedges, are recognized based on market value at the date of the financial
statements. At June 30, 1997, liquidation of outstanding transactions,
not designated as hedges, which extended through June 1998 and covered
approximately 32% of the Company's fuel requirements would have resulted in a
$36 thousand loss. The Company has no transactions outstanding as of June
30, 1997 designated as hedges. The current and future delivery prices of fuel
are monitored closely and transaction positions adjusted accordingly. Total
commitments are also monitored to ensure they will not exceed actual
fuel requirements in any period. During the year ended June 30, 1997,
gains of $79 thousand were realized on the physical delivery and futures
contracts and shown as a reduction of fuel expense.
The Company has been assessed approximately $750 thousand by the
State of Texas for Interstate Motor Carrier Sales and Use Tax for the
period from April 1988 through June 1992. The Company disagrees with the
State of Texas over the method used by the state in computing such taxes and
intends to vigorously pursue all of its available remedies. On October 30,
l996, the Company made a payment of $1.1 million, under protest, which
includes interest to the date of payment and enables the Company to pursue
resolution of the matter with the State of Texas Attorney General. In the
March 1997 quarter, the Company filed its Original Petition against
representatives of the State of Texas. The state responded and denied the
Company's claims. As of June 30, 1997, the parties to the litigation were
exchanging discovery requests and documentation. The Company has accrued an
amount that management estimates is due based upon methods they believe are
appropriate. While there can be no certainty as to the outcome, the Company
believes that the ultimate resolution of this matter will not have a
material adverse effect on its consolidated financial position.
25
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
(11) PROVISION FOR INCOME TAXES
The income tax provision for continuing operations in 1997, 1996 and
1995 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------- ----------- ------------
<S> <C> <C> <C>
Current (Credit):
Federal............................... $1,229 $ (1,450) $ 1,958
State and local....................... 400 (171) 772
Foreign............................... 104 146 52
------------- ----------- ------------
$1,733 (1,475) 2,782
------------- ----------- ------------
Deferred:
Federal............................... 1,126 954 816
State and local....................... 165 110 92
------------- ----------- ------------
1,291 1,064 908
------------- ----------- ------------
$3,024 $ (411) $3,690
------------- ----------- ------------
------------- ----------- ------------
</TABLE>
No provision is made for U.S. federal income taxes on
undistributed earnings of foreign subsidiaries of approximately $257
thousand at June 30, 1997, as management intends to permanently reinvest
such earnings in the Company's operations in the respective foreign
countries where earned.
The Company's effective tax rate on income (loss) from
continuing operations differs from the statutory federal tax rate of 35% as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- --------- ---------
<S> <C> <C> <C>
Statutory federal tax rate..................... 35.00% 35.00% 35.00%
State taxes, net of federal benefit............ 4.88 1.96 9.52
Non-deductible officers' life insurance........ .42 1.04 .56
Non-deductible meals and entertainment......... .38 (11.72) 15.91
Non-deductible goodwill amortization........... .21 (2.34) .18
Other, net..................................... (.72) (3.47) 1.32
------ -------- ----------
Effective tax rate.................... 40.17% 20.47% 62.49%
------- -------- ----------
------- -------- ----------
</TABLE>
The tax effect of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at June
30, 1997 and 1996 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Continuing Operations:
Deferred tax assets:
Allowance for doubtful accounts............. $ 461 $ 404
Insurance reserves.......................... 539 595
Revenue recognition......................... 378 491
Tires in service............................ 412 616
Parts and supplies.......................... 488 608
Accrued expense reserves.................... 750 826
Other....................................... 576 536
-------- ---------
Total deferred tax assets.......... $3,604 $4,076
-------- ---------
-------- ---------
Deferred tax liabilities:
Excess tax depreciation..................... $ (5,158) $ (5,220)
Capital leases.............................. (5,337) (4,278)
---------- -----------
Total deferred tax liabilities..... $ (10,495) $ (9,498)
---------- -----------
---------- -----------
Discontinued Operations:
Net current deferred tax assets............. $ 709 $ 2,428
Net noncurrent deferred tax liabilities..... (82) (1,398)
---------- ----------
$ 627 $ 1,030
---------- -----------
---------- -----------
Net current deferred tax assets................ $ 1,568 $ 3,404
Net noncurrent deferred tax liabilities........ (7,832) (7,796)
----------- ----------
Total net deferred tax liabilities.... $ (6,264) $ (4,392)
---------- -----------
---------- -----------
</TABLE>
As of June 30, 1997, the Company had approximately $5.1 million
of operating loss carryforwards with expiration dates through 2012.
26
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
(12) SUPPLEMENTAL CASH FLOW INFORMATION
In 1997, 1996 and 1995, capital lease obligations in the amount
of $33.9 million, $14.9 million and $13.0 million, respectively, were
incurred in connection with the purchase of, or option to purchase, tires
in service and revenue equipment.
For 1997, 1996 and 1995, the Company made interest payments of
$4.9 million, $3.3 million and $3.3 million, respectively.
For 1997, 1996 and 1995, the Company made income tax payments of
$252 thousand, $880 thousand, and $1.5 million, respectively.
(13) INVESTMENT IN UNCONSOLIDATED AFFILIATE
On December 18, 1996, the Company sold certain assets
consisting primarily of customer lists of its wholly owned freight
forwarding operations conducted in the New York area to NG Enterprises,
Inc. (NGE), a company controlled by Norman G. Grief, the former President
and Chief Executive Officer of Randy International, Inc. In connection with
the sale, the Company acquired a 49% interest in NGE, agreed to provide a
five year interest bearing revolving credit loan up to $1.9 million
secured by the assets of NGE and agreed to an option exercisable by NGE to
acquire the Company's 49% interests in NGE for $300,000 initially, which
amount will increase by $30 thousand annually. No gain or loss was
recognized on the sale. On July 11, 1997, the Company transferred its 49%
interest in NGE to NGE and the business conducted by NGE was sold to Union
Transport Corporation, a wholly owned subsidiary of Union Transport, Inc., a
global logistics company. In that transaction, Union Transport
Corporation assumed, with the Company's consent, certain of the
obligations of NGE to the Company.
(14) ACQUISITIONS
Freight Forwarding
On October 31, 1994, the Company entered into a partnership
(the "Partnership Agreement") with Jacky Maeder, Ltd., a freight forwarding
company wholly owned by Swissair Associated Companies Ltd.
("Swissair"), which partnership combined the respective United States
freight forwarding operations of the Company (Randy International
Ltd.) with Jacky Maeder, Ltd. The partnership between the two companies
operated under the name "Celadon/Jacky Maeder Company" and was 70% owned
by the Company and 30% owned by Jacky Maeder, Ltd. The Company accounted
for this transaction as a purchase. In addition, Swissair purchased
200,000 shares of the Company's Common Stock at $18.07 per share. The
Company loaned $2.5 million of the proceeds of this share issuance to
Celadon/Jacky Maeder Company.
In connection with the formation of Celadon/Jacky Maeder Company
and the acquisition by the Company of a 70% ownership interest in the
business contributed to the partnership by Jacky
27
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
Maeder, Ltd. (based upon the fair market value of such ownership interest)
in exchange for a 30% ownership interest in the business contributed
to the partnership by Randy International, the Company realized a gain of
$1.5 million net of $400 thousand for professional fees associated with the
transaction. The Company also incurred a charge to operations of $822
thousand for costs associated with the formation of Celadon/Jacky Maeder
Company.
In connection with the integration of the Company's United
States freight forwarding business with that of Jacky Maeder, the Company
wrote-off costs of $2 million during December 1995 related to the
former Randy International computer system. This system was abandoned
as a result of the Company's conversion to a single integrated computer
system for substantially all of the United States freight forwarding
operations of Celadon/Jacky Maeder Company.
During March 1995, the Company, through its wholly owned
subsidiary, Randy UK, acquired Guestair, Ltd., a freight forwarding
company based in the United Kingdom for approximately $2.6 million. The
Company accounted for this transaction as a purchase.
In December 1995, the Company discontinued the operations of
the freight forwarding division. See Note 15 - "Discontinued Operations."
Trucking
In May 1995, the Company made an investment of approximately
$1.1 million in Servicio de Transportacion Jaguar, S.A, de C.V. ("Jaguar"),
formerly known as Transportes RQF, S.A. de C.V., a previously inactive
entity. For its investment, the Company acquired 75% of the stock of Jaguar.
Jaguar is a Mexican motor freight carrier. The Company has accounted for
ties transaction as a purchase.
On June 29, 1995, the Company acquired Cheetah Transportation Company
and CLK, Inc. ("Cheetah"). Cheetah operates in the flatbed segment of the full
truckload market. The purchase price was approximately $5.1 million. The Company
has accounted for this transaction as a purchase.
(15) DISCONTINUED OPERATIONS
Freight Forwarding Segment
During December, 1995 the Board of Directors of Celadon Group,
Inc. authorized the disposal of the Company's freight forwarding
business. In connection with the Company's plan of disposition effective
February 1, 1996, the U.S. customer list together with certain assets and
liabilities of the Company's U.S. freight forwarding business,
operating under the name Celadon/Jacky Maeder Company, were sold to the
Harper Group, Inc.'s primary operating subsidiary, Circle Intemational,
Inc. Pursuant to the terms of the transaction, the total purchase price for
these assets and liabilities was to be paid in cash and equal the net revenue
derived from such customer
28
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
(Dollar amounts in thousands)
list during the twelve-month period following February 1, 1996. The Harper
Group, Inc. made an initial down payment of $9.5 million at closing with the
balance of the purchase price to be paid in quarterly installment as earned
by the Harper Group, Inc. There were no additional payments by Harper
Group, Inc. to the Company based on reported net revenues during the
measurement period.
In May 1996, the Company became the sole owner of the
freight forwarding operations conducted in the New York area by acquiring
the minority interest of Jacky Maeder, Ltd. This step was taken to
facilitate the ultimate disposition of this operation. On December 18,
1996, the Company sold certain assets consisting primarily of customer
lists of the freight forwarding operations conducted in the New York
area to NG Enterprises, Inc. ("NGE"), a company controlled by Norman G.
Grief, the Former President and Chief Executive Officer of Randy
International Inc. In connection with the sale, the Company received a 49%
interest in NGE, was relieved of its obligation to Norman G. Grief
under his employment contract, agreed to provide a five year interest
bearing revolving credit loan up to $1.9 million secured by the assets of
NGE and agreed to an option exercisable by NGE to acquire the Company's 49%
interest in NGE for $300,000 initially, which amount would increase by
$30 thousand annually. No gain or loss was recognized on the sale. On
July 11, 1997, the Company transferred its 49% interest in NGE to NGE and
the business conducted by NGE was sold to Union-Transport Corporation, a
wholly owned subsidiary of Union-Transport, Inc. a global logistics
company. In that transaction, Union-Transport Corporation assumed, with
the Company's consent, certain of the obligations of NGE to the Company.
In the second quarter of fiscal 1997, there was a dispute between
the Company and its partner in the discontinued freight forwarding
operation concerning final liquidation of the partnership. The dispute was
resolved by the Company acquiring, in February, 1997, the other partner's
30% interest in the remaining assets and liabilities of the partnership.
In May 1996, the Company concluded the sale of the United
Kingdom freight forwarding operation to Forwardair Limited a subsidiary
of the Fritz Companies.
Logistics Segment
In the quarter ended June 30, 1996, the decision was made to
sell certain businesses previously included in the Logistics division
and to discontinue offering logistic services as a separate activity of
the Company.
Consequently in June 1996, the net assets of the Company's package
delivery business headquartered in New York City and operating under the
name Celadon Express was sold.
On July 3, 1996, the Company concluded the sale of its South American
warehousing logistics and distribution business operating under the name of
Celsur, Inc. for approximately $3.1 million. The sales price was paid with
100,000 shares of the Company's common stock, and an interest bearing promissory
note for $2.4 million due October 3, 1996.
29
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
(Dollar amounts in thousands)
At June 30, 1997 and 1996, assets and liabilities included in the
Company's consolidated balance sheet related to the discontinued freight
forwarding operation are as follows ( in thousands):
<TABLE>
<CAPTION>
June 30,
1997 1996
---- ----
<S> <C> <C>
Assets:
Cash................................................. $753 $3,142
Accounts receivable (net of allowance)............... 1,457 8,436
Accounts receivable other............................ 25 2,558
Prepaid expenses and other current assets............ 167 224
Assets held for resale............................... -- 69
Income tax receivable................................ 2,565 --
Deferred income tax receivable....................... 568 2,369
Other assets......................................... 590 --
Total...................................$6,125 $16,798
Liabilities and Equity:
Accounts payable.....................................$1,230 $4,805
Accrued expenses..................................... 1,861 6,146
Income taxes payable................................. -- 105
Deferred income tax liabilities (assets)............. (36) (11)
Equity adjustment for foreign currency
translation...................................... -- 25
Total $3,055 $11,070
</TABLE>
30
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
(Dollar amounts in thousands)
At June 30, 1997 and 1996, assets and liabilities included in
the Company's consolidated balance sheet related to the discontinued
logistics segments are as follows (in thousands):
June 30,
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Assets:
Cash............................................ $ --- 33
Accounts receivable (net of allowance).......... --- 303
Accounts receivable other....................... --- 632
Income tax receivable........................... --- 329
Assets held for sale............................ --- 2,479(1)
Deferred income tax receivable.................. --- 36
Total...................................... $ --- $3,812
Liabilities and Equity:
Accrued expenses................................ --- $ 214
Income taxes payable............................ --- 276
Deferred income taxes payable................... --- 206
Equity adjustment for foreign currency
translation................................... --- (2)
Total...................................... $ --- $ 694
</TABLE>
- ------------
(1) Represents the net investment in Celsur Inc., the stock of
which was sold on July 3, 1996.
The anticipated loss of the disposal of the freight forwarding and
logistics segments have been accounted for as discontinued operations in
accordance with Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." As such, prior period financial statements have been
reclassified to reflect the discontinuation of these lines of business.
31
<PAGE>
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
The Company recorded a charge to earnings of $8.2 million during
the three months ending December 31, 1995 representing the expected loss
on the disposal of the freight forwarding segment. In determining the
estimated loss on disposition in the December 31, 1995 quarterly financial
statements, management made certain estimates and assumptions based
upon currently available information. These estimates and assumptions
primarily related to the ultimate sales price to be received from the sale of
the U.S. customer list to the Harper Group, Inc., the net realizable value of
the remaining assets to be disposed of, the liquidation of trade
receivables, and the costs associated with the settlement of certain
leases, severance and other obligations. The Company also recorded an
additional $4.6 million loss on disposal, net of tax, in the June 30, 1996
financial statements. This is primarily a result of the reduction in the
payment to be received from the Harper Group, Inc. for revenue attributable
to the U. S. customer list which they acquired. Additionally, based on
actual collection and payment experience and cost to wind-down the
operations through June 30, 1996, the estimated after tax loss on
discontinued freight forwarding operations was increased by $1.2 million to
$2.3 million. Revenue of the freight forwarding segment for the years ended
June 30, 1996, 1995 and 1994, were $120.5 million and $126.5 million and
$83.2 million, respectively.
In the quarter ended June 30, 1996, the Company also recorded a
charge of $600 thousand relating to the discontinuation of the
logistics line of business. The loss is primarily comprised of the loss
on the sale of the net assets of Celadon Express, Inc. in June 1996,
partially offset by the gain on the sale of the Company's 80.5% ownership
interest in Celsur Inc., a warehousing and logistics operation in Argentina
and Brazil. It is not anticipated that future adjustments to the net
assets sold will be material. Revenue for the logistics segment for the
years ended June 30, 1996, 1995 and 1994 were $11.9 million, $7.4 million
and $3.0 million, respectively.
(16) SUBSEQUENT EVENTS
On August 25, 1997, the Company acquired the net assets of
the transportation services unit of the General Electric Industrial Control
Systems (GEICS) business and a five-year contract to continue providing
transportation service to GEICS, which represents approximately
one-half of the current business volume of the transportation services
unit. The total acquisition price was $8.5 million payable as $5.5 million
in cash at closing and a $3.0 million note plus assumption of certain
liabilities and lease obligations.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
There were no changes in or disagreements with accountants
on accounting or financial disclosures within the last three fiscal years.
32