AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
June 15, 2001
REGISTRATION NO. 333-_______________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
THE MORGAN GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------------
DELAWARE 22-2902315
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION)
--------------------------
2746 Old U.S. 20 West
Elkhart, Indiana 46514
(219) 295-2200
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------------
Gary J. Klusman
The Morgan Group, Inc.
2746 Old U.S. 20 West
Elkhart, Indiana 46514
(219) 295 - 2200
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
------------------------------
COPIES TO:
Eric R. Moy
Barnes & Thornburg
11 South Meridian Street
Indianapolis, Indiana 46204
(317) 231-7298
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
--------------------------
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE(1)
Class A Common Stock, 1,248,157 $9.00 $11,233,413.00 $2,808.35
$.015 par value
Class B Common Stock, 2,200,000 $9.00 $19,800,000.00 $4,950.00
$.015 par value
(1) The registration fee has been calculated in accordance with Rule 457(g)
under the Securities Act of 1933, as amended, based on the proposed
maximum aggregate offering price.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
INTRODUCTORY NOTE
This Registration Statement contains (i) a prospectus relating to the
offering by The Morgan Group, Inc. of its Class A common stock issuable upon the
exercise of Class A warrants and (ii) a prospectus supplement relating to the
offering by The Morgan Group, Inc. of its Class B common stock issuable upon
exercise of Class B warrants. The prospectus supplement immediately follows the
prospectus.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING
NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY
PROSPECTUS
SUBJECT TO COMPLETION
DATED JUNE 15, 2001
1,248,157 SHARES OF CLASS A COMMON STOCK
[MG LOGO]
ISSUABLE UPON EXERCISE OF WARRANTS
We currently have two classes of common stock issued and outstanding,
Class A common stock, $.015 par value, and Class B common stock, $.015 par
value. We have no other equity securities outstanding. We are distributing to
holders of our Class A Common Stock, Class A warrants to purchase additional
shares of our Class A common stock; and to holders of our Class B Common Stock,
Class B warrants to purchase additional shares of our Class B common stock. This
prospectus relates to the Class A common stock issuable upon exercise of the
Class A warrants. A separate prospectus supplement relates to the Class B common
stock issuable on exercise of the Class B warrants. Our Class A common stock
trades on the American Stock Exchange under the symbol "MG" and there is no
public market for our Class B common stock.
o For each share of our Class A common stock which you own on
the record date of ___________, 2001 you will receive one
Class A warrant. The number of Class A warrants to be issued
to each holder of our Class A common stock will be rounded
down to the nearest whole Class A warrant. For each Class A
warrant that you exercise you will be able to purchase,
subject to certain adjustments, one share of our Class A
common stock at the warrant exercise price of $9.00 per share.
The exercise price for the Class A warrants will be reduced to
$6.00 per share during a reduction period of at least 30 days
to be set by our Board of Directors.
o The Class A warrants are transferable. No public market for
the warrants currently exists and we can give no assurance
that a public market for the warrants will ever develop. We do
not intend to apply, and are not obligated to apply, for
listing of the warrants on any securities exchange. However,
we intend to apply for listing of the Class A common stock
underlying the Class A warrants on the American Stock
Exchange. Transfer of the Class B warrants and the underlying
Class B common stock will be restricted.
o We will not issue fractional shares, and we will not pay cash
in place of warrants or fractional shares. If the number of
warrants which you own on the record date would result, when
exercised, in your receipt of fractional shares, the number of
shares which you will be able to purchase pursuant to such
warrants will be rounded down to the next whole number.
o The warrants are exercisable for a 5-year period beginning on
the date of this prospectus, when completed, and continuing
until 5:00 p.m., New York City Time, on ____________, 2006. To
exercise warrants, you must submit the appropriate purchase
documents and payment to us before the warrants expire.
o Warrants are irrevocable once exercised.
o Holders of shares of our common stock who do not choose to
exercise their warrants will continue to own the same number
of shares of our Class A common stock, but may own a
substantially smaller percentage of the total number of shares
outstanding to the extent that other stockholders exercise
warrants.
- --------------------------------------------------------------------------------------------------------------------
Maximum Number Maximum Warrant Underwriting Discounts Maximum Proceeds
of Shares Issuable Exercise Price and Commissions (1) to Company (2)
- --------------------------------------------------------------------------------------------------------------------
Per Share of Class A 1,248,157 $9.00 (3) None $9.00 (3)
Common Stock
- --------------------------------------------------------------------------------------------------------------------
Per Share of Class B 2,200,000 $9.00 None $9.00
Common Stock
- --------------------------------------------------------------------------------------------------------------------
Total (4) 3,448,157 $31,033,413 (3) None $31,033,413 (3)
- --------------------------------------------------------------------------------------------------------------------
(1) We are distributing the warrants directly to our stockholders and do
not intend to pay any commissions or other remuneration to any person
for soliciting purchasers of the shares of Class A common stock
underlying the warrants.
(2) Before estimated expenses of $_______________. The warrant exercise
price is considerably higher than the recent trading price of the Class
A common stock as of the date of this Prospectus. There is no minimum
offering. There is no assurance that any of the warrants will be
exercised.
(3) The exercise price for the Class A warrants will be reduced to $6.00
per share during a reduction period of at least 30 days to be set by
our Board of Directors. If such period is not set prior to the date 60
days before the expiration date, such period will comprise the final 30
days before the expiration date.
(4) Assumes exercise of all warrants to be issued in this offering.
This investment involves risk. See "Risk Factors" beginning on page 6 to read
about risks that you should consider carefully before buying shares of our Class
A common stock.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
The date of this Prospectus is June 15, 2001.
TABLE OF CONTENTS
Prospectus Summary
The Morgan Group, Inc.
The Offering
Risk Factors
Risks Related to the Offering
Risks Related to Us and Our Industry
Risks Related to Factors Outside Our Control
Capitalization
Summary Financial Data
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations for the Year 2000 Compared
with 1999
Interim Results of Operations for the Quarter
Ending March 31, 2001
Market for Common Equity
and Related Shareholder Matters
Market Information
Dividend Policy
Use of Proceeds
The Offering
Exercising Your Warrants
Warrant Exercise Price
Expiration Time
Transfer Agent
Determination of Warrant Exercise Price
Lynch Interactive, Inc.
Plan of Distribution
Warrant Payments
Anti-Dilution Protection
Signature Guarantees
Nominee Holders
Ambiguities in Exercise of the Warrants
Interpretation
Risk of Loss on Delivery of Warrant Certificates
and Payment
Exercise of Less than All Warrants
Transferability of Warrants
Procedures for Depository Trust Company
Participants
No Revocation
No Board Recommendation
Issuance of Stock Certificates
Foreign Stockholders; Stockholders with APO or
FPO Addresses
State and Foreign Securities Law
Regulatory Limitation
Questions or Requests for Assistance
Dilution
Description of Capital Stock
Class A and Class B Common Stock
Preferred Stock
Certain Statutory, Charter and By-Law Provisions
Certain Federal Income Tax Consequences
Indemnification of Directors and Officers --
Disclosure of Commission's Position on Indemnification
Legal Matters
Experts
Forward Looking Statements
Where You Can Find More Information
Incorporation by Reference
PROSPECTUS SUMMARY
This summary highlights certain information found in greater detail
elsewhere in this prospectus. In addition to this summary, we urge you to read
the entire prospectus carefully, especially the risks involved in our Class A
common stock discussed under "Risk Factors" before deciding to invest in shares
of our Class A common stock.
THE MORGAN GROUP, INC.
The Morgan Group, Inc. is the nation's largest publicly owned service
company managing the delivery of manufactured homes, commercial vehicles and
specialized equipment in the United States, and, through its wholly owned and
principal subsidiary, Morgan Drive Away, Inc., has been operating since 1936. We
primarily provide outsourcing transportation services through a national network
of approximately 975 independent owner-operators and approximately 1,295 other
drivers as of March 31, 2001. We dispatch our drivers from 70 locations in 27
states, as of such date. We also provide certain insurance services to the
independent owner-operators through our insurance subsidiaries.
As further described below, our strategy is to grow through expansion
in our niche businesses while pursuing appropriate acquisitions or joint
ventures in related industries. In addition, we will seek to expand insurance
product offerings to drivers and owner-operators.
Our Services
We operate in four business segments: Manufactured Housing, Driver
Outsourcing, Specialized Outsourcing Services, and Insurance and Finance.
o Manufactured Housing Segment. We derive the largest portion of
our operating revenues from transportation of manufactured
housing, primarily new manufactured homes, modular homes, and
office trailers. We also transport used manufactured homes and
offices for individuals, businesses, and the U.S. Government.
We are the largest transporter of manufactured homes in the
United States. As of March 31, 2001, we utilize approximately
652 independent owner-operators to transport manufactured
homes for our customers. The number of independent
owner-operators decreased approximately 26% from March 31,
2000, principally due to the decrease in shipments. To serve
the regional structure of this industry, we position each of
our dispatch offices close to the production facility it
serves. Each of our 22 dispatch offices at March 31, 2001, is
substantially dedicated to serving a single facility.
In 2000, for the second consecutive year, the manufactured
housing industry experienced a decline in shipments and
production. However, we believe that the manufactured housing
industry over the long-term should grow, but there is no
assurance that manufactured housing sales will increase.
o Driver Outsourcing Segment. Our driver outsourcing segment
provides outsourcing transportation services primarily to
manufacturers of recreational vehicles, commercial trucks, and
other specialized vehicles through a network of service
centers in nine states. In 2000, we delivered approximately
36,900 units through the use of these drivers. While the
number of deliveries decreased, operating revenue per unit
delivered increased in 2000.
o Specialized Outsourcing Services Segment. Our specialized
outsourcing services segment delivers large trailers ("Towaway
Services") and travel and other small trailers. As of March
31, 2001, we had contracts with approximately 124 independent
owner-operators who drive semi-tractors to provide Towaway
Services compared to 76 independent owner-operators at March
31, 2000. As of March 31, 2001, we deliver travel and other
small trailers through 196 independent owner-operators.
o Insurance and Finance Segment. Our insurance and finance
segment provides insurance and financing to our drivers and
independent owner-operators. Our insurance subsidiary may
accept a limited portion or all of the underwriting risk,
retaining the appropriate proportion of the premiums. This
segment administers our cargo, bodily injury and property
damage insurance programs.
Customers and Marketing
Our customers are located in various parts of the United States. Our
largest manufactured housing customers include Oakwood Homes Corporation,
Fleetwood Enterprises, Inc., Champion Enterprises, Inc., Cavalier Homes, Inc.,
Clayton Homes, Inc., Four Seasons Housing, Inc., Scotsman, and Commodore
Corporation. Our largest driver outsourcing customers include Winnebago
Industries, Inc., Thor Industries, Inc., Damon Corporation and Utilimaster. Our
largest specialized outsourcing services customers include Fleetwood
Enterprises, Inc., Keystone RV and North American Van Lines, Inc. While most
manufacturers rely solely on carriers such as us, other manufacturers operate
their own equipment and may employ outside carriers on a limited basis.
Our operating revenues primarily include linehaul revenues derived by
multiplying the miles of a given shipment by the stated mileage rate. Operating
revenues also include charges for permits, insurance, escorts and other items. A
substantial portion of our operating revenues are generated under one, two, or
three-year contracts with producers of manufactured homes, recreational
vehicles, and the other products. In these contracts, the manufacturers agree
that we will provide a specific percentage (up to 100%) of their transportation
service requirements from a particular location on the basis of a prescribed
rate schedule, subject to certain adjustments to accommodate increases in our
transportation costs. Linehaul revenues generated under customer contracts in
2000, 1999 and 1998 were 69%, 71%, and 64% of total linehaul revenues,
respectively.
Our ten largest customers all have been served for at least three years
and accounted for approximately 67%, 68% and 69% of linehaul revenues in 2000,
1999 and 1998, respectively. Linehaul revenues under contract with Fleetwood
Enterprises, Inc. accounted for over 15% of linehaul revenues in 2000. Linehaul
revenues with Oakwood Homes Corporation accounted for over 20% of linehaul
revenues in 2000. The Fleetwood manufactured housing contract is continuous
except that it may be terminated upon thirty (30) days written notice by either
party if the other party has repeatedly failed to perform, persistently
disregarded applicable laws or regulations, or otherwise committed a substantial
violation of the contract. The Oakwood manufactured housing contract is renewed
annually. We have been servicing Fleetwood for over 25 years and Oakwood for ten
years. Most of our contracts provide for scheduled rate increases based upon
regional fuel prices. These increases are generally passed on to the independent
owner-operators who purchase fuel.
We market services through 70 locations in 27 states at March 31, 2001,
concentrated where manufactured housing and recreational vehicle production
facilities are located. Marketing support personnel are located both at our
Elkhart, Indiana headquarters and regionally.
Our sales personnel meet periodically with manufacturers to review
production schedules, requirements and maintain contact with customers' shipping
personnel. Our senior management maintains personal contact with corporate
officers of our largest customers. Regional and terminal personnel also develop
relationships with manufactured home park owners, retailers, finance companies
and others to promote our services for shipment of used manufactured homes. We
also participate in industry trade shows throughout the country and advertise in
trade magazines, newspapers, and telephone directories.
Growth Strategy
Our strategy is to focus on our core transportation services. We will
also look for opportunities to capitalize and/or grow our market in manufactured
housing and driver outsourcing through acquisitions, if suitable opportunities
arise.
o Manufactured Housing. We believe we can take better advantage
of our position in the manufactured housing industry by
expanding the services we offer within our specialized
business. We will also pursue other national contracts with
manufacturers. While the manufactured housing industry has
been in recession, we are seeking to position ourselves to
take advantage of growth opportunities as this industry
recovers.
o Driver Outsourcing. We have focused our driver outsourcing
operations in two broad markets, recreational and commercial
vehicles. Given the softness in the recreational vehicle
industry, we are seeking to expand in the delivery of
commercial vehicles, such as commercial trucks, school buses,
ambulances, dump trucks and shuttle buses.
o Specialized Outsourcing Services. We believe we can grow our
Towaway business by increasing the number of available drivers
and through the use of transportation brokers. We have not
been able to take full advantage of large trailer delivery
opportunities because we have not had a sufficient number of
Towaway drivers or our drivers were not in the required
locations.
o Acquisitions/Joint Ventures. We regularly consider acquisition
opportunities. We may consider acquiring regional or national
firms that service the manufactured housing and/or the
outsourcing industry as well as logistics, transportation, or
related industries.
o Insurance and Finance. We may seek to expand our insurance
services to our independent contractors and others. We
currently have no plans to grow the finance portion of our
business.
Our Address
Our principal office is located at 2746 Old U.S. 20 West, Elkhart,
Indiana 46514-1168.
THE OFFERING
The Offering We are offering to sell an aggregate of up
to 1,248,157 shares of our Class A common
stock upon the exercise of Class A warrants
being distributed to holders of our Class A
common stock.
Record Date ______________, 2001
The Warrants We are distributing to each record holder of
our Class A common stock on the record date
one Class A warrant for each share of our
Class A common stock held on that date, for
a total of 1,248,157 Class A warrants. We
are also distributing to each record holder
of our Class B common stock on the record
date one Class B warrant for each share of
our Class B common stock held on that date,
for a total of 2,200,000 Class B warrants.
No warrants to purchase fractional shares
will be issued and the number of warrants to
be issued to each holder will be rounded
down to the nearest whole warrant.
Each Class A warrant entitles the holder to
purchase one share of our Class A common
stock at an exercise price of $9.00 per
share, subject to adjustment upon the
occurrence of certain dilutive events.
Please see "The Offering-Anti-Dilution
Protection." The exercise price for the
Class A warrants will be reduced to $6.00
per share during a period of not less than
30 days, the timing of which is to be set by
our Board of Directors. Please see "The
Offering - Warrant Exercise Price".
Each Class B warrant entitles the holder to
purchase one share of our Class B common
stock at an exercise price of $9.00 per
share, subject to adjustment upon the
occurrence of certain dilutive events. The
Class B warrants will not carry any right to
a reduction in their exercise price.
There is no minimum amount of shares you
must purchase to exercise warrants.
No Minimum Offering There is no minimum offering. We are
distributing the warrants to give our
stockholders a fixed opportunity to purchase
additional shares of our common stock. As of
_____________, 2001, the closing price of
our shares of Class A common stock was
$________. Because the warrant exercise
price is $9.00, subject to adjustment, the
warrants are "out-of-the-money" on the date
hereof and are likely to be out-of-the-money
for an indefinite period of time, there is
no assurance that any of the warrants will
be exercised.
Expiration Time The warrants have a five-year term. You may
exercise your warrants commencing on the
date of this prospectus, when completed. The
warrants will expire on ______________, 2006
at 5:00 p.m., New York City Time.
How Warrants will be Evidenced We will distribute to each record holder of
our Class A common stock on the record date
a warrant certificate representing such
holder's Class A warrants. We will also
distribute to each record holder of our
Class B common stock on the record date a
warrant certificate representing such
holder's Class B warrants.
Exercising Your Warrants You may exercise your warrants at any time
beginning on the date of this prospectus and
continuing until the expiration time by
properly completing and signing your warrant
certificate and returning it, with full
payment for the total number of shares you
are purchasing, to our transfer agent by the
expiration time. Your payment should be made
by bank certified check, cashier's check or
wire transfer. You may elect to exercise all
or a portion of your warrants. See "The
Offering--Exercise of Warrants" and
"--Method of Payment" for details about
delivery and payment. Any warrants that you
do not exercise by the expiration time will
become null and void after the expiration
time.
Transferability of Warrants The Class A warrants are transferable. The
Class B warrants are subject to transfer
restrictions which are described under "The
Offering--Transferability of Warrants." No
public market for the warrants currently
exists and we can give no assurance that a
public market for the warrants will ever
develop. We do not intend to apply, and are
not obligated to apply, for listing of the
warrants on any securities exchange.
However, we intend to apply for listing of
the Class A common stock underlying the
Class A warrants on the American Stock
Exchange.
Irrevocability of Warrants Your exercise of warrants is irrevocable
after you submit the warrant certificate and
the warrant exercise price.
Transfer Agent American Stock Transfer & Trust Company 59
Maiden Lane, 9 Plaza Level New York, New
York 10038 Attention: Shareholder Relations
Questions If you have any questions about the
offering, including questions about
exercising your warrants and requests for
additional copies of this prospectus or
other documents, please contact the transfer
agent, toll free at (800) 777-0800.
Stock Certificates Certificates representing shares of our
common stock purchased in this offering will
be delivered to purchasers as soon as
practicable after we receive a properly
completed warrant certificate and payment of
the warrant exercise price.
Federal Income Tax
Consequences Your receipt or exercise of warrants should
not be treated as a taxable event for United
States federal income tax purposes. Please
see "Certain Federal Income Tax
Consequences."
Risk Factors An investment in shares of our common stock
involves a high degree of risk. Please see
"Risk Factors."
Use of Proceeds Any net proceeds of this offering will be
used by us for general corporate purposes.
Because there is no minimum offering, and
the warrant exercise price of $9.00 per
share significantly exceeds the recent
trading price of the Class A common stock at
the date of this prospectus, we do not
expect to receive proceeds from this
offering for an indefinite period of time.
RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the risks described below and the other information in this prospectus
before deciding to invest in shares of our common stock. Our business, operating
results and financial condition could be affected by any of the following risks.
The trading price of our common stock could decline due to any of these risks or
for unforeseen reasons, and you could lose all or part of your investment. You
should also refer to the other information set forth in this prospectus,
including our consolidated financial statements and the related notes included
elsewhere in this prospectus.
This prospectus also contains forward-looking statements that involve
risks and uncertainties. These statements relate to our future plans,
objectives, expectations and intentions, and the assumptions underlying or
relating to any of these statements. These statements may be identified by the
use of words such as "expects," "anticipates," "intends," "plans," "objectives,"
"should" and similar expressions. Our actual results could differ materially
from those discussed in these statements. Factors that could contribute to such
differences include, but are not limited to, those discussed below and elsewhere
in this prospectus.
RISKS RELATED TO THE OFFERING
The warrants are "out-of-the-money."
The warrant exercise price is substantially higher than the recent
trading prices of our Class A common stock at the date of this Prospectus. In
light of our expectation to sell additional shares of our Class B common stock
to our controlling stockholder, our Board of Directors determined the warrant
exercise price (including the Class A warrant exercise price reduction to $6.00
per share during a period of at least 30 days) and approved the distribution of
warrants to give our stockholders a fixed opportunity to buy additional shares
without brokerage fees and with a view that the warrants may prove to be of
value to our stockholders over the long-term. However, there is no assurance
that the public market will develop in the warrants or that the market price of
our common stock will equal or exceed the warrant exercise price of the warrants
at any time before or after the expiration time.
The offering price was determined by our Board of Directors and bears
no direct relationship to the value of our assets, financial condition or other
established criteria for value. Our Class A common stock may trade at prices
above or below this price.
Our Board of Directors determined the warrant exercise price after
considering a number of factors including:
o past and recent trading prices of our Class A common stock;
o book value of our stock;
o past operations;
o past and potential future cash flows and earnings and losses;
o our overall financial condition; and
o our future prospects.
The Board of Directors did not assign weighting to any one factor in
setting the warrant exercise price.
Your interest in us may be diluted to the extent other warrant holders
exercise warrants and you do not. If you do not exercise your warrants in full,
your percentage ownership and voting rights will decrease to the extent that
warrants are exercised by others.
After submitting your warrant certificate and exercise price, you may not revoke
your exercise and could be committed to buy shares above the prevailing market
price.
As of _________________, 2001, the trading price of the Class A common
stock was $______. Because the warrant exercise price is $9.00 per share,
subject to adjustment, the warrants are "out-of-the-money" on the date hereof
and are likely to be out-of-the-money for an indefinite period of time. We can
give no assurance that the trading price of our Class A common stock will ever
meet or exceed the warrant exercise price and, consequently, whether it will
ever be profitable for the holders of warrants to exercise the warrants. If you
exercise your warrants while the trading price of our Class A common stock is
less than the warrant exercise price, then you will have committed to buy shares
of our common stock at a price above the prevailing market price. Once you have
exercised your warrants, you may not revoke your exercise. Moreover, you may be
unable to sell your shares of common stock at a price equal to or greater than
the warrant exercise price you pay.
The warrants are not listed on a securities exchange nor is there any assurance
that the warrants will be listed, so you may be unable to sell your warrants at
the price you desire or at all.
We cannot assure you that a trading market will develop for the
warrants. We also cannot assure you that you will be able to sell your warrants
or underlying common stock at any particular time, if at all. There is currently
no public market for the warrants. We do not intend to apply, and are not
obligated to apply, for listing of the warrants on any securities exchange or
market.
RISKS RELATED TO US AND OUR INDUSTRY
Our inability to obtain a replacement credit facility may have a material
adverse effect on our operations.
Access to a credit facility is necessary to support our operations. Our
credit facility expired on January 28, 2001. Although we have no debt
outstanding, we do have $6.6 million of letters of credit outstanding from the
expired credit facility, which we are obligated to replace.
Because of our lack of a credit facility, the Report of Independent
Auditors, which is included in our annual report on Form 10-K for the year ended
December 31, 2000, contains a qualification indicating that the financial
statements for the year ended December 31, 2000 were prepared assuming our
business would continue as a going concern, but that the default under the
credit facility raised substantial doubt about our ability to do so. As a
result, we must obtain a new credit facility with a commercial lender, to
provide capital support for letters of credit or other undertakings we may be
required to make in connection with certain of our insurance arrangements and to
strengthen our capital resources to support operations. The availability of a
replacement credit facility depends upon factors outside of our control. In the
event that we were unable to replace the expired credit facility, our operations
would be adversely affected. See "Management's Discussion and Analysis --
Results of Operations for the Year 2000 Compared with 1999 -- Liquidity and
Capital Resources at December 31, 2000" and "-- Interim Results of Operations
for the Quarter Ending March 31, 2001 -- Liquidity and Capital Resources."
Our credit facilities may not be adequate to support our current capital needs.
The availability and sufficiency of such credit facilities depends on
our financial condition and operating performance, which is affected by the
other factors described herein, as well as the willingness of lenders to provide
credit support in the transportation and manufactured housing sector. Our
operation could be adversely affected by inadequate credit availability.
We are controlled by Lynch Interactive Corporation.
As of May 31, 2001, our principal stockholder, Lynch Interactive
Corporation ("Interactive"), was the beneficial owner of 161,000 shares of our
Class A common stock and 1,200,000 shares of our Class B common stock. Shares of
our Class A common stock carry one vote per share while shares of our Class B
common stock carry two votes per share. Interactive controls approximately 70%
of the voting power of our common stock. On or before the record date, we expect
to have sold 1,000,000 additional shares of our Class B common stock to
Interactive. As a result, Interactive's voting control after such issuance will
exceed 80% of the voting power of all classes of our common stock. The stock
ownership of Interactive enables it to elect all of our directors other than the
director elected by the holders of our Class A common stock and effectively
control the vote on all matters submitted to a vote of our stockholders other
than those subject to approval by holders of Class A common stock as a class.
Interactive can be expected to exercise its voting control in its best interests
which may result in stockholder action which, though favored by Interactive, are
not favored by all other stockholders.
We cannot assure you that we will pay dividends.
Payment of dividends is within the discretion of our Board of Directors
and will depend, among other factors, upon our earnings, financial condition,
and capital requirements. Our ability to pay dividends is limited by covenants
with our lenders. We cannot assure you that we will pay any dividends.
We are dependent on the manufactured housing industry.
Shipments of manufactured housing have historically accounted for a
majority of our operating revenues. Therefore, our prospects are substantially
dependent upon this industry, which is subject to broad production cycles.
Currently, manufactured housing is experiencing an industry-wide decline in
shipments, which is having an adverse impact on our operating revenues and
profitability.
The costs of accident claims and insurance could reduce our profitability.
Motor vehicle accidents occur in the ordinary course of our business.
Although we maintain liability and cargo insurance, the number and severity of
the accidents involving our independent owner-operators and drivers can have
significant adverse effects on the profitability of our business through premium
increases and amounts of loss retained by us below deductible limits or above
total coverage.
Our results of operations would be adversely affected if we lose any of our
major customers.
Historically, a majority of our operating revenues have been derived
under contracts with customers. Our top ten customers have historically
accounted for a majority of our operating revenues, and the loss of one or more
of these significant customers could adversely affect our results of operations.
A number of our major customers are experiencing financial difficulty as a
result of the softness in the manufactured housing and recreational vehicle
markets.
The competition for qualified drivers is intense and we may not be able to
recruit enough drivers.
Recruitment and retention of qualified drivers and independent
owner-operators is highly competitive. There is no assurance that our drivers
will continue to maintain their contracts with us or that we will be able to
recruit a sufficient number of new drivers on terms similar to those presently
in force.
If our owner-operators were considered employees rather than independent
contractors, our costs would increase.
From time to time, tax authorities have sought to assert that
independent contractors in the transportation service industry are employees,
rather than independent contractors. We maintain that our owner-operators are
not employees. If our independent contractors were determined to be employees,
such determination could materially increase our tax and workers' compensation
exposure.
Our future acquisitions and expansions may not be profitable.
We will continue to seek favorable acquisition opportunities. Our
strategic plans may also include the initiation of new services or products,
either directly or through acquisition, within existing business lines or which
complement our business. There is no assurance that the we will be able to
identify favorable acquisition opportunities in the future or that our future
acquisitions will be successfully integrated into operations or that they will
prove to be profitable for us.
The seasonality of our business may cause significant variation in quarterly
results.
Our operations have historically been seasonal, with generally higher
operating revenues generated in the second and third quarters than in the first
and fourth quarters. The seasonality of our business may cause a significant
variation in our quarterly operating results.
RISKS RELATED TO FACTORS OUTSIDE OUR CONTROL
Economic slowdowns or recessions, especially in the manufactured housing
industry, adversely affect our business.
Periods of economic slowdown or recession, whether general, regional or
industry-related, may have a great impact on our business. The present downturn
in manufactured housing sales and the financial difficulty of our customers has
had a significant adverse impact on our profitability. We cannot assure you that
we can achieve or sustain profitability under these conditions. Such conditions
could result in such severe reductions in the cash flows available to us that
our ability to meet all our financial obligations and cash flow requirements
could be impaired. Additionally, there are no assurances that the manufactured
housing industry will rebound.
Changes in government regulation could increase our costs.
Motor carriers are subject to regulation by various federal and state
governmental agencies, including the United States Department of Transportation.
These regulatory agencies have broad powers, and the motor carrier industry is
subject to regulatory and legislative changes that can affect the economics of
the industry by requiring changes in the operating practices or influencing the
demand for, and the costs of providing, services to shippers. We may not be able
to pass such increased costs on to our customers, which could impair our
profitability.
Increases in interest rates and fuel prices may reduce profitability.
Our operations are affected by fluctuations in interest rates. Demand
for our services is affected by the availability of credit to purchasers of
manufactured homes and recreational vehicles. Additionally, the price of fuel is
an expense over which we have little or no control. An increase in these costs
could have an adverse impact on profitability.
Current increases in the cost of insurance premiums may reduce profitability.
Increases in the cost of insurance premiums will increase our expenses
and will have an adverse impact on our profitability to the extent we are unable
to pass such increases through to our customers.
We are in a competitive industry that could reduce the rates we can charge.
We are participating in a highly competitive industry and rates offered
by competitors affect the rates that we can charge for our services. If
competitors' rates are reduced, such reduction may have the effect of reducing
the rates we can charge, thereby impairing our profitability.
CAPITALIZATION
The following table sets forth our consolidated debt and capitalization
as of March 31, 2001, and on a pro forma basis to give effect to consummation of
this issuance of additional shares of Class B Common Stock assuming (i) our
principal stockholder, Lynch Interactive, Inc., purchases 1,000,000 shares of
our Class B common stock at a price of $2.00 per share before we distribute the
warrants, and (ii) our stockholders approve a purposed charter amendment to
increase the number of authorized shares of Class B common stock at our 2001
annual meeting. Please see "The Offering-Lynch Interactive, Inc." for a
discussion of the proposed sales of shares of Class B common stock to
Interactive. This table should be read in conjunction with our consolidated
financial statements and notes thereto included elsewhere in this prospectus.
At March 31, 2001
Liabilities:
Actual Pro Forma(1)
------ ---------
Current Liabilities: (In thousands, except share data)
Trade accounts payable $ 3,540 $ 3,540
Accrued liabilities 2,923 2,923
Accrued claims payable 3,304 3,304
Refundable deposits 1,092 1,092
Current portion of long-term debt and capital lease obligations 192 192
------- -------
Total current liabilities 11,051 11,051
------ -------
Long-term debt and capital lease obligations, less current portion 89 89
Long-term accrued claims payable 4,515 4,515
------- -------
Total Liabilities 15,655 15,655
------- -------
Shareholders' Equity:
Common stock, $.015 par value
Class A: Authorized shares - 7,500,000
Issued shares - 1,607,303 23 23
Class B: Authorized shares - 2,500,000 (4,400,000 pro forma)
Issued and outstanding shares - 1,200,000 (2,200,000 pro forma) 18 33
Additional paid-in capital 12,459 14,444
Retained earnings (2,657) (2,657)
-------- --------
Total capital and retained earnings 9,843 11,843
Less - treasury stock at cost (359,146 Class A shares) (3,183) (3,183)
-------- --------
Total shareholders' equity 6,660 8,660
------- -------
Total Liabilities and Shareholders' Equity $22,315 $24,315
======= =======
(1) Pro forma, as of March 31, 2001, adjusted to give effect to
the issuance of 1,000,000 shares of our Class B common stock
to Lynch Interactive, Inc. at a purchase price of $2.00 per
share and amendment of our charter to increase our authorized
shares of Class B common stock from 2,500,000 to 4,400,000.
SUMMARY FINANCIAL DATA
The following table sets forth certain selected consolidated financial
information reflecting our consolidated operations and financial condition for
each year in the five year period ended December 31, 2000 (and as of each year
end) and the three month periods ended March 31, 2001 and 2000. This data should
be read in conjunction with our consolidated financial statements and related
notes thereto as well as Management's Discussion and Analysis of Results of
Operations and Financial Condition included herein.
Three Months Ended
March 31, (Unaudited) Year Ended December 31,
---------------------- ----------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
---------------------- ----------------------------------------------------------
(Dollars in thousands, except share amounts)
Operations
Operating Revenues $20,688 $28,386 $108,024 $145,629 $150,545 $146,154 $132,208
Operating (Loss) Income (1) (475) (898) (2,038) 550 2,007 1,015 (3,263)
Pre-tax (Loss) Income (1) (541) (955) (2,348) 212 1,462 296 (3,615)
Net (Loss) Income (1) (541) (616) (4,799) 19 903 196 (2,070)
Net (Loss) Income Per Share:
Basic ($0.22) ($0.25) ($1.96) $0.01 $0.35 $0.07 ($0.77)
Diluted ($0.22) ($0.25) ($1.96) $0.01 $0.35 $0.07 ($0.77)
Cash Dividends Declared:
Class A - $0.02 $0.05 $0.08 $0.08 $0.08 $0.08
Class B - $0.01 $0.025 $0.04 $0.04 $0.04 $0.04
Financial Position
Total Assets $22,315 $30,595 $23,269 $32,264 $33,387 $33,135 $33,066
Working Capital 294 3,011 1,063 3,189 3,806 1,613 1,635
Long-term Debt 89 239 288 965 1,480 2,513 4,206
Shareholders' Equity 6,660 11,439 7,201 12,092 13,221 12,724 13,104
Common shares outstanding at 2,448,157 2,448,157 2,448,157 2,448,157 2,554,085 2,637, 910 2,685,520
period end
Basic weighted average shares 2,448,157 2,453,260 2,448,157 2,469,675 2,606,237 2,656,690 2,684,242
outstanding
(1) Includes pre-tax special charges of $624,000 ($412,000 after-tax) and
$3,500,000 ($2,100,000 after-tax) in 1997 and 1996, respectively.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE YEAR 2000 COMPARED WITH 1999
Consolidated Results
The year 2000 was characterized by the continued downturn in
manufactured housing production, which began in 1999. Industrial production of
new manufactured homes decreased 26% in 2000. We were also affected by the
decline in activity in other markets we serve, including delivery of
recreational vehicles and large trailers. As a result of these declines, our
revenues decreased 26% from 1999 levels.
To combat this severe decline in revenues, in March 2000 we instituted
significant cost reduction initiatives in all areas with primary focus on staff
reduction and consolidation of facilities. The effects of these initiatives were
savings of $1.8 million in 2000. We estimate that the effects of these
initiatives will continue and will approximate savings of $3.2 million in 2001.
In spite of these significant efforts, operating costs as a percentage of
revenue were 102% for the year ended December 31, 2000, compared to 99% in the
prior year, resulting in a loss from operations of $2.0 million.
Because of the existence of significant non-cash expenses, such as
depreciation of fixed assets and amortization of intangible assets, we believe
that EBITDA contributes to a better understanding of our ability to satisfy our
obligations and to utilize cash for other purposes. EBITDA should not be
considered in isolation from or as a substitute for operating income, cash flow
from operating activities, and other consolidated income or cash flow data
prepared in accordance with generally accepted accounting principles. The loss
before interest, taxes, depreciation and amortization (EBITDA loss) was $971,000
in 2000, as compared to positive EBITDA of $1.8 million in 1999.
In the fourth quarter 2000, we recorded a non-cash charge of $3.2
million relating to the valuation of deferred tax assets. Because we have a
cumulative loss in our three most recent fiscal years and are in default on our
credit facility (see "Liquidity and Capital Resources" below and Note 3 of the
Notes to Consolidated Financial Statements), our management believes that it
would be inconsistent with the technical provisions of Statement of Financial
Accounting Standard No. 109, to rely on future taxable income to support
realization of the deferred tax assets. We therefore wrote off deferred tax
assets that were not currently realizable. For additional information concerning
the provision for income taxes as well as information regarding differences
between effective tax rates and statutory rates, see Note 5 of the Notes to
Consolidated Financial Statements.
We experienced net loss for 2000 of $4.8 million compared to net income
of $19,000 in 1999.
Segment Results
We conduct our operations in four principal segments as discussed
below. The following discussion sets forth certain information about the segment
results.
Manufactured Housing
Manufactured Housing operating revenues are generated from providing
transportation and logistical services to manufacturers of manufactured homes.
Manufactured Housing operating revenues decreased 29% from 1999 to $70.6 million
in 2000.
The Manufactured Housing industry as a whole continued to decline in
2000, with industry shipments down by 26%. We are highly dependent upon the
manufactured housing industry generally and on certain major customers within
that industry. Some of our customers are financially stressed by continued
weakness in the industry. Our unit deliveries in Manufactured Housing declined
by 31% in 2000, indicating a loss of market share due primarily to competitive
pricing pressures.
EBITDA decreased $4.5 million to $5.8 million due to the decrease in
business. The decrease in business was partially offset by our ability to
contain our cost. We closed some terminals due to plant closures and
consolidated terminals in other areas to serve the needs of more than one
customer from a single location.
Our focus in Manufactured Housing is on large national contracts.
During 2001, we obtained significant additional contracts with Fleetwood and
Clayton Homes, Inc. Our management will continue to pursue these efforts.
Driver Outsourcing
Our Driver Outsourcing segment provides outsourcing transportation
services primarily to manufacturers of recreational vehicles, commercial trucks
and other specialized vehicles. Driver Outsourcing operating revenues decreased
10% in 2000 to $20.9 million. The decrease was primarily the result of softness
in the recreational vehicle market. However, Driver Outsourcing EBITDA increased
$900,000 to $1.3 million from improved operating efficiencies, consolidations
and other reductions in overhead costs.
Specialized Outsourcing Services
Specialized Outsourcing Services consists of delivering large trailers,
travel and other small trailers. We discontinued a specialized transport service
("Decking") in 2000. Operating revenues decreased 28% to $15.3 million in 2000.
This decrease was primarily caused by a reduction in available drivers and
discontinuing the Decking deliveries. Specialized Outsourcing Services incurred
an EBITDA loss of $140,000 in 2000 compared to an EBITDA of $469,000 in 1999.
This loss was caused primarily by the reduction in the delivery of large
trailers and Decking partially offset by improved operating efficiencies and
overhead cost reductions.
Insurance/Finance
Our Insurance/Finance segment provides insurance and financing services
to our drivers and independent owner-operators. This segment also acts as a cost
center whereby all bodily injury, property damage and cargo loss costs are
captured.
Insurance/Finance operating revenues decreased $1.0 million to $2.9
million in 2000 reflecting a decrease in owner-operator insurance premiums
relating to the decline in the manufactured housing industry. However,
Insurance/Finance EBITDA loss decreased $2.2 million to $6.8 million due to
improved bodily injury, property damage and cargo loss claims experience. The
deductible for personal injury and property damage is $250,000 per occurrence.
The cargo deductible is $1,000,000, accordingly, we are essentially self-insured
for cargo losses.
As a part of continuing efforts to contain claims expense, we are
expanding our safety awareness as well as formal safety training efforts among
both owner-operators and terminal personnel. Cargo claims as a percent of
operating revenue decreased from 2.3% in 1999 to 1.9% in 2000. Similarly, bodily
injury and property damage claims decreased from 3.6% to 3.3% of operating
revenue. Our management believes that our focus on driver safety is having, and
may continue to have, a favorable impact.
Based on current insurance market conditions, we expect significant
increases in premium expense as our insurance programs renew in 2001. We plan to
pass increased premium expense to customers through increased rates to the
extent possible.
Year 1999 Compared with 1998
Consolidated Results
During 1999, we experienced a decrease in the number of Manufactured
Housing shipments and a continued increase in insurance and claims costs. We
also experienced a reduction in operating revenues and profitability in the
Specialized Outsourcing Services segment.
Industrial shipment of new manufactured homes decreased approximately
4% in 1999. We were more severely impacted as our largest customer experienced
an approximate 21% decline in retail sales of new homes. As a result, we
sustained an 8% decrease in shipments of new homes in 1999.
Our total operating revenues in 1999 decreased $4.9 million to $145.6
million from $150.5 million in 1998. Our operating income before interest,
taxes, depreciation and amortization (EBITDA) decreased from $3.2 million in
1998 to $1.8 million in 1999.
Net interest expense decreased from $545,000 in 1998 to $338,000 in
1999 as a result of improved cash management which reduced the amount of our
borrowings from the credit facility.
For information concerning the provision for income taxes as well as
information regarding differences between effective tax rates and statutory
rates, see Note 5 of the Notes to Consolidated Financial Statements.
Accordingly, net income for 1999 was $19,000 compared to $903,000 in
1998.
Segment Results
Manufactured Housing
Manufactured Housing operating revenues began decreasing in the second
quarter, and ended the year at $99.5 million, or a 6% reduction from 1998. In
spite of this reduction, EBITDA for 1999 ended at $10.3 million compared to
$10.8 million for 1998 because of cost reduction measures instituted by our
management that largely mitigated the revenue decline.
Driver Outsourcing
The Driver Outsourcing segment of our business demonstrated good growth
in 1999. Operating revenues increased 18% to $23.4 million in 1999 while EBITDA
increased by $301,000. However, high driver recruiting and other overhead costs
continued to depress the profitability of this segment in 1999.
Specialized Outsourcing Services
Specialized Outsourcing Services operating revenues decreased 8% to
$21.2 million in 1999. This decrease was primarily the result of changes in our
customer base and a reduction in available drivers. Specialized Outsourcing
Services EBITDA decreased $542,000 primarily on the lower volume and increased
overhead costs associated with large trailer delivery.
Insurance/Finance
Insurance/Finance operating revenues decreased less than 3% in 1999,
particularly in the latter months of the year reflecting a decrease in
owner-operator insurance premiums relating to the slow-down in the manufactured
housing industry. During 1999, we continued to be affected by increasing claims
costs. Claim costs in 1999, as a percent of operating revenue increased to 5.9%
from 5.1% in 1998. Effective April 1, 1999, the deductible for personal injury
and property damage increased to $250,000 per occurrence. Additionally, the
cargo stop-loss insurance policy provision terminated and the deductible was
increased to $1,000,000. Accordingly, we are essentially self-insured for cargo
losses.
Liquidity and Capital Resources at December 31, 2000
Operating activities used $0.9 million of cash in 2000 compared to a
$4.9 million cash generation in 1999. The 2000 net loss and reductions in
working capital liabilities was partially offset by the deferred tax assets
valuation reserve and by reductions in trade accounts receivable and other
working capital assets. We recorded an income tax receivable of $499,000 as of
December 31, 2000 as we intend to file for tax refunds based on prior year
payments. Trade accounts receivable decreased $2.4 million primarily due to the
decline in operating revenue. Day's sales outstanding ("DSO") increased to 33
days at December 31, 2000 as compared to 28 days at December 31, 1999.
Our investment in property and equipment decreased in 2000 to $106,000
with expenditures for an optical scanning system and other new information
systems. Our 2001 capital expenditure plan approximates $150,000.
At December 31, 2000, we had a $7.7 million revolving credit facility,
with a $6.7 million letter of credit sub-limit. At December 31, 2000, we had no
outstanding debt under our credit facility, and $6.6 million of letters of
credit were outstanding under the credit facility. Letters of credit are
required for self-insurance retention reserves and other corporate needs.
Our credit facility matured on January 28, 2001, at which time we had
no outstanding debt and $6.6 million outstanding letters of credit. As a result
of the credit facility not being renewed, we have a payment default and the
lender has the right to demand cash to meet outstanding obligations under the
letters of credit. The bank has discretion as to whether to make any loans or
issue additional letters of credit for us. We expect to establish a replacement
facility in mid-2001. Please see "--Interim Results of Operations for the
Quarter Ending March 31, 2001--Liquidity and Capital Resources" below.
During 2000, we declared dividends on our Class A common stock of $.05
per share and dividends of $.025 per share on our Class B common stock through
the first three quarters. No dividends were declared in the fourth quarter.
Payment of dividends is within the discretion of the board of directors. Payment
of future dividends will be dependent upon, among other things, earnings, debt
covenants, future growth plans, legal restrictions, and our financial condition.
We had minimal exposure to interest rates as of December 31, 2000, as
substantially all of our outstanding long-term debt is not significant. Our
credit facility mentioned above bears variable interest rates based on either a
Federal Funds rate or the Eurodollar rate. We expect a replacement facility also
will bear variable interest. Accordingly, borrowings under the credit facility
have exposure to changes in interest rates.
Under our current policies, we do not use interest rate derivative
instruments to manage exposure to interest rate changes. Also, we currently are
not using any fuel hedging instruments.
Inflation
Most of our expenses are affected by inflation, which generally results
in increased costs. During 2000, the effect of inflation on our results of
operation was minimal.
The transportation industry is dependent upon the availability and cost
of fuel. Although fuel costs are paid by our owner-operators, increases in fuel
prices may have significant adverse effects on our operations for various
reasons. Since fuel costs vary between regions, drivers may become more
selective as to regions in which they will transport goods resulting in
diminished driver availability. Also, we would experience adverse effects during
the time period from when fuel costs begin to increase until the time when
scheduled rate increases to customers are enacted. Increases in fuel prices may
also affect the sale of recreational vehicles by making the purchase less
attractive to consumers. A decrease in the sale of recreational vehicles would
be accompanied by a decrease in the transportation of recreational vehicles and
a decrease in the need for Driver Outsourcing services.
Impact of Seasonality
Shipments of manufactured homes tend to decline in the winter months in
areas where poor weather conditions inhibit transport. This usually reduces
operating revenues in the first and fourth quarters of the year. Our operating
revenues, therefore, tend to be stronger in the second and third quarters.
INTERIM RESULTS OF OPERATIONS FOR THE QUARTER ENDING MARCH 31, 2001
Consolidated Results
Our revenues for the first quarter decreased by $7.7 million or 27% to
$20.7 million from $28.4 million in the first quarter of 2000. The revenue
decrease was related primarily to a decline of $6.8 million, or 38%, in the
first quarter for our manufactured housing division.
Shipments for the manufactured housing industry nationwide were down
42% in January and February of 2001 according to the Manufactured Housing
Institute. (March shipment data was not available). The industry continues to
experience a two-year cyclical slump created by consumer credit issues and
excess inventory.
Our loss before interest, taxes, depreciation and amortization (EBITDA)
was $248,000 for the quarter compared with a loss of $605,000 in 2000. The
improvements, on lower volume, reflect our cost-reduction efforts of the past 12
months. Pre-tax income for the quarter was a loss of $541,000 compared with a
loss of $955,000 in 2000 - also a significant improvement.
Driver pay as a percentage of revenue in the first quarter of 2001
remained consistent with the first quarter of 2000. Accident and claim costs
showed significant improvement in the quarter compared to the prior year.
Liability claims declined by 43% compared to the prior year and cargo claims
decreased by 64%.
Segment Results
The following discussion sets forth certain information about our
segment results.
Manufactured Housing
Manufactured Housing operating revenues were $6.8 million or 38% less
in the first quarter of 2001 compared to the first quarter of a year ago,
reflecting the continued softness in the manufactured housing industry.
Manufactured Housing EBITDA decreased primarily due to the lower
quarter-to-quarter shipment volume.
Driver Outsourcing
Operating revenues of $4.5 million decreased $1.1 million in the first
quarter of 2001 compared to the first quarter of 2000, reflecting the softness
in the motor homes market. EBITDA for this segment also decreased by $155,000 to
$314,000 in the first quarter of 2001 primarily due to lower quarter-to-quarter
volume and increased overhead costs.
Specialized Outsourcing Services
Operating revenues increased by $378,000 in the first quarter of 2001
to $4.1 million. This increase was in the delivery of large trailers.
Specialized Outsourcing Services recorded a profit in the first quarter 2001 at
the EBITDA level of $43,000 compared to a loss of $143,000 in the first quarter
of 2000. This increase is primarily due to the volume increases.
Insurance/Finance
Our Insurance/Finance segment provides insurance and financing services
to our drivers and independent owner-operators. This segment also acts as a cost
center whereby all bodily injury, property damage and cargo loss costs are
captured. Insurance/Finance operating revenues decreased $155,000 in the first
quarter of 2001 to $660,000 primarily reflecting a decrease in owner-operator
insurance premiums relating to the slow-down in the manufactured housing
industry.
We also experienced a significant decrease in bodily injury, property
damage and cargo related claims in the first quarter of 2001 primarily relating
to the delivery of manufactured homes. As a result of the above factors, the
loss at the EBITDA level for this segment decreased in the first quarter of 2001
by $1.5 million to $733,000.
Liquidity and Capital Resources
Our credit facility matured on January 28, 2001, at which time we had
no outstanding debt and $6.6 million outstanding letters of credit. We were in
default of the financial covenants, resulting in the bank failing to renew the
credit facility. As a result of the credit facility not being renewed, we have a
payment default and the lender has the right to demand cash to meet outstanding
obligations under the letters of credit. The bank has discretion as to whether
to make any loans or issue additional letters of credit for us.
Our financial statements were prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. We are actively seeking alternative financial
institutions to replace the existing facility. We received several commitment
letters from financial institutions. Each of the commitment letters was
conditioned upon satisfactory completion of due diligence procedures as well as
our meeting various financial covenants and requirements prior to closing. We
are seeking to finalize negotiations with one financial institution on a
definitive credit agreement for a replacement general credit facility and with
another financial institution for a separate credit facility, to be secured by
discrete assets, to supplement our anticipated needs for letters of credit.
Our primary liability insurance arrangements are to be renewed
effective July 1, 2001. The terms of such renewed arrangements are difficult to
predict and may result in a significant increase in premium expense, the
assumption of additional risks, and increase letter of credit requirements. The
annual premium for the excess insurance arrangements increased by $600,000
effective April 1, 2001. The terms of any replacement credit facility may not be
sufficient to provide for additional letters of credit, and depending on our
performance, the lender may not agree to expand the facility to provide such
letters of credit. Additional premium costs will increase working capital
requirements and reduce profitability.
In connection with the replacement of the credit facility, the board of
directors of our majority stockholder, Interactive, has approved a $2.0 million
equity investment in our Class B common stock. The investment by Interactive
would increase its ownership from 55.6% to 68.5%. Our board of directors
approved the issuance of 1,000,000 additional shares of our Class B common stock
to Interactive at a Board meeting on May 9, 2001. The issuance of additional
shares of Class B common stock is subject to certain conditions, including the
approval of the issuance and a corresponding charter amendment by our
stockholders at our 2001 annual meeting. Our board of directors also authorized
our management to further develop plans to provide an opportunity for other
stockholders to acquire additional equity investment. As a result, our Board of
Directors approved the distribution of the warrants described in this
Prospectus.
Our ability to continue as a going concern is dependent upon our
ability to successfully maintain our financing arrangements and to comply with
the terms thereof. However, although no assurances can be given, our management
remains confident that we will be able to continue operating as a going concern.
Subject to the foregoing discussion, assuming we receive anticipated
equity as described above, our management believes that internally generated
funds together with such additional equity and resources available under a
replacement credit facility will be sufficient to provide for our capital and
liquidity requirements during 2001.
Impact of Seasonality
Shipments of manufactured homes tend to decline in the winter months in
areas where poor weather conditions inhibit transport. This usually reduces
operating revenues in the first and fourth quarters of the year. Our operating
revenues, therefore, tend to be stronger in the second and third quarters.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Shares of our Class A common stock are quoted on the American Stock
Exchange under the symbol "MG." The following table sets forth the high and low
sales price per share of our Class A common stock for each quarter in fiscal
2000 and 1999, and the first quarter of fiscal 2001.
Year Ended June 30,
2001 2000 1999
--------------------------- ---------------------------- ------------------------------
High Low High Low High Low
------------ ------------ ------------ -------------- ------------- ---------------
First Quarter $4.75 $3.80 $8.50 $5.38 $9.13 $6.63
Second Quarter N/A N/A 7.88 6.13 8.75 6.75
Third Quarter N/A N/A 7.25 5.25 9.88 7.00
Fourth Quarter N/A N/A 6.06 3.75 7.88 5.44
As of May 31, 2001, there were 151 holders of record of Class A common
stock and one holder of record of our Class B common stock. We estimate that our
Class A common stock is owned beneficially by approximately 289 persons. There
is no market for our Class B common stock, and our management has no plans to
list the Class B common stock on any exchange.
As of May 31, 2001, there were 1,248,157 shares of our Class A common
stock outstanding and 1,200,000 shares of our Class B common stock outstanding
for an aggregate of 2,448,157 shares of our common stock issued and outstanding.
On or about the date hereof, we expect to have issued an additional 1,000,000
shares of Class B common stock, after which an aggregate 2,200,000 shares of our
Class B common stock will be issued and outstanding.
We are proposing to our stockholders at our 2001 annual meeting
amendments to our charter, which will modify the transfer restrictions on our
Class B common stock and increase in the number of shares of our authorized
common stock designated as Class B common stock from 1,200,000 to 4,400,000.
Dividend Policy
In 1999, we declared a dividend of $0.02 each quarter, and in 2000, we
declared a dividend of $0.02 in the first and second quarter. In the third
quarter 2000, we reduced the dividend rate to $0.01, and we did not declare a
dividend in the fourth quarter of 2000. Our charter provides that dividends of
the Class A common stock may be up to 100% more than dividends on the Class B
common stock. Historically, dividends paid on the Class A common stock have been
twice the amount paid on the Class B common stock. We expect this will continue
to be true of future dividends, if any. The payment of dividends is within the
discretion of our Board of Directors and will depend, among other things, upon
earnings, capital requirements, any financing agreement covenants and our
financial condition. Our ability to pay dividends is limited by covenants with
our lenders.
USE OF PROCEEDS
The maximum net proceeds that we may receive from this offering could
be up to approximately $31.0 million if all warrants are exercised. However, it
is unlikely that all warrants will be exercised and no assurance can be given as
to when or whether any warrants will be exercised, nor as to timing of receipt
or amount of proceeds therefrom. The warrants are intended to provide
stockholders a fixed, long-term opportunity to acquire additional shares of our
common stock. We are not dependent upon, nor do we expect, any material amount
of proceeds from the warrants at any given time, if ever. Although there is no
accurate way to determine the number of warrants that will be exercised, if any,
we will use any net proceeds of the sale of our common stock from this offering
for general corporate purposes (and, in particular, to reduce outstanding
revolving credit borrowings).
THE OFFERING
We are distributing to holders of our Class A common stock, one Class A
warrant for each share of our Class A common stock that they own on the record
date of _____________, 2001. In addition, we are distributing to holders of our
Class B common stock, one Class B warrant for each share of our Class B common
stock that they own on the record date. Only those record holders who own our
common stock on the record date will receive warrants directly from us. You are
a record holder for this purpose only if your name is registered as a
stockholder with our transfer agent, American Stock Transfer & Trust Company, as
of the record date.
As a warrant holder, you may purchase shares of our common stock
through exercise of your warrants, or allow your warrants to expire unexercised.
You may also transfer your Class A warrants in whole or in part. To purchase
shares of our common stock, you must deliver one warrant for each share of our
common stock you intend to purchase. We are issuing warrants to purchase an
aggregate of 1,248,157 shares of our Class A common stock and warrants to
purchase an aggregate of 2,200,000 shares of our Class B common stock.
Exercising Your Warrants
Each Class A warrant entitles the holder to purchase one share of our
Class A common stock; and each Class B warrant entitles the holder to purchase
one share of our Class B common stock. Commencing on the date of this
prospectus, you may exercise your warrants by properly completing and signing
your warrant certificate, including, if required, a signature guarantee from an
eligible institution. Mail or deliver the properly executed warrant certificate
to the transfer agent, together with payment of the aggregate warrant exercise
price in full. Please see "--Warrant Exercise Price" below.
There is no minimum amount of shares that you must purchase. You may
exercise your warrants in whole or in part, but no warrants may be exercised for
fractional shares. We are required to keep available a sufficient number of
authorized shares of our common stock to permit exercise of the warrants.
A holder of warrants will not have any rights, privileges or
liabilities as a stockholder prior to exercise of the warrants.
Warrant Exercise Price
The exercise price for the Class A and Class B warrants is $9.00 per
share, payable in cash. Please see "--Anti-Dilution Protection" for a discussion
of certain adjustments to the warrant exercise price and number of shares
issuable upon the occurrence of certain dilutive events.
The exercise price for the Class A warrants will be reduced to $6.00
per share for a reduction period of at least 30 days to be set by our Board of
Directors. If the price reduction period has not been set prior to the date 60
days before the expiration date, such period will comprise the final 30 days
prior to the date upon which the warrants expire. In the event the reduction
period is set by our Board of Directors, we will cause a written notice to all
record holders of Class A warrants indicating the dates upon which the reduction
period shall commence and end.
To exercise your Class A warrants to purchase shares of our Class A
common stock, you must deliver a properly completed and signed warrant
certificate together with payment of the aggregate warrant exercise price to the
transfer agent within the reduction period. We will not be obligated to honor
any purported exercise of Class A warrants at the reduced exercise price of
$6.00 if the documents and/or payment relating to such exercise are received by
the transfer agent before or after the reduction period, regardless of when such
documents and/or payment were sent.
The Class B warrants will not carry any corresponding right to a
reduction in their exercise price.
Expiration Time
The warrants have a 5-year term. The warrants will expire at 5:00 p.m.,
New York City Time, on _________________, 2006, the expiration time. After
expiration of the warrants, all unexercised warrants will be null and void and
no longer exercisable by the holder. We will not be obligated to honor any
purported exercise of warrants received by the transfer agent after the
expiration time, regardless of when the documents relating to such exercise were
sent.
Transfer Agent
The transfer agent is American Stock Transfer & Trust Company. The
address to which you must make any required deliveries is:
American Stock Transfer & Trust Company
59 Maiden Lane, Plaza Level
New York, New York 10038
Determination of the Warrant Exercise Price
Our Board of Directors determined the warrant exercise price on May 9,
2001. In setting the warrant exercise price, our board of directors considered,
among other things, the factors set forth above under "Risks Related to the
Offering," as well as our business potential and prospects and current market
conditions. The warrant exercise price was determined by our Board of Directors
and bears no direct relationship to the value of our assets, financial condition
or other established criteria for value. In light of our expectation to sell
additional shares of our Class B common stock to our principal stockholder, our
Board of Directors determined the warrant exercise price (including the Class A
warrant exercise price reduction to $6.00 per share during a 30-day period) and
approved the distribution of warrants to give our stockholders a fixed
opportunity to buy additional shares without brokerage fees and with a view that
the warrants may prove to be of value to out stockholders over the long-term.
As of ________________, 2001, the closing price of our Class A common
price was $________. Because the warrant exercise price is $9.00 per share,
subject to adjustment, the warrants are out-of-the-money on the date hereof and
are likely to be out-of-the-money for an indefinite period of time. We can give
no assurance that the trading price for our Class A common stock will ever equal
or exceed the warrant exercise price.
Lynch Interactive, Inc.
As of May 31, 2001, our controlling stockholder, Lynch Interactive,
Inc. ("Interactive"), owned 161,000 shares of our outstanding Class A common
stock and all 1,200,000 shares of our outstanding Class B common stock. Shares
of our Class A common stock carry one vote per share while shares of our Class B
common stock carry two votes per share. Combined, Interactive's ownership
interests enable it to yield approximately 70% of the voting power of our common
stock, which allows Interactive to exercise control over matters submitted to a
vote of our stockholders. On or before the record date, we expect to have issued
1,000,000 additional shares of our Class B common stock to Interactive. As a
result, Interactive's voting control after such issuance will exceed 80% of the
voting power of all classes of our common stock.
We expect to issue 2,200,000 Class B warrants to Interactive in
addition to 161,000 Class A warrants. The Class B warrants issued to Interactive
will be subject to certain transfer restrictions. Please see "--Transferability
of Warrants" below for a description of the transfer restrictions on the Class B
warrants. In addition, any exercise of such Class B warrants by Interactive will
further enhance Interactive's voting power and control over matters submitted to
a vote of our stockholders.
Plan of Distribution
We are distributing the warrants at no cost to those persons who are
holders of outstanding shares of our common stock on the record date. Where
shares are held indirectly through a broker, bank or other institution, we will
reimburse the institution's reasonable out-of-pocket costs in distributing this
prospectus and other materials to beneficial owners of our common stock. No
commission or fee will be paid to any person in connection with the issuance of
the warrants or upon issuance of our common stock upon exercise of the warrants.
No warrants will be exercisable unless at the time of exercise there is
a current prospectus covering the shares of common stock issuable upon exercise
of such warrants under an effective registration statement filed with the
Securities and Exchange Commission and such shares have been qualified for sale
or are exempt from qualification under the securities laws of the state or
residence of the holder of such warrants. Although we intend to seek to have the
shares of our common stock so qualified in the states where the warrants are
being offered and to maintain a current prospectus relating thereto, until the
expiration of the warrants, there can be no assurance that we will be able to do
so.
We have appointed American Stock Transfer & Trust Company, to assist
with the offering. You should deliver your warrant certificate together with
payment of the warrant exercise price to the transfer agent. Please see "--The
Transfer Agent" above for the address to which the warrant certificate and
payment should be delivered.
The transfer agent will be responsible for, among other things,
delivering warrant certificates to our stockholders, stock certificates to
warrant holders whose exercise is accepted, and delivering refunds to warrant
holders who have over-paid their aggregate warrant exercise price or whose
exercise is rejected. We will pay the fees and expenses of the transfer agent in
connection with the offering.
Warrant Payments
You must pay the warrant exercise price in full for all shares you
intend to purchase by:
(1) check or bank draft drawn upon a U.S. bank, or postal,
telegraphic or express money order, payable to American Stock
Transfer & Trust Company, as transfer agent; or
(2) wire transfer of immediately available funds to an account
which the transfer agent maintains for this purpose at
_____________________.
The warrant exercise price will be deemed to have been received by the
transfer agent only upon:
(1) clearance of any uncertified check;
(2) receipt by the transfer agent of any certified check or bank
draft drawn upon a U.S. bank or of a postal, telegraphic or
express money order; or
(3) receipt of good funds in the transfer agent's account
designated in the wiring instructions provided by the transfer
agent.
Anti-Dilution Protection
The warrant exercise price and the number of shares of Class A common
stock issuable upon exercise of the each warrant will be subject to adjustment
to protect against dilution in the event of stock dividends, stock splits,
combinations, subdivisions, reclassifications, reorganizations, mergers, and
similar corporate transactions. However, the warrants are not subject to
adjustment for issuance of shares of our common stock (or securities convertible
into or exercisable for our common stock) at prices below the exercise price of
the warrants. Any adjustment required by the foregoing events will be determined
by our Board of Directors.
Signature Guarantees
Signatures on the warrant certificate do not need to be guaranteed if
the warrant certificate provides that the shares of Class A common stock to be
purchased are to be delivered directly to the record owner of such warrants or
if the warrant certificate is submitted for the account of a member firm of a
registered national securities exchange or a member of the National Association
of Securities Dealers, Inc., or a commercial bank or trust company having an
office or correspondent in the United States. If your shares are being purchased
or delivered in a manner not described in the preceding sentence, then your
signature on each warrant certificate must be guaranteed by an Eligible
Guarantor Institution, as defined in Rule 17Ad-15 of the Securities Exchange Act
of 1934, and required under the standards and procedures adopted by the transfer
agent. Eligible Guarantor Institutions include banks, brokers, dealers, credit
unions, national securities exchanges and savings associations, each as defined.
Nominee Holders
Holders on the record date who hold shares of our common stock for the
account of others, such as brokers, trustees or depositories for securities,
should contact the respective beneficial owners of such shares to ascertain the
intentions of the beneficial owners of such shares and to obtain instructions
with respect to their warrants. If a beneficial owner so instructs, the nominee
should properly complete the applicable warrant certificate and submit it to the
transfer agent with the proper payment. In addition, beneficial owners of our
common stock or warrants held through such nominee should contact the nominee
and request the nominee to effect transactions in accordance with the beneficial
owner's instructions.
Ambiguities in Exercise of the Warrants
If you do not specify the number of warrants being exercised on your
warrant certificate, or if your payment is not sufficient to pay the total
warrant exercise price for all of the shares that you indicate you wish to
purchase, you will be deemed to have exercised the maximum number of warrants
that could be exercised for the amount of the payment that the transfer agent
receives from you.
If your payment exceeds the number of warrants you specify are being
exercised on your warrant certificate, you will be deemed to have exercised the
maximum number of warrants that could be exercised for the amount of payment the
transfer agent receives from you, up to the aggregate number of warrants
exercisable by your warrant certificate.
Any excess payment remaining after the foregoing allocation will be
returned to you by mail as soon as practicable following processing of your
warrant certificate, without interest or deduction.
Interpretation
All questions concerning the terms of the warrants and timeliness,
validity, form and eligibility of any exercise of warrants will be determined by
us and our determinations will be final and binding. We reserve the right, in
our sole discretion, to waive any defect or irregularity, or permit a defect or
irregularity to be corrected within such time as we may determine, or reject the
purported exercise of any warrant. Warrants will not be deemed to have been
received or accepted until all irregularities have been waived or cured within
such time as we determine in our sole discretion. We reserve the right, in our
sole discretion, to reject any exercise or related documents or payment not
properly submitted or the acceptance of which would, in the opinion of our
counsel, be unlawful. Neither we nor the transfer agent will be under any duty
to give notification of any defect or irregularity in connection with the
exercise of warrant certificates or incur any liability for failure to give such
notification.
Risk of Loss on Delivery of Warrant Certificates and Payments
The instructions accompanying the warrant certificate should be read
carefully and followed in detail. Do not send subscription certificates to us.
The method of delivery of warrant certificates and payment of the warrant
exercise price to the transfer agent will be at the election and risk of the
warrant holders but, if sent by mail it is recommended that warrant certificates
and payments be sent by registered mail, properly insured, with return receipt
requested, and that a sufficient number of days be allowed to ensure delivery to
the transfer agent and clearance of payment at or prior to 5:00 p.m., New York
City Time, on the expiration date.
Exercise of Less Than All Warrants
If you exercise your warrants for fewer than all of the shares
represented by your warrant certificate, you may (1) attempt to transfer your
remaining warrants, or (2) receive from the transfer agent a new warrant
certificate representing the unexercised warrants.
Transferability of Warrants
You may transfer your warrants by delivering to American Stock Transfer
& Trust Company, as transfer agent, the warrant certificate properly endorsed
for transfer, with separate written instructions to register a portion of your
warrants in the name of your transferee and to issue a new warrant certificate
to the transferee covering the transferred warrants. In that event, you will
receive a new warrant certificate covering any warrants you did not transfer
provided that the transfer agent receives a properly endorsed warrant
certificate from you no later than 5:00 p.m., New York City Time, on the fifth
business day prior to the expiration date.
No public market for the warrants currently exists and we can give no
assurance that a public market for the warrants will ever develop. In addition,
we do not intend to apply, and are not obligated to apply, for listing of the
warrants on any securities exchange, the Nasdaq Stock Market, or any other
market.
If you wish to transfer all or a portion of your warrants, you should
allow a sufficient amount of time prior to the expiration date for:
(1) the transfer instructions to be received and processed by the
transfer agent;
(2) new warrant certificates to be issued and transmitted; and
(3) the warrants evidenced by the new warrant certificates to be
exercised by the intended transferees.
It may require several business days to complete transfers of warrants
depending upon how you deliver the warrant certificate and payment and the
number of transactions you request. Neither we nor the transfer agent will be
liable to you or any transferee of warrants if warrant certificates or any other
required documents are not received in time for exercise prior to the expiration
time.
If you exercise warrants in part, a new warrant certificate for the
remaining warrants will be issued to you only if the transfer agent receives a
properly endorsed warrant certificate from you no later than 5:00 p.m., New York
City Time, on the fifth business day prior to the expiration time. The transfer
agent will not issue new warrant certificates for partially exercised warrant
certificates submitted after that date and time. If you do submit a warrant
certificate after that date and time, you will not be able to exercise the
unexercised warrants.
Unless you make other arrangements with the agent, a new warrant
certificate issued after 5:00 p.m., New York City Time, on the fifth business
day before the expiration time will be held for pick-up by you at the offices of
the transfer agent at 59 Maiden Lane, Plaza Level, New York, New York 10028.
If you request a reissuance of a warrant certificate, the delivery of
that document will be at your risk.
You will be responsible for paying any brokerage commissions or other
expenses or transfer taxes that you may incur in connection with the exercise or
transfer of your warrants.
If you do not exercise your warrants prior to the expiration time,
those warrants will expire and will no longer be exercisable by you.
Procedures for Depository Trust Company Participants
We expect that you will be able to exercise and/or transfer your Class
A warrants through the facilities of Depository Trust Company. If your Class A
warrants are held of record through the Depository Trust Company, you may
exercise and/or transfer your warrants by instructing the Depository Trust
Company to transfer your Class A warrants from your account to the account of
the transfer agent, together with instructions as to the aggregate number of
warrants you are exercising, the number of shares of our common stock you are
purchasing, the warrant exercise price for each share of our common stock that
you intend to purchase, and the identification of the transferee to whom your
Class A warrants are to be ultimately transferred by the transfer agent.
No Revocation
Once you exercise your warrants, you may not revoke that exercise.
Warrants not exercised prior to their expiration will be null and void as of and
after such time.
No Board Recommendation
Our Board of Directors does not make any recommendation to you about
whether you should exercise any warrants. If you exercise warrants, you risk
investment loss on money invested. We cannot assure you that anyone purchasing
shares of our Class A common stock will be able to sell those shares in the
future at a higher price. An investment in our Class A common stock must be made
in accordance with your evaluation of your own best interest.
Issuance of Stock Certificates
Stock certificates for shares purchased in the offering will be issued
to you as soon as practicable after your due exercise of your warrants. American
Stock Transfer & Trust Company will deliver payment of the warrant exercise
price to us only after the issuance of stock certificates to those exercising
warrants.
If you exercise warrants, you will have no rights as a stockholder
until certificates representing the shares you purchased are issued. Unless
otherwise instructed in your warrant certificate, shares purchased by the
exercise of warrants will be registered in the name of the person exercising the
warrants.
Foreign Stockholders; Stockholders with APO or FPO Addresses
If you are a holder of record and your address is outside the United
States, or if you have no APO or FPO address, a warrant certificate will not be
mailed to you, but rather will be held by the transfer agent for your account.
To exercise the warrants, you must notify the transfer agent prior to 11:00
a.m., New York City Time, on the second trading day before the expiration date.
State and Foreign Securities Law
The warrants may not be exercised by any person, and neither this
prospectus nor the warrant certificate shall constitute an offer to sell or a
solicitation of an offer to purchase any shares of our common stock, in any
jurisdiction in which such transactions would be unlawful. We believe that no
action has been taken in any jurisdiction outside the United States to permit
offers and sales of the warrants or the offer, sale or distribution of the
shares of our common stock outside the United States. Consequently, we may
reject the exercise of warrants by any holder of warrants outside the United
States. We may also reject the exercise of warrants by holders in jurisdictions
within the United States, and we may refuse to distribute warrants to any
person, if we should determine that we may not lawfully issue securities to such
person. We may do so even if we could qualify the securities for sale or
distribution by taking other actions or modifying the terms of the offering or
the distribution in such jurisdictions, which we may decline to do in our sole
discretion. In such event, warrant holders who are residents of these
jurisdictions will not be eligible to exercise the warrants or participate in
the offering.
Regulatory Limitation
We will not be required to issue shares pursuant to this offering to
anyone who, in our opinion, would be required to obtain prior clearance or
authorization from any state or federal regulatory authorities to own or control
such shares if such clearance or authorization has not been obtained at the
expiration of this offering.
Questions or Requests for Assistance
If you have questions about this offering, including questions about
the procedure for exercising warrants or requests for additional copies of this
prospectus, please contact the transfer agent toll free at (800) 777-0800.
DILUTION
Stockholders that do not exercise their warrants in full may experience
substantial dilution of their percentage of equity ownership interest and voting
power in us to the extent that other stockholders exercise their warrants. In
addition, it is possible that in the future we may find it necessary or
appropriate for us to issue additional capital stock to raise capital or for
compensatory purposes. In that event, the relative voting power and equity
interests of persons purchasing shares of our Class A common stock in this
offering could be reduced.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of (a) 7,500,000 shares of Class
A common stock, $.015 par value per share, (b) 2,500,000 shares of Class B
common stock, $.015 par value per share, and (c) 2,100,000 shares of preferred
stock, $.01 par value per share. We have submitted to our stockholders a
proposal to authorize the designation of an additional 1,900,000 shares of Class
B common stock. If the proposal is approved by the stockholders there will be
4,400,000 authorized shares of Class B common stock.
As of the date of this prospectus, there are 1,248,157 shares of Class
A common stock outstanding held of record by 151 stockholders, and 1,200,000
shares of Class B common stock outstanding held of record by one stockholder,
Lynch Interactive, Inc. ("Interactive"). Prior to the issuance of the warrants,
provided our stockholders approve the issuance of additional shares of Class B
common stock and certain amendments to our charter at our annual meeting to be
held on July 12, 2001, we plan to issue to Interactive an additional 1,000,000
shares, which would result in there being 2,200,000 shares of Class B common
stock outstanding, all of which would be held by Interactive. No shares of
preferred stock have been designated and there are no outstanding shares of
preferred stock.
Upon completion of the proposed issuance of Class B common stock to
Interactive and the warrant offering, if all warrants were exercised, there
would be 2,496,314 shares of Class A common stock outstanding and 4,400,000
shares of Class B common stock outstanding. See "Risk Factors."
The relative rights, privileges and limitations of our capital stock
are summarized below.
Class A and Class B Common Stock
Class A Common Stock. The shares of Class A common stock are listed on
the American Stock Exchange. The shares of Class A common stock are entitled to
one vote per share on all matters presented to the stockholders, and the holders
of shares of Class A common stock are entitled, voting separately as a class, to
elect one member of our Board of Directors. The holders of the Class A and Class
B common stock vote together as a single class upon the election of all
remaining directors and on all other matters presented to stockholders, except
that the Class A and Class B common stock also each vote separately as a class
when required by our charter or bylaws, or the Delaware General Corporation Law,
as amended ("DGCL"). See- "Certain Statutory, Charter and By-Law Provisions"
below. The shares of Class A common stock are freely transferable by the holder.
Class B Common Stock. The shares of Class B common stock are entitled
to two votes per share on all matters presented to the stockholders. The holders
of Class A and Class B common stock vote together as a single class on all
matters presented to the stockholders, except that the holders of Class A common
stock elect one director exclusively and except where voting by class is
required by our charter or bylaws, or the DGCL. The Class B common stock is not
listed on any exchange or traded in any market. The shares of Class B common
stock automatically convert to shares of Class A common stock upon any transfer,
except for transfers to a wholly owned subsidiary, a parent entity which wholly
owns the transferor, or the wholly owned subsidiary of such parent entity.
However, a proposed amendment to our charter to be considered by our
stockholders at the 2001 annual meeting would allow the shares to be transferred
to an "affiliate" of the holder without converting to Class A common stock. An
"affiliate" is defined as a person that, directly or indirectly, through one or
more intermediaries, controls or is controlled by, or is under common control
with, the transferring holder of such Class B warrants. "Control" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership of voting
securities, by contract or otherwise, and specifically includes direct or
indirect ownership of at least 5% of the voting equity of such person.
Common Stock Generally. Holders of both classes of common stock are
entitled to receive ratably such dividends, if any, as are declared by our Board
of Directors from legally available funds, subject to any preferential dividend
owing to outstanding preferred stock. See "--Preferred Stock", below. No cash
dividend may be paid on either class of our common stock unless a cash dividend
is also paid on the other class; provided that any dividend paid on Class B
common stock may not be greater than 100%, nor less than 50%, of any dividend
paid on shares of Class A common stock. If holders of our Class A common stock
receive shares of our Class A common stock distributed in connection with stock
dividends or stock splits, holders of our Class B common stock will receive
shares of our Class B common stock in the same per-share proportion as holders
of our Class A common stock receive shares of our Class A common stock.
Pursuant to our charter, we may not issue any additional shares of
Class B common stock without the approval of a majority of the votes of the
outstanding shares of Class A common stock and Class B common stock, each voting
separately as a class. We may, however, issue additional shares of Class B
common stock in the event of pro rata stock splits or stock dividends. Any
shares of Class B common stock received by us upon conversion of the shares to
Class A common stock will be retired and not reissued.
Upon our liquidation, dissolution or winding up, the holders of both
classes of our common stock are entitled to receive ratably our net assets
available after the payment of all debts and other liabilities and subject to
the prior rights of any outstanding preferred stock. Holders of our common stock
have no preemptive, subscription or redemption rights. All outstanding shares of
our common stock are fully paid and nonassessable. The rights, preferences and
privileges of holders of our common stock are subject to, and may be adversely
affected by, the rights of the holders of any shares of our preferred stock
which we may designate and issue in the future.
Preferred Stock
Our Board of Directors has the authority to issue preferred stock and
to determine its rights and preferences to eliminate delays associated with a
stockholder vote on specific issuances. There are 2,100,000 authorized shares of
preferred stock which may be designated and issued pursuant to these provisions.
The issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a majority of our outstanding voting
stock. We have no present plans to designate or issue any classes or series of
preferred stock.
Certain Statutory, Charter and Bylaw Provisions
The following discussion is a general summary of material provisions of
our charter and bylaws and the DGCL, certain of which may be likely to have an
effect of delaying, deferring or preventing a change in control. The following
description of certain of these provisions is general and not complete. You
should read our charter and bylaws and the DGCL.
We are subject to Section 203 of the DGCL, which prohibits a Delaware
corporation from engaging in a wide range of specified transactions with any
interested stockholder, defined to include, among others, any person or entity
who in the last three years obtained 15% or more of any class or series of stock
entitled to vote in the election of directors, unless, among other exceptions,
the transaction is approved by (a) our Board of Directors prior to the date the
interested stockholder obtained such status or (b) the holders of two-thirds of
the outstanding shares of each class or series of stock entitled to vote
generally in the election of directors, not including those shares of the
interested stockholder. Section 203 is intended to discourage certain
transactions with the target company.
Our charter contains certain provisions permitted under the DGCL
relating to the liability of our directors and officers. The provisions provide
that we will indemnify our directors and officers against all expense, liability
and loss suffered by our director or officer in connection with his service as a
director or officer to the fullest extent authorized by the DGCL, and includes
the right of the director or officer to require us to pay the expenses incurred
in defending any such proceeding in advance of its final disposition. Therefore,
the directors and officers are protected from monetary damages for breach of
fiduciary duty, except in certain circumstances involving wrongful acts, such as
the breach of a director's duty of loyalty or acts or omissions which involve
intentional misconduct or a knowing violation of law.
Our bylaws provide that any action required or permitted to be taken by
our stockholders may be taken only at a duly called annual or special meeting of
stockholders, and special meetings may be called only by the Chairman of our
Board of Directors, a majority of the members of the Board of Directors or the
holders of a majority of the voting power of our outstanding common stock. Our
bylaws also impose certain notice and information requirements in connection
with the nomination by stockholders of candidates for election to our Board of
Directors or the proposal by our stockholders of business to be acted upon at
our annual meeting of our stockholders. These provisions could have the effect
of delaying until the next annual stockholders' meeting stockholder actions
which are not favored by the holders of a majority of the voting power of our
outstanding common stock.
The DGCL provides generally that the affirmative vote of a majority of
the shares entitled to vote on any matter, and the affirmative vote of each
class entitled to vote on any matter as a separate class, is required to amend
our charter. Each class of our common stock is entitled to vote on any amendment
to the charter which would (a) increase or decrease the aggregate number of
authorized shares of such class, (b) increase or decrease the par value of the
shares of such class, or (c) alter or change the powers, preferences, or special
rights of the shares of such class so as to affect them adversely. Our charter
and bylaws allow our stockholders and Board of Directors the power to amend,
repeal and adopt our bylaws.
Under Delaware law, the vote of a simple majority of the outstanding
shares of the capital stock entitled to vote thereon is required to approve a
merger or consolidation, or the sale, lease, or exchange of substantially all of
the assets of a company. With respect to a merger, no vote of our stockholders
is required if we are the surviving corporation and (a) the related agreement of
merger does not amend our charter, (b) each share of our stock outstanding
immediately before the merger is an identical outstanding or treasury share
after the merger, and (c) the number of shares of our common stock to be issued
in the merger (or to be issuable upon conversion of any convertible instruments
to be issued in the merger) does not exceed 20% of the shares of our common
stock outstanding immediately before the merger.
Our Board of Directors is authorized, without shareholder approval, to
issue preferred stock in series and to fix and state the voting rights and
powers, designation, preferences and relative, participating, optional or other
special rights of the shares of each such series and the qualifications,
limitations and restrictions thereof. Preferred stock may rank prior to the
Class A common stock and the Class B common stock as to dividend rights,
liquidation preferences, or both, and may have full or limited voting rights.
Accordingly, issuance of shares of preferred stock could adversely affect the
voting power of holders of Class A common stock and Class B common stock or
could have the effect of deterring or delaying an attempt to obtain control over
us.
Certain of the foregoing provisions of our charter, our bylaws and the
DGCL could have the effect of preventing or delaying a person from acquiring or
seeking to acquire a substantial equity interest in, or control of, our equity
securities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
This section discusses certain federal income tax consequences of the
offering to:
o beneficial owners of common stock upon distribution of the
warrants,
o holders upon the exercise of warrants, and
o holders of rights upon the disposition of the warrants.
This discussion is based on the Internal Revenue Code of 1986, as amended, the
Treasury regulations thereunder, judicial authority, and current administrative
rulings and practice, all of which are subject to change.
This discussion is limited to U.S. taxpayers who hold our common stock
and will hold the warrants and any shares acquired upon the exercise of rights
as capital assets. This discussion does not include any tax consequences under
state, local and foreign law. You should consult with your own tax advisor
concerning your own tax situation or special tax considerations that may apply
to you, including without limitation foreign, state and local laws that may
apply.
No Gain on Receipt of Warrants. As an owner of Class A common stock,
you will not recognize taxable income as a result of our distribution of the
warrants to you.
Basis and Holding Period of Warrants. Your tax basis in the warrants
distributed to you by us will be zero, unless (1) you exercise the warrants, and
(2) either:
o the fair market value of the warrants on the date of
distribution is 15% or more of the fair market value on that
date of our common stock you already own, in which case you
will be required to allocate a portion of your basis in the
shares of our common stock you already own to the warrants we
are distributing to you, based upon the relative fair market
value of the warrants and common stock on the date of
distribution, or
o you elect under Section 307 of the Internal Revenue Code of
1986, as amended, to allocate a portion of your basis in the
shares of our common stock you already own to the warrants we
are distributing to you, based upon the relative fair market
value of the warrants and common stock on the date of
distribution.
Your holding period with respect to the warrants we are distributing to
you will include your holding period for the common stock with respect to which
the warrants were distributed.
Sale of Warrants. If you sell or otherwise dispose of your warrants you
will recognize capital gain or loss equal to the difference between the sale
proceeds and the basis (if any) in the warrants sold. The capital gain or loss
you recognize will be long-term or short-term depending on whether your holding
period for the warrants is more than one year.
Purchasers of Warrants. If you acquire warrants by purchase, your tax
basis in such warrants will be equal to the purchase price paid for those
warrants, and your holding period for such warrants will commence on the day
following the date of their purchase. If you purchased warrants and they expire
unexercised, you will recognize a loss equal to your tax basis in the warrants.
Any loss recognized on the expiration of the warrants acquired by purchase will
be a capital loss if the common stock issuable upon exercise of the warrant
would be a capital asset in your hand.
Backup Withholding. If you sell warrants and receive payments, you may
be subject to backup withholding at a rate of 31% on the payments received,
unless (1) you are a corporation or are otherwise exempt and demonstrate the
basis for the exemption if so required, or (2) provide a correct taxpayer
identification number and certify under penalties of perjury that your taxpayer
identification number is correct and that you are not subject to backup
withholding. Any amount withheld under these rules will be credited against your
federal income tax liability.
Exercise of Warrants. You will not recognize any gain or loss upon the
exercise of warrants. Your basis in the shares you acquire through your exercise
of the warrants will be equal to the sum of the subscription price you pay for
such shares and your basis in those warrants (if any). The holding period for
the shares you acquire through your exercise of the warrants will begin on the
day following the date of acquisition.
Expiration of Warrants. If the warrants we are distributing to you as a
holder of our common stock expire unexercised, you will not recognize any gain
or loss, and no adjustment will be made to the basis of the common stock you
own.
INDEMNIFICATION OF DIRECTORS AND OFFICERS --
DISCLOSURE OF COMMISSIONS POSITION ON INDEMNIFICATION
Under provisions of our charter, any person made a party to any lawsuit
by reason of being a director or officer of The Morgan Group, Inc., or any
parent or subsidiary thereof, may be indemnified by us to the full extent
authorized by the General Corporation Law of the State of Delaware.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, we have been informed that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
LEGAL MATTERS
Certain legal matters with respect to the authorization and issuance of
our common stock offered hereby will be passed upon for us by Barnes &
Thornburg, Indianapolis, Indiana.
EXPERTS
The consolidated financial statements of The Morgan Group, Inc. at
December 31, 2000 and 1999, and for each of the three years in the period ended
December 31, 2000, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
FORWARD LOOKING STATEMENTS
Included in the prospectus summary and elsewhere in this prospectus are
several "forward-looking statements." Forward-looking statements are those which
use words such as "believe," "expect," "anticipate," "intend," "plan," "may,"
"will," "should," "estimate," "continue," or other comparable expressions. These
words indicate future events and trends. Forward-looking statements are our
current views with respect to future events and financial performance. These
forward-looking statements are subject to many risks and uncertainties that
could cause actual results to differ significantly from historical results or
from those anticipated by us. The most significant risks and uncertainties we
face are: o cyclicality of the manufactured housing industry, which is currently
experiencing a substantial downturn, because our revenues have been largely
dependent on the industry;
o the continued availability and sufficiency of credit
facilities and other sources of funding for our operations;
and
o accident claims which can materially adversely affect our
result of operations and the cost and availability of our
insurance arrangements.
There are other risks and uncertainties we face, including the effect
of changes in general economic conditions and the effect of new laws,
regulations and court decisions and those risks described under the caption
"Risk Factors." You are cautioned not to place undue reliance on our forward
looking statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-2 under
the Securities Act of 1933 with respect to the Class A common stock offered
hereby. This prospectus, which constitutes part of the registration statement,
does not contain all of the information set forth in the registration statement
and the exhibits and schedules relating to the registration statement. You may
read and copy any document we file at the SEC's public reference room at 450
Fifth Street, N.W., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330
for further information on the public reference room. Our SEC filings are also
available to the public from the SEC's Web site at http://www.sec.gov.
INCORPORATION BY REFERENCE
The following documents, all of which were previously filed with the
Securities and Exchange Commission (the "SEC") pursuant to the Securities
Exchange Act of 1934, are hereby incorporated by reference in this prospectus:
o our Annual Report on Form 10-K for the year ended December 31,
2000 and amendment thereto on Form 10-K/A filed on April 27,
2001;
o our definitive Proxy Statement for our annual meeting to be
held on July 12, 2001; and
o our Quarterly Report on Form 10-Q for the quarter ended March
31, 2001.
All other reports and documents filed by us after the date of this
prospectus pursuant to Sections 13(a), 14 and 15(d) of the Securities Exchange
Act of 1934 prior to the termination of the offering of the common stock covered
by this prospectus are also incorporated by reference in this prospectus and are
considered to be part of this prospectus from the date those documents are
filed.
In any statement contained in a document incorporated by reference
herein conflicts with or is modified by a statement contained in this prospectus
or in any other subsequently filed document that is incorporated by reference
into this prospectus, the statement made at the latest point in time should
control. Any previous statements that have been subsequently altered should
therefore not be considered to be a part of this prospectus. We will provide a
copy of any or all of the documents referred to above that have been or may be
incorporated by reference in this prospectus to any person, including any
beneficial owner, to whom a copy of this prospectus has been delivered free of
charge upon request. Exhibits to such documents will not be provided unless the
exhibits are specifically incorporated by reference into the information that
the prospectus incorporates. Written requests for copies of any documents
incorporated by reference should be directed to Gary J. Klusman, 219-295-2200.
THE MORGAN GROUP, INC.
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements: Page
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
Report of Independent Auditors
The Board of Directors and Shareholders
The Morgan Group, Inc.
We have audited the accompanying consolidated balance sheets of The Morgan
Group, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Morgan Group,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 3, the
Company, incurred operating losses during the year ended December 31, 2000, and
was not in compliance with its credit facility, which expired on January 28,
2001. Under the terms of the expired credit facility, the bank has the right to
demand cash to meet outstanding obligations of the letters of credits. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters, including raising
additional equity and replacing the expired credit facility, are more fully
described in Note 3. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
/s/ Ernst & Young LLP
Greensboro, North Carolina
February 9, 2001
CONSOLIDATED FINANCIAL STATEMENTS:
The Morgan Group, Inc.
and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share amounts)
December 31
2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 2,092 $ 3,847
Trade accounts receivable, less allowances
of $248 in 2000 and $313 in 1999 7,748 10,130
Accounts receivable, other 133 313
Refundable taxes 499 --
Prepaid expenses and other current assets 1,147 1,960
Deferred income taxes 319 1,475
------- -------
Total current assets 11,938 17,725
------- -------
Property and equipment, net 3,688 4,309
Intangible assets, net 6,727 7,361
Deferred income taxes 282 2,172
Other assets 634 697
------- -------
Total assets $23,269 $32,264
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 2,373 $ 3,907
Accrued liabilities 3,704 4,852
Income taxes payable -- 278
Accrued claims payable 3,224 3,071
Refundable deposits 1,357 1,752
Current portion of long-term debt and capital
lease obligations 217 676
------- -------
Total current liabilities 10,875 14,536
------- -------
Long-term debt and capital lease obligations, less
current portion 71 289
Long-term accrued claims payable 5,122 5,347
Commitments and contingencies -- --
Shareholders' equity:
Common stock, $.015 par value:
Class A: Authorized shares - 7,500,000
Issued shares - 1,607,303 23 23
Class B: Authorized shares - 2,500,000
Issued and outstanding shares - 1,200,000 18 18
Additional paid-in capital 12,459 12,459
Retained (deficit) earnings (2,116) 2,775
------- -------
Total capital and retained earnings 10,384 15,275
Less - treasury stock at cost (359,146 Class A
Shares in 2000 and 1999) (3,183) (3,183)
------- -------
Total shareholders' equity 7,201 12,092
------- -------
Total liabilities and shareholders' equity $23,269 $32,264
======= =======
See accompanying notes.
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except share amounts)
For the year ended December 31
2000 1999 1998
---- ---- ----
Operating revenues $ 108,024 $ 145,629 $ 150,454
Costs and expenses:
Operating costs 99,552 133,774 136,963
Selling, general and administration 9,443 10,090 10,254
Depreciation and amortization 1,067 1,215 1,230
--------- --------- ---------
110,062 145,079 148,447
--------- --------- ---------
Operating (loss) income (2,038) 550 2,007
Interest expense, net 310 338 545
--------- --------- ---------
(Loss) income before income taxes (2,348) 212 1,462
Income tax expense 2,451 193 559
---------- --------- ---------
Net (loss) income ($4,799) $ 19 $ 903
========== ========= =========
Net (loss) income per basic and diluted share ($1.96) $ 0.01 $ 0.35
========== ========= =========
Basic weighted average shares outstanding 2,448,157 2,469,675 2,606,237
========= ========= =========
See accompanying notes.
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
(Dollars in thousands, except per share amounts)
Class A Class B Additional Retained
Common Common Paid-in Officer Treasury (Deficit)
Stock Stock Capital Loan Stock Earnings Total
----- ----- ------- ---- ----- -------- -----
Balance at December 31, 1997 $23 $ 18 $ 12,453 $ (504) $ (1,426) $ 2,160 $ 12,724
Net income -- -- -- -- -- 903 903
Purchase of treasury stock -- -- -- 504 (813) -- (309)
Common stock dividends:
Class A ($.08 per share) -- -- -- -- -- (117) (117)
Class B ($.04 per share) -- -- -- -- -- (48) (48)
Options exercised -- -- 6 -- 62 -- 68
----- ------ -------- ------ -------- ------- --------
Balance at December 31, 1998 $23 $ 18 $ 12,459 $ -- $ (2,177) $ 2,898 $ 13,221
Net income -- -- -- -- -- 19 19
Purchase of treasury stock -- -- -- -- (1,006) -- (1,006)
Common stock dividends:
Class A ($.08 per share) -- -- -- -- -- (94) (94)
Class B ($.04 per share) -- -- -- -- -- (48) (48)
----- ------ -------- ------ -------- ------- --------
Balance at December 31, 1999 $23 $ 18 $ 12,459 $ -- $ (3,183) $ 2,775 $ 12,092
Net loss -- -- -- -- -- (4,799) (4,799)
Common stock dividends:
Class A ($.05 per share) -- -- -- -- -- (62) (62)
Class B ($.025 per share) -- -- -- -- -- (30) (30)
----- ------ -------- ------ -------- ------- --------
Balance at December 31, 2000 $23 $ 18 $ 12,459 $ -- $ (3,183) $(2,116) $ 7,201
===== ====== ======== ====== ======== ======= ========
See accompanying notes.
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
For the year ended December 31
2000 1999 1998
---- ---- ----
Operating activities:
Net (loss) income $(4,799) $ 19 $ 903
Adjustments to reconcile net (loss) income to net cash (used in) provided
by operating activities:
Depreciation and amortization 1,067 1,215 1,246
Deferred income taxes 3,046 (420) (713)
Loss on disposal of property and equipment 292 101 20
Changes in operating assets and liabilities:
Trade accounts receivable 2,382 2,058 1,174
Other accounts receivable 180 901 (1,088)
Refundable taxes (499) -- --
Prepaid expenses and other current assets 813 507 139
Other assets 63 (43) 810
Trade accounts payable (1,534) (397) 207
Accrued liabilities (1,148) 1,286 (612)
Income taxes payable (278) (600) 489
Accrued claims payable (72) 310 2,785
Refundable deposits (395) (78) 164
-------- ------- -------
Net cash (used in) provided by operating activities (882) 4,859 5,524
Investing activities:
Purchases of property and equipment (106) (811) (585)
Proceeds from sale of property and equipment 2 7 88
Business acquisitions -- (35) (228)
-------- ------- -------
Net cash used in investing activities (104) (839) (725)
Financing activities:
Principle payments on long-term debt (677) (664) (3,418)
Proceeds from long-term debt -- 149 135
Purchase of treasury stock, net of officer loan of $504 -- (1,006) (309)
in 1998
Proceeds from exercise of stock options -- -- 68
Common stock dividends paid (92) (142) (165)
-------- ------- -------
Net cash used in financing activities (769) (1,663) (3,689)
-------- ------- -------
Net (decrease) increase in cash and cash equivalents (1,755) 2,357 1,110
Cash and cash equivalents at beginning of period 3,847 1,490 380
-------- ------- -------
Cash and cash equivalents at end of period $ 2,092 $3,847 $ 1,490
======== ======= ========
Cash payments for interest were $379,000 in 2000, $406,000 in 1999 and $566,000
in 1998.
See accompanying notes.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Morgan Group, Inc. ("Company"), through its wholly owned subsidiaries,
Morgan Drive Away, Inc. ("Morgan") and TDI, Inc. ("TDI"), provides outsourced
transportation and logistical services to the manufactured housing and
recreational vehicle industries and is a leading provider of delivery services
to the commercial truck and trailer industries in the United States. Lynch
Interactive Corporation and its wholly owned subsidiaries ("Lynch Interactive")
owns all of the 1,200,000 shares of the Company's Class B common stock and
161,100 shares of the Company's Class A common stock, which in the aggregate
represents 70% of the combined voting power of the combined classes of the
Company's common stock.
The Company's other significant wholly owned subsidiaries are Interstate
Indemnity Company ("Interstate") and Morgan Finance, Inc. ("Finance"), which
provide insurance and financial services to its owner-operators.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires Management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could materially differ from those estimates.
Operating Revenues and Expense Recognition
Operating revenues and related driver pay are recognized when movement of the
product is completed. Other operating expenses are recognized when incurred.
Cash Equivalents
All highly liquid investments with maturity of three months or less when
purchased are considered to be cash equivalents.
Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of customer receivables. As discussed in Note 9,
two customers represent 33% of total customer receivables. The remaining credit
risk is generally diversified due to the large number of entities comprising the
Company's remaining customer base and their dispersion across many different
industries and geographic regions. As noted on the consolidated balance sheets,
the Company maintains an allowance for doubtful accounts to cover estimated
credit losses.
Property and Equipment
Property and equipment is stated at cost. Major additions and improvements are
capitalized, while maintenance and repairs that do not improve or extend the
lives of the respective assets are charged to expense as incurred. Depreciation
is computed using the straight-line method over the following estimated useful
lives:
Buildings 25 years
Transportation Equipment 3 to 5 years
Office and Service Equipment 3 to 8 years
Intangible Assets
Intangible assets are comprised primarily of goodwill, which is stated at the
excess of purchase price over net asset acquired, net of accumulated
amortization of $4,181,000 and $3,547,000 at December 31, 2000 and 1999,
respectively. Intangible assets are being amortized by the straight-line method
over their estimated useful lives, which range from three to forty years.
Impairment of Assets
The Company periodically assesses the net realizable value of its long-lived
assets, including intangibles, and evaluates such assets for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset may
not be recoverable. For assets to be held and used, impairment is determined to
exist if estimated undiscounted future cash flows are less than the carrying
amount. For assets to be disposed of, impairment is determined to exist if the
estimated net realizable value is less than the carrying amount.
Insurance and Claim Reserves
Claims and insurance accruals reflect the estimated ultimate cost of claims,
including amounts for claims incurred but not reported, for cargo loss and
damage, bodily injury and property damage, workers' compensation, long-term
disability and group health not covered by insurance. These costs are charged to
operating costs.
Stock-Based Compensation
Stock based compensation expense for the Company's employee stock option plan is
recognized under the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations. Consistent with APB 25, the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant; therefore, no compensation expense is recognized.
Net Income (Loss) Per Common Share
Net income (loss) per common share ("EPS") is computed using the weighted
average number of common shares outstanding during the period. Since each share
of Class B common stock is freely convertible into one share of Class A common
stock, the total of the weighted average number of common shares for both
classes of common stock is considered in the computation of EPS.
Fair Values of Financial Instruments
At December 31, 2000 and 1999, the carrying value of financial instruments such
as cash and cash equivalents, trade and other receivables, trade payables and
long-term debt approximate their fair values. Fair value is determined based on
expected future cash flows, discounted at market interest rates, and other
appropriate valuation methodologies.
Comprehensive Income
There were no items of comprehensive income for the years presented, as defined
under SFAS No. 130, "Reporting Comprehensive Income". Accordingly, comprehensive
income is equal to net income.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in fiscal
years beginning after June 15, 2000. Under the statement, all derivatives will
be required to be recognized on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in fair value of
the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. Under the statement, any ineffective portion of a derivative's change
in fair value must be immediately recognized in earnings. The Company has
evaluated the effect of SFAS No. 133 and determined that the adoption of SFAS
No. 133 will have no effect on the earnings and financial position of the
Company.
2. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows (in thousands):
December 31
2000 1999
---- ----
Land $ 873 $ 873
Buildings 2,186 2,241
Transportation equipment 146 419
Office and service equipment 2,288 3,491
----- -----
5,493 7,024
Less accumulated depreciation 1,805 2,715
----- -----
Property and equipment, net $3,688 $4,309
====== ======
Depreciation expense was $433,000, $511,000 and $581,000 for 2000, 1999 and
1998, respectively.
3. INDEBTEDNESS
At December 31, 2000, the Company had a $7.7 million revolving credit facility
("Credit Facility"), with a $6.7 million letter of credit sub-limit. The Credit
Facility bears interest at the Company's option, on either the applicable
Eurodollar Rate Margin or the applicable Base Rate Margin, all of which are
adjusted over the term of the Credit Facility. Total borrowings and outstanding
letters of credit are limited to qualified trade accounts receivable, qualified
in-transit amounts, contractor loans, and qualified investments. The Credit
Facility contains financial covenants, the most restrictive of which are a cash
flow coverage ratio, interest expense coverage ratio, and minimum net income. At
December 31, 2000, the Company had no outstanding debt under its Credit
Facility, and $6.6 million of letters of credit were outstanding under the
Credit Facility. Letters of credit are required for self-insurance retention
reserves and other corporate needs.
The Credit Facility matured on January 28, 2001, at which time the Company had
no outstanding debt and $6.6 million outstanding letters of credit. The Company
was in default of the financial covenants, resulting in the bank failing to
renew the Credit Facility. As a result of the Credit Facility not being renewed,
the Company has a payment default and the financial institution has the right to
demand cash to meet outstanding obligations under the letters of credit. The
bank has discretion as to whether to make any loans or issue additional letters
of credit for the Company.
The financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company is actively seeking alternative
financial institutions to replace the existing Credit Facility as well as
seeking additional capital resources. Currently, negotiations are being held
with several financial institutions regarding a replacement facility. In
connection with these potential replacement facilities, the Company is
anticipating raising equity capital up to $3.0 million. The Company has engaged
in discussions with its principal shareholder, Lynch Interactive, regarding
these matters. Based on preliminary discussions, Lynch Interactive has expressed
interest in providing a portion of the capital support the Company will require,
but no terms have been agreed upon. The Company expects to seek to raise the
equity capital it will require from Lynch Interactive, other stockholders, or,
if necessary, privately from other sources. The Company's ability to continue as
a going concern is dependent upon its ability to successfully maintain its
financing arrangements and to comply with the terms thereof. However, although
no assurances can be given, management remains confident that the Company will
be able to continue operating as a going concern.
Long-term debt and capital lease obligations consisted of the following (in
thousands):
December 31
2000 1999
---- ----
Promissory notes with imputed interest rates from 6.31% to 10.0%, principal
and interest payments due from monthly to annually, through June 30, 2002 $242 $837
Term note and capital leases with imputed interest rates of 8.25% to 11.04%
with principal and interest payments due monthly through April 26, 2002 46 128
---- ---
288 965
Less current portion 217 676
--- ---
Long-term debt and capital lease obligations, net $ 71 $289
==== ====
Maturities on long-term debt are $217,000 in 2001 and $71,000 in 2002.
4. LEASES
Future minimum annual operating lease payments as of December 31, 2000, are as
follows (in thousands):
Operating
Leases
------
2001 $ 641
2002 173
2003 60
2004 11
2005 1
------
Total minimum lease payments $ 886
======
Aggregate expense under operating leases approximated $1,672,000, $2,115,000,
and $2,578,000 for 2000, 1999 and 1998, respectively.
5. INCOME TAXES
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
The income tax provisions (benefits) are summarized as follows (in thousands):
For the Year Ended December 31
2000 1999 1998
---- ---- ----
Current:
State $ - $ 98 $ 201
Federal (595) 515 1,071
------- ----- ------
(595) 613 1,272
Deferred:
State 488 (67) (203)
Federal 2,558 (353) (510)
------- ------ -------
3,046 (420) (713)
------- ------ -------
$2,451 $ 193 $ 559
======= ====== =======
Deferred tax assets (liabilities) are comprised of the following (in thousands):
December 31
2000 1999
---- ----
Deferred tax assets:
Accrued insurance claims $3,323 $3,232
Special charges and accrued expenses 367 487
Depreciation 199 163
Other 84 125
------ ------
3,973 4,007
Deferred tax liabilities:
Prepaid expenses (184) (360)
------- -------
(184) (360)
------- -------
$3,789 $3,647
Valuation allowance for deferred tax assets ($3,188) --
------ ------
$ 601 $3,647
====== ======
A reconciliation of the income tax provisions and the amounts computed by
applying the statutory federal income tax rate to income before income taxes
follows (in thousands):
For the Year Ended December 31
2000 1999 1998
---- ---- ----
Income tax provision (benefits) at
federal statutory rate $(772) $ 72 $497
State income tax (benefit), net of
federal tax benefit (44) 20 48
Changes in estimated
state tax rates on
beginning temporary differences -- -- (70)
Change in Valuation Allowance 3,188 -- --
Permanent differences 79 101 84
------- ---- --
$2,451 $193 $559
======= ==== ====
Net cash payments for income taxes were $181,000, $1,205,000 and $810,000 in
2000, 1999 and 1998, respectively.
In assessing the realization of deferred tax assets, Management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the period in
which the temporary differences become deductible. A valuation allowance of
$3,188,000 was recorded in 2000 to reduce the deferred tax asset as the Company
has experienced cumulative losses for financial reporting for the last three
years. Management considered, in reaching the conclusion on the required
valuation allowance, given the cumulative losses, combined with the current
default on its Credit Facility, that it would be inconsistent with applicable
accounting rules to rely on future taxable income to support full realization of
the deferred tax assets. Accordingly, the remaining deferred tax assets of
$601,000 relate to federal income tax carrybacks available to the Company.
6. SHAREHOLDERS' EQUITY
The Company has two classes of common stock outstanding, Class A and Class B.
Under the bylaws of the Company: (i) each share of Class A is entitled to one
vote and each share of Class B is entitled to two votes; (ii) Class A
shareholders are entitled to a dividend ranging from one to two times the
dividend declared on Class B stock; (iii) any stock distributions will maintain
the same relative percentages outstanding of Class A and Class B; (iv) any
liquidation of the Company will be ratably made to Class A and Class B
shareholders after satisfaction of the Company's other obligations; and (v)
Class B stock is convertible into Class A stock at the discretion of the holder;
Class A stock is not convertible into Class B stock.
The Company's Board of Directors has approved the purchase of up to 250,000
shares of Class A Common Stock for its Treasury at various dates and market
prices. During the year ended December 31, 2000, the Company did not repurchase
any shares under this plan. As of December 31, 2000, 186,618 shares had been
repurchased at prices between $6.875 and $11.375 per share for a total of
$1,561,000 under this plan.
In March 1999, the Company repurchased 102,528 shares of Class A stock in a
Dutch Auction for $985,000, which includes $62,000 of fees and expenses
associated with the transaction.
In July 1998, the Company purchased 70,000 shares of Class A stock from a former
officer for $637,000 under a special stock purchase approved by the Board of
Directors.
7. STOCK OPTION PLAN AND BENEFIT PLAN
The Company has an incentive stock option plan which provides for the granting
of incentive or non-qualified stock options to purchase up to 200,000 shares of
Class A common stock to directors, officers, and other key employees. No options
may be granted under this plan for less than the fair market value of the common
stock at the date of the grant. Although the exercise period is determined when
options are actually granted, an option shall not be exercised later than ten
years and one day after it is granted. Stock options granted will terminate if
the grantee's employment terminates prior to exercise for reasons other than
retirement, death, or disability. Stock options vest over a four-year period
pursuant to the terms of the plan, except for stock options granted to a
non-employee director, which are immediately vested. Employees and non-employee
directors have been granted non-qualified stock options to purchase 96,375 and
32,000 shares, respectively, of Class A common stock, net of cancellations and
shares exercised. There are 63,250 options reserved for future issuance.
In January 2000, the President and Chief Executive Officer entered into a
special stock option plan and agreement with the Company which provides for the
granting of options to purchase 120,000 shares of Class A Common Stock in three
separate installments. The first installment is for 40,000 shares at an exercise
price of $5.625, exercisable 6 months from the date of the agreement. The second
installment is for 40,000 shares at an exercise price of $7.625, exercisable 18
months after the date of the agreement. The third installment is for 40,000
shares at an exercise price of $9.625, exercisable 30 months after the date of
the agreement. The options granted under this stock option plan and agreement
are not granted pursuant to the Incentive Stock Option Plan described above; but
they are subject to the same general terms and conditions of the Incentive Stock
Option Plan.
A summary of the Company's stock option activity and related information
follows:
Year Ended December 31
2000 1999 1998
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Options Exercise Options Exercise Options Exercise
(000) Price (000) Price (000) Price
----- ----- ----- ----- ----- -----
Outstanding at beginning of year 181 $8.23 170 $8.28 167 $8.32
Granted 120 7.63 11 7.52 23 8.11
Exercised -- -- -- -- (7) 8.25
Canceled (53) 7.79 -- -- (13) 8.59
---- ----- --- ----- ---- ----
Outstanding at end of year 128 $8.42 181 $8.23 170 $8.28
=== ===== === ----- === =====
Exercisable at end of year 124 $8.41 149 $8.31 124 $8.42
=== ===== === ===== === =====
Exercise prices for options outstanding as of December 31, 2000, ranged from
$6.80 to $10.19. The weighted-average remaining contractual life of those
options is 4.6 years. The weighted-average fair value of options granted during
each year was immaterial.
The following pro forma information regarding net income (loss) and net income
(loss) per share is required when APB 25 accounting is elected, and was
determined as if the Company had accounted for its employee stock options under
the fair value method of SFAS No. 123, "Accounting for Stock-Based
Compensation." The fair values for these options were estimated at the date of
grant using a Black-Scholes option pricing model with the following assumptions:
dividend yield of 0.1%; expected life of 10 years; expected volatility of .596
in 2000 and .316 in 1999 and .250 in 1998, and a risk-free interest rate of 6.5%
in 2000 and 5.0% in 1999 and 6.0% in 1998. For purposes of pro forma
disclosures, the estimated fair values of the options are amortized to expense
over the option's vesting periods (in thousands except for per share
information):
2000 1999 1998
---- ---- ----
Net (loss) income:
As reported ($4,799) $ 19 $ 903
Pro forma ($5,024) (24) 861
Diluted (loss) earnings per share:
As reported ($1.96) $0.01 $0.35
Pro forma ($2.05) (0.01) 0.33
During the initial phase-in period, as required by SFAS No. 123, the pro forma
amounts were determined based on stock options granted after the 1995 fiscal
year only. Therefore, the pro forma amounts for compensation cost may not be
indicative of the effects on pro forma net income and pro forma net income per
share for future years.
The Company has a 401(k) Savings Plan covering substantially all employees,
which matches 25% of the employee contributions up to a designated amount. The
Company's contributions to the Plan for 2000, 1999 and 1998 were $18,000,
$23,000 and $29,000, respectively.
8. TRANSACTIONS WITH LYNCH INTERACTIVE CORPORATION
The Company has paid Lynch Interactive Corporation ("Lynch Interactive") an
annual service fee of $100,000 for executive, financial and accounting,
planning, budgeting, tax, legal, and insurance services. Additionally, Lynch
Interactive charges the Company for officers' and directors' liability
insurance, which totaled $20,000 in 2000, and $16,000 in 1999 and 1998.
The Company's Class A and Class B common stock owned by Lynch Interactive is
pledged to secure a Lynch Interactive line of credit.
9. SEGMENT REPORTING
Description of Services by Segment
The Company operates in four business segments: manufactured housing, driver
outsourcing, specialized outsourcing services, and insurance and finance. The
manufactured housing segment primarily provides specialized transportation to
companies which produce new manufactured homes and modular homes through a
network of terminals located in twenty-eight states. The driver outsourcing
segment provides outsourcing transportation primarily to manufacturers of
recreational vehicles, commercial trucks, and other specialized vehicles through
a network of service centers in six states. The specialized outsourcing services
segment consists of a large trailer, travel and small trailer delivery and
another Specialized Service "Decking" (discontinued in 2000). The last segment,
insurance and finance, provides insurance and financing to the Company's drivers
and independent owner-operators. This segment also acts as a cost center whereby
all property damage and bodily injury and cargo costs are captured. The
Company's segments are strategic business units that offer different services
and are managed separately based on the differences in these services.
The driver outsourcing segment and the specialized outsourcing services were
reported as one segment titled "SOS" in 1998. The year of 1998 has been restated
to show corresponding segment information.
Measurement of Segment (Loss) and Segment Assets
The Company evaluates performance and allocates resources based on several
factors, of which the primary financial measure is business segment operating
income, defined as earnings before interest, taxes, depreciation and
amortization (EBITDA). The accounting policies of the segments are the same as
those described in the summary of significant accounting policies (See Note 1).
There are no significant intersegment revenues.
The following table presents the financial information for the Company's
reportable segments for the years ended December 31 (in thousands):
2000 1999 1998
---- ---- ----
Operating revenues
Manufactured Housing $ 70,631 $ 99,491 $ 106,145
Driver Outsourcing 20,939 23,351 19,710
Specialized Outsourcing Services 15,260 21,172 23,064
Insurance and Finance 2,933 3,958 4,072
All Other (3) 148 48
-------- -------- ---------
109,760 148,120 153,039
Total intersegment insurance revenues (1,736) (2,491) (2,585)
-------- -------- ---------
Total operating revenues $108,024 $145,629 $ 150,454
======== ======== =========
Segment (loss) profit - EBITDA
Manufactured Housing $ 5,784 $ 10,265 $ 10,836
Driver Outsourcing 1,324 416 115
Specialized Outsourcing Services (140) 469 1,011
Insurance and Finance (6,765) (9,058) (8,358)
All Other (1,174) (327) (367)
-------- -------- ---------
(971) 1,765 3,237
Depreciation and amortization (1,067) (1,215) (1,230)
Interest expense (310) (338) (545)
-------- -------- ---------
(Loss) income before taxes $( 2,348) $ 212 $ 1,462
======== ======== =========
Identifiable assets
Manufactured Housing $ 11,255 $ 16,956 $ 18,764
Driver Outsourcing 4,561 5,438 6,055
Specialized Outsourcing Services 2,078 2,724 3,015
Insurance and Finance 1,433 1,801 1,864
All Other 3,942 5,345 3,689
-------- -------- ---------
Total $ 23,269 $ 32,264 $ 33,387
======== ======== =========
A majority of the Company's accounts receivable are due from companies in the
manufactured housing, recreational vehicle, and commercial truck and trailer
industries located throughout the United States. Services provided to Oakwood
Homes Corporation accounted for approximately $22.5 million, $28.8 million and
$31.8 million of revenues in 2000, 1999 and 1998, respectively. The Company's
gross accounts receivables from Oakwood were 23% and 16% of total receivables at
December 31, 2000 and 1999, respectively. In addition, Fleetwood Enterprises,
Inc., accounted for approximately $16.9 million, $23.9 million and $26.0
million, of revenues in 2000, 1999 and 1998, respectively. The Company's gross
accounts receivables from Fleetwood were 10% and 17% of total receivables at
December 31, 2000 and 1999, respectively.
10. OPERATING COSTS AND EXPENSES (in thousands)
2000 1999 1998
---- ---- ----
Purchased transportation costs $75,411 $ 101,046 $103,820
Operating supplies and expenses 10,826 13,559 14,092
Claims 5,658 8,633 7,698
Insurance 2,733 3,178 3,375
Operating taxes and licenses 4,924 7,358 7,978
------- --------- --------
$99,552 $ 133,774 $136,963
======= ========= ========
11. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings and claims that have arisen
in the normal course of business for which the Company maintains liability
insurance covering amounts in excess of its self-insured retention. Management
believes that adequate reserves have been established on its self-insured claims
and that their ultimate resolution will not have a material adverse effect on
the consolidated financial position, liquidity, or operating results of the
Company.
The Company leases certain land, buildings, computer equipment, computer
software, and motor equipment under non-cancelable operating leases that expire
in various years through 2005. Several land and building leases contain monthly
renewal options.
12. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a summary of unaudited quarterly results of operations for the
years ended December 31, 2000 and 1999 (in thousands, except share data):
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
2000
- ----
Operating revenues $27,867 $29,961 $28,164 $ 22,032
Operating income (loss) (898) 113 178 (1,431)
Net income (loss) (616) 17 75 (4,275)
Net income (loss) per basic and diluted share ($ 0.25) $ 0.01 $ 0.03 ($1.75)
1999
- ----
Operating revenues $35,325 $40,270 $37,312 $ 32,722
Operating income (loss) 325 436 208 (419)
Net income (loss) 118 169 34 (302)
Net income (loss) per basic and diluted share $ 0.05 $ 0.07 $ 0.01 ($ 0.12)
THE MORGAN GROUP, INC.
INDEX TO CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (Unaudited)
Consolidated Interim Financial Statements (unaudited): Page
Consolidated Balance Sheets as of March 31, 2001 and
December 31, 2000
Consolidated Statements of Operations for the Three Months Ended
March 31, 2001 and 2000
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2001 and 2000
Notes to Consolidated Interim Financial Statements (unaudited)
CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited):
The Morgan Group, Inc.
and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share amounts)
March 31 December 31
2001 2000
---- ----
ASSETS (Note 1)
(Unaudited)
Current assets:
Cash and cash equivalents $ 1,371 $ 2,092
Trade accounts receivable, less allowances
of $173 in 2001 and $248 in 2000 7,826 7,748
Accounts receivable, other 127 133
Refundable taxes 503 499
Prepaid expenses and other current assets 1,199 1,147
Deferred income taxes 319 319
------- -------
Total current assets 11,345 11,938
------- -------
Property and equipment, net 3,677 3,688
Intangible assets, net 6,629 6,727
Deferred income taxes 282 282
Other assets 382 634
------- -------
Total assets $22,315 $23,269
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 3,540 $ 2,373
Accrued liabilities 2,923 3,704
Accrued claims payable 3,304 3,224
Refundable deposits 1,092 1,357
Current portion of long-term debt and capital lease obligations 192 217
------- -------
Total current liabilities 11,051 10,875
------- -------
Long-term debt and capital lease obligations, less current portion 89 71
Long-term accrued claims payable 4,515 5,122
Commitments and contingencies -- --
Shareholders' equity:
Common stock, $.015 par value
Class A: Authorized shares - 7,500,000
Issued shares - 1,607,303 23 23
Class B: Authorized shares - 2,500,000
Issued and outstanding shares - 1,200,000 18 18
Additional paid-in capital 12,459 12,459
Retained earnings (2,657) (2,116)
-------- --------
Total capital and retained earnings 9,843 10,384
Less - treasury stock at cost (359,146 Class A shares) (3,183) (3,183)
-------- --------
Total shareholders' equity 6,660 7,201
------- -------
Total liabilities and shareholders' equity $22,315 $23,269
======= =======
See notes to consolidated financial statements
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except share amounts)
(Unaudited)
Three Months Ended
March 31,
2001 2000
---- ----
Operating revenues $ 20,688 $ 28,386
Costs and expenses:
Operating costs 18,879 26,632
Selling, general and administration 2,057 2,359
Depreciation and amortization 227 293
--------- ---------
20,878 28,765
Operating loss (475) (898)
Interest expense, net 66 57
--------- ---------
Loss before income taxes (541) (955)
Income tax benefit -- (339)
--------- ----------
Net loss $ (541) $ (616)
========== ==========
Net loss per basic and diluted share $ ( 0.22) $ ( 0.25)
========= ==========
Basic weighted average shares outstanding 2,448,157 2,453,260
========= =========
See notes to consolidated financial statements.
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2001 2000
---------- ----------
Operating activities:
Net loss $ (541) $ (616)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 227 293
Loss on disposal of property and equipment 3 22
Changes in operating assets and liabilities:
Trade accounts receivable (78) (482)
Other accounts receivable 6 205
Refundable taxes (4) --
Prepaid expenses and other current assets (52) (94)
Other assets 252 118
Trade accounts payable 1,167 188
Accrued liabilities (781) (297)
Income taxes payable -- (581)
Accrued claims payable (526) 102
Refundable deposits (265) (341)
--------- ---------
Net cash used in operating activities (592) (1,483)
Investing activities:
Purchases of property and equipment (77) (77)
Other (10) --
--------- --------
Net cash used in investing activities (122) (77)
Financing activities:
Principal payments on long-term debt (42) (87)
Common stock dividends paid -- (37)
-------- ---------
Net cash used in financing activities (7) (124)
--------- ---------
Net decrease in cash and equivalents (721) (1,684)
Cash and cash equivalents at beginning of period 2,092 3,847
-------- --------
Cash and cash equivalents at end of period $ 1,371 $ 2,163
======== ========
See notes to consolidated financial statements.
The Morgan Group, Inc. and Subsidiaries
Notes to Consolidated Interim Financial Statements
(Unaudited)
March 31, 2001
Note 1.Basis of Presentation
The accompanying consolidated interim financial statements have been
prepared by The Morgan Group, Inc. and Subsidiaries (the "Company"), in
accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, certain information and footnote disclosures
normally included for complete financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
such rules and regulations. The balance sheet at December 31, 2000 has been
derived from the audited financial statements at that date but does not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The consolidated
interim financial statements should be read in conjunction with the
financial statements, notes thereto and other information included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
Net income per common share ("EPS") is computed using the weighted average
number of common shares outstanding during the period. Since each share of
Class B common stock is freely convertible into one share of Class A common
stock, the total of the weighted average number of shares for both classes
of common stock is considered in the computation of EPS.
The accompanying unaudited consolidated interim financial statements
reflect, in the opinion of management, all adjustments (consisting of
normal recurring items) necessary for a fair presentation, in all material
respects, of the financial position and results of operations for the
periods presented. The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions. Such estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The results of operations
for the interim periods are not necessarily indicative of the results for
the entire year.
The consolidated financial statements include the accounts of the Company
and its subsidiaries, Morgan Drive Away, Inc., TDI, Inc., Interstate
Indemnity Company, and Morgan Finance, Inc., all of which are wholly owned.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
Certain 2000 amounts have been reclassified to conform to the 2001
presentation.
Note 2.Indebtnedness
The prior Credit Facility matured on January 28, 2001, at which time the
Company had no outstanding debt and $6.6 million outstanding letters of
credit. The Company was in default of the financial covenants, resulting in
the bank failing to renew the Credit Facility. As a result of the Credit
Facility not being renewed, the Company has a payment default and the
financial institution has the right to demand cash to meet outstanding
obligations under the letters of credit. The bank has discretion as to
whether to make any loans or issue additional letters of credit for the
Company.
Note 3.Income Taxes
In assessing the realization of deferred tax assets, Management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
period in which the temporary differences become deductible. A valuation
allowance of $189,000 was recorded in 2001 to reduce the deferred tax asset
as the Company has experienced cumulative losses for financial reporting
for the last three years. Management considered, in reaching the conclusion
on the required valuation allowance, given the cumulative losses, combined
with the current default on its Credit Facility, that it would be
inconsistent with applicable accounting rules to rely on future taxable
income to support full realization of the deferred tax assets. Accordingly,
the remaining deferred tax assets relate to federal income tax carry backs
available to the Company.
Note 4.Segment Reporting
Description of Services by Segment
The Company operates in five business segments: Manufactured Housing,
Driver Outsourcing, Specialized Outsourcing Services, and Insurance and
Finance. The Manufactured Housing segment primarily provides specialized
transportation to companies which produce new manufactured homes and
modular homes through a network of terminals located in twenty-eight
states. The Driver Outsourcing segment provides outsourcing transportation
primarily to manufacturers of recreational vehicles, commercial trucks, and
other specialized vehicles through a network of service centers in six
states. The Specialized Outsourcing Services segment consists of large
trailer, travel and small trailer delivery. The last segment, Insurance and
Finance, provides insurance and financing to the Company's drivers and
independent owner-operators. This segment also acts as a cost center
whereby all property damage, bodily injury and cargo costs are captured.
The Company's segments are strategic business units that offer different
services and are managed separately based on the differences in these
services.
Measurement of Segment (Loss)
The Company evaluates performance and allocates resources based on several
factors, of which the primary financial measure is business segment
operating income, defined as earnings before interest, taxes, depreciation
and amortization (EBITDA). The accounting policies of the segments are the
same as those described in the Company's Annual Report on Form 10-K.
The following table presents the financial information for the Company's
reportable segments for the three months ended March 31, (in thousands):
2001 2000
---- ----
Operating revenues
Manufactured Housing $11,361 $18,206
Driver Outsourcing 4,532 5,611
Specialized Outsourcing Services 4,135 3,757
Insurance and Finance 660 815
All Other -- (3)
------- --------
Total operating revenues $20,688 $28,386
======= =======
Segment profit (loss) - EBITDA
Manufactured Housing $ 494 $ 1,742
Driver Outsourcing 314 469
Specialized Outsourcing Services 43 (143)
Insurance and Finance (733) (2,261)
All Other (366) (412)
-------- --------
(248) (605)
Depreciation and amortization (227) (293)
Interest expense (66) (57)
-------- --------
Loss before taxes $ (541) $ (955)
======== ========
1,248,157 SHARES OF CLASS A COMMON STOCK
[MG LOGO]
ISSUABLE UPON EXERCISE OF WARRANTS
-------------------------
PROSPECTUS
-------------------------
June 15, 2001
- --------------------------------------------------------------------------------
You may rely on the information contained in this prospectus. The Morgan Group,
Inc. has not authorized anyone to provide prospective investors with different
or additional information. This prospectus is not an offer to sell nor is it
seeking an offer to buy these securities in any jurisdiction where the offer or
sale is not permitted. The information contained in this prospectus is correct
only as of the date of this prospectus, regardless of the time of the delivery
of this prospectus or any sale of these securities.
- --------------------------------------------------------------------------------
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING
NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY PROSPECTUS SUPPLEMENT DATED JUNE 15, 2001
(TO PRELIMINARY PROSPECTUS DATE JUNE 15, 2001)
SUBJECT TO COMPLETION
2,200,000 SHARES OF CLASS B COMMON STOCK
[MG LOGO]
ISSUABLE UPON EXERCISE OF WARRANTS
This prospectus supplement is being provided, together with our
prospectus dated the date hereof, to the holder of our Class B common stock on
the record date of ____________, 2001, in connection with the distribution of
warrants described in the prospectus. This prospectus supplement contains
additional information which is important for you as a holder of our Class B
common stock.
For each share of our Class B common stock which you own on the record
date you will receive one Class B warrant. For each Class B warrant that you
exercise, you will be able to purchase, subject to certain adjustments, one
share of our Class B common stock at the warrant price of $9.00 per share,
subject to adjustment upon the occurrence of certain dilutive events.
The Class B warrants are subject to certain transfer restrictions. The
Class B warrants may only be transferred to an "affiliate." An "affiliate" is
defined as a person that, directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with,
the transferring holder of such Class B warrants. "Control" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership of voting
securities, by contract or otherwise, and specifically includes direct or
indirect ownership of at least 5% of the voting equity of such person.
In connection with any transfer of Class B warrants, you will be
required to certify compliance with this restriction. Assuming adoption of the
charter amendment we have proposed to our stockholders for approval at the 2001
annual meeting, the same restriction will apply to the shares of Class B common
stock issued upon exercise of your Class B warrants.
There currently is no public market for the Class B warrants and we do
not intend, and are not obligated, to list the Class B warrants on any
securities exchange, the Nasdaq Stock Market, or any other market.
The date of this Prospectus Supplement is June 15, 2001.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by us in
connection with the sale and distribution of the securities being registered.
All of the amounts shown are estimated except the Securities and Exchange
Commission registration fee.
Registration Fee .................................................... $7,758.35
Printing, Engraving and Mailing (1) ..................................
Legal Fees (1) .......................................................
Accounting Fees (1) ..................................................
Fees of Registrar and Transfer Agent (1) .............................
Fees of Subscription Agent (1) .......................................
Miscellaneous Fees (1) ...............................................
Total ....................................................... $
=========
- ------------------------
(1) To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
INDEMNIFICATION
Section 145(a) of the General Corporation Law of Delaware (the "DGCL")
empowers a corporation to indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, employee or agent of the corporation or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe his conduct was unlawful.
Subsection 145(b) of the DGCL empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect to any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery or the court in which such action
or suit was brought shall determine that despite the adjudication of liability
such person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
Section 145 further provides that to the extent a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith, and that indemnification provided for by Section 145 shall
not be deemed exclusive of any other rights to which the indemnified party may
be entitled. It empowers the corporation to purchase and maintain insurance on
behalf of a director or officer of the corporation against any liability
asserted against him or incurred by him in any such capacity or arising out of
his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145.
Our Restated Certificate of Incorporation provides that we shall
indemnify and hold harmless any person who was or is made a party, or is
threatened to be made a party, or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (the
"Action"), by reason of the fact that he or she is or was a director or officer
of ours, or is or was serving or has agreed to serve at our request as a
director, officer, employee or agent of another entity, to the fullest extent
authorized by the DGCL. In addition, we maintain directors' and officers'
liability insurance to protect us against specified liabilities and acts where
corporate reimbursement is required.
ITEM 16. EXHIBITS.
Exhibit No. Description
- ----------- -----------------------------------------------------------------
3.1 Registrant's Restated Certificate of Incorporation, as amended,
is incorporated by reference to Exhibit 3.1 to the Registrant's
Quarterly Report on Form 10-Q for the period ended June 30, 1999,
filed on August 13, 1999.
3.2 Registrant's Code of By-Laws, as restated and amended, is
incorporated by reference to Exhibit 3.2 of the Registrant's
Registration Statement on Form S-1, File No. 33-641-22, effective
July 22, 1993.
4.1 Form of Class A Stock Certificate is incorporated by reference to
Exhibit 3.3 of the Registrant's Registration Statement on Form
S-1, File No. 33-641-22, effective July 22, 1993.
4.2 Form of Class B Stock Certificate*
4.3 Fourth Article - "Common Stock" of the Registrant's Certificate
of Incorporation, is incorporated by reference to the
Registrant's Certificate of Incorporation, as amended, filed as
Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for
the period ended June 30, 1999, filed on August 13, 1999.
4.4 Article II - "Meeting of Stockholders," Article VI - "Certificate
for Shares" and Article VII - "General Provisions" of the
Registrant's Code of By-Laws, incorporated by reference to the
Registrant's Code of By-Laws, as amended, filed as Exhibit 3.2 to
the Registrant's Registration Statement on Form S-1, File No.
33-641-22, effective July 22, 1993.
4.5 Revolving Credit and Term Loan Agreement, dated January 28, 1999,
among the Registrant and Subsidiaries and Bank Boston, N.A., is
incorporated by reference to Exhibit 4(1) to the Registrant's
Current Report on Form 8-K filed February 12, 1999.
4.6 Guaranty, dated January 28, 1999, among the Registrant and
Subsidiaries and BankBoston, N.A. is incorporated by reference to
Exhibit 4(2) to the Registrant's Current Report on Form 8-K filed
February 12, 1999.
4.7 Security Agreement, dated January 28, 1999, among the Registrant
and Subsidiaries and BankBoston, N.A. is incorporated by
reference to Exhibit 4(3) to the Registrant's Current Report on
Form 8-K filed February 12, 1999.
4.8 Stock Pledge Agreement, dated January 28, 1999, among the
Registrant and Subsidiaries and BankBoston, N.A. is incorporated
by reference to Exhibit 4(4) to the Registrant's Current Report
on Form 8-K filed February 12, 1999.
4.9 Revolving Credit Note, dated January 28, 1999, among the
Registrant and Subsidiaries and BankBoston, N.A. is incorporated
by reference to Exhibit 4(5) to the Registrant's Current Report
on Form 8-K filed February 12,1999.
4.10 Amendment Agreement No. 1 to that Certain Revolving Credit
Agreement and Term Loan Agreement among the Registrant and its
Subsidiaries and BankBoston dated as of March 31, 2000 is filed
herewith.
4.11 Amendment Agreement No. 2 to that Certain Revolving Credit
Agreement and Term Loan Agreement among the Registrant and its
Subsidiaries and BankBoston dated as of November 10, 2000 is
filed herewith.
4.12 Form of Class A Warrant Certificate (attached as Exhibit A to the
Warrant Agreement included herewith as Exhibit 4.14).
4.13 Form of Class B Warrant Certificate (attached as Exhibit B to the
Warrant Agreement included herewith as Exhibit 4.14).
4.14 Form of Warrant Agreement between the Registrant and American
Stock Transfer and Trust Company.
5 Opinion of Barnes & Thornburg*
10.1 The Morgan Group, Inc. Incentive Stock Plan is incorporated by
reference to Exhibit 10.1 to the Registrant's Registration
Statement on Form S-1, File No. 33-641-22, effective July 22,
1993.
10.2 First Amendment to the Morgan Group, Inc. Incentive Stock Plan is
incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30,
1997, filed November 14, 1997.
10.3 Memorandum to Charles Baum and Philip Ringo from Lynch
Corporation, dated December 8, 1992, respecting Bonus Pool, is
incorporated by reference to Exhibit 10.2 to the Registrant's
Registration Statement on Form S-1, File No. 33-641-22, effective
July 22, 1993.
10.4 Term Life Policy from Northwestern Mutual Life Insurance Company
insuring Paul D. Borghesani, dated August 1, 1991, is
incorporated by reference to Exhibit 10.4 to the Registrant's
Registration Statement on Form S-1, File No. 33-641-22, effective
July 22, 1993.
10.5 Long Term Disability Insurance Policy from Northwestern Mutual
Life Insurance Company, dated March 1, 1990, is incorporated by
reference to the Registrant's Registration Statement on Form S-1,
File No. 33-641-22, effective July 22, 1993.
10.6 Long Term Disability Insurance Policy from CNA Insurance
Companies, effective January 1, 1998 is incorporated by reference
to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997, filed March 31, 1998.
10.7 The Morgan Group, Inc. Employee Stock Purchase Plan, as amended,
is incorporated by reference to Exhibit 10.16 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994,
filed on March 30, 1995.
10.8 Consulting Agreement between Morgan Drive Away, Inc. and Paul D.
Borghesani, effective as of April 1, 1996, is incorporated by
reference to Exhibit 10.19 the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995, filed on April 1,
1996.
10.9 Employment Agreement, dated January 12, 2000 between Registrant
and Anthony T. Castor, III is incorporated by reference to
Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1999.
10.10 Non-Qualified Stock Option Plan and Agreement, dated January 11,
2000, between Registrant and Anthony T. Castor, III is
incorporated by reference to Exhibit 10.10 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1999.
10.11 Management Agreement between Skandia International and Risk
Management (Vermont), Inc. and Interstate Indemnity Company,
dated December 15, 1992, is incorporated by reference to Exhibit
10.12 to the Registrant's Registration Statement on Form S-1,
File No. 33-641-22, effective July 22, 1993.
10.12 Agreement for the Allocation of Income Tax Liability between
Lynch Corporation and its Consolidated Subsidiaries, including
the Registrant (formerly Lynch Services Corporation), dated
December 13, 1988, as amended, is incorporated by reference to
Exhibit 10.13 the Registrant's Registration Statement on Form
S-1, File No. 33-641-22, effective July 22, 1993.
10.13 Certain Services Agreement, dated January 1, 1995, between Lynch
Corporation and the Registrant is incorporated by reference to
Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994, filed on March 30, 1995.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Barnes & Thornburg (contained in Exhibit 5 filed
herewith).
24.1 Power of Attorney (set forth on the signature page to this
filing).
99.1 Form of Letter To Class A Stockholders of Record.
99.2 Form of Letter from Brokers or Other Nominees to Beneficial
Owners of Class A Common Stock.
99.3 Form of Instructions by Beneficial Owners to Brokers or Other
Nominees.
- -----------------------------------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) (ss. 230.424(b) of this chapter) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement;
Provided, however, That paragraphs (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the registration statement is on Form S-3 (ss.
239.13 of this chapter), Form S-8 (ss. 239.16b of this chapter) or Form
F-3 (ss. 239.33 of this chapter), and the information required to be
included in a post-effective amendment by those paragraphs is contained
in periodic reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Elkhart, State of Indiana, on June 15, 2001.
THE MORGAN GROUP, INC.
By: /s/ Anthony T. Castor, III
------------------------------------------
Anthony T. Castor, III
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of The Morgan Group, Inc.,
do hereby constitute and appoint each of Anthony T. Castor, III or Gary J.
Klusman or any of them acting alone, our true and lawful attorney-in-fact and
agent, each with full power to sign for us or any of us in our names and in any
and all capacities, any and all amendments (including post-effective amendments)
to this registration statement, or any related registration statements that are
to be effective upon filing pursuant to Rule 426(b) under the Securities Act of
1933, as amended, and to file the same, with all exhibits thereto and other
documents required in connection therewith, and any of them with full power to
do any and all acts and things in our names and in any and all capacities, which
such attorneys-in-fact and agents, or any of them, may deem necessary or
advisable to enable The Morgan Group, Inc. to comply with the Securities Act of
1933, as amended, and any rules, regulations, and requirements of the Securities
and Exchange Commission, in connection with this Registration Statement, and we
hereby do ratify and confirm all that the such attorneys-in-fact and agents, or
either of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Anthony T. Castor, III
- ------------------------------ Director, President June 15, 2001
Anthony T. Castor, III and Chief Executive Officer
/s/ Gary J. Klusman
- ------------------------------ Executive Vice President June 15, 2001
Gary J. Klusman of Finance and Administration
/s/ Charles C. Baum
- ------------------------------ Chairman of the Board June 15, 2001
Charles C. Baum
/s/ Richard B. Black
- ------------------------------ Director June 15, 2001
Richard B. Black
/s/ Richard L. Haydon
- ------------------------------ Director June 15, 2001
Richard L. Haydon
/s/ Richard S. Prather, Jr.
- ------------------------------ Director June 15, 2001
Richard S. Prather, Jr.
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------------------------------------------------------------
3.1 Registrant's Restated Certificate of Incorporation, as amended,
is incorporated by reference to Exhibit 3.1 to the Registrant's
Quarterly Report on Form 10-Q for the period ended June 30, 1999,
filed on August 13, 1999.
3.2 Registrant's Code of By-Laws, as restated and amended, is
incorporated by reference to Exhibit 3.2 of the Registrant's
Registration Statement on Form S-1, File No. 33-641-22, effective
July 22, 1993.
4.1 Form of Class A Stock Certificate is incorporated by reference to
Exhibit 3.3 of the Registrant's Registration Statement on Form
S-1, File No. 33-641-22, effective July 22, 1993.
4.2 Form of Class B Stock Certificate.*
4.3 Fourth Article - "Common Stock" of the Registrant's Certificate
of Incorporation, is incorporated by reference to the
Registrant's Certificate of Incorporation, as amended, filed as
Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for
the period ended June 30, 1999, filed on August 13, 1999.
4.4 Article II - "Meeting of Stockholders," Article VI - "Certificate
for Shares" and Article VII - "General Provisions" of the
Registrant's Code of By-Laws, incorporated by reference to the
Registrant's Code of By-Laws, as amended, filed as Exhibit 3.2 to
the Registrant's Registration Statement on Form S-1, File No.
33-641-22, effective July 22, 1993.
4.5 Revolving Credit and Term Loan Agreement, dated January 28, 1999,
among the Registrant and Subsidiaries and Bank Boston, N.A., is
incorporated by reference to Exhibit 4(1) to the Registrant's
Current Report on Form 8-K filed February 12, 1999.
4.6 Guaranty, dated January 28, 1999, among the Registrant and
Subsidiaries and BankBoston, N.A. is incorporated by reference to
Exhibit 4(2) to the Registrant's Current Report on Form 8-K filed
February 12, 1999.
4.7 Security Agreement, dated January 28, 1999, among the Registrant
and Subsidiaries and BankBoston, N.A. is incorporated by
reference to Exhibit 4(3) to the Registrant's Current Report on
Form 8-K filed February 12, 1999.
4.8 Stock Pledge Agreement, dated January 28, 1999, among the
Registrant and Subsidiaries and BankBoston, N.A. is incorporated
by reference to Exhibit 4(4) to the Registrant's Current Report
on Form 8-K filed February 12, 1999.
4.9 Revolving Credit Note, dated January 28, 1999, among the
Registrant and Subsidiaries and BankBoston, N.A. is incorporated
by reference to Exhibit 4(5) to the Registrant's Current Report
on Form 8-K filed February 12,1999.
4.10 Amendment Agreement No. 1 to that Certain Revolving Credit
Agreement and Term Loan Agreement among the Registrant and its
Subsidiaries and BankBoston dated as of March 31, 2000 is filed
herewith.
4.11 Amendment Agreement No. 2 to that Certain Revolving Credit
Agreement and Term Loan Agreement among the Registrant and its
Subsidiaries and BankBoston dated as of November 10, 2000 is
filed herewith.
4.12 Form of Class A Warrant Certificate .*
4.13 Form of Class B Warrant Certificate.*
5 Opinion of Barnes & Thornburg.*
10.1 The Morgan Group, Inc. Incentive Stock Plan is incorporated by
reference to Exhibit 10.1 to the Registrant's Registration
Statement on Form S-1, File No. 33-641-22, effective July 22,
1993.
10.2 First Amendment to the Morgan Group, Inc. Incentive Stock Plan is
incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30,
1997, filed November 14, 1997.
10.3 Memorandum to Charles Baum and Philip Ringo from Lynch
Corporation, dated December 8, 1992, respecting Bonus Pool, is
incorporated by reference to Exhibit 10.2 to the Registrant's
Registration Statement on Form S-1, File No. 33-641-22, effective
July 22, 1993.
10.4 Term Life Policy from Northwestern Mutual Life Insurance Company
insuring Paul D. Borghesani, dated August 1, 1991, is
incorporated by reference to Exhibit 10.4 to the Registrant's
Registration Statement on Form S-1, File No. 33-641-22, effective
July 22, 1993.
10.5 Long Term Disability Insurance Policy from Northwestern Mutual
Life Insurance Company, dated March 1, 1990, is incorporated by
reference to the Registrant's Registration Statement on Form S-1,
File No. 33-641-22, effective July 22, 1993.
10.6 Long Term Disability Insurance Policy from CNA Insurance
Companies, effective January 1, 1998 is incorporated by reference
to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997, filed March 31, 1998.
10.7 The Morgan Group, Inc. Employee Stock Purchase Plan, as amended,
is incorporated by reference to Exhibit 10.16 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994,
filed on March 30, 1995.
10.8 Consulting Agreement between Morgan Drive Away, Inc. and Paul D.
Borghesani, effective as of April 1, 1996, is incorporated by
reference to Exhibit 10.19 the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995, filed on April 1,
1996.
10.9 Employment Agreement, dated January 12, 2000 between Registrant
and Anthony T. Castor, III is incorporated by reference to
Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1999.
10.10 Non-Qualified Stock Option Plan and Agreement, dated January 11,
2000, between Registrant and Anthony T. Castor, III is
incorporated by reference to Exhibit 10.10 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1999.
10.11 Management Agreement between Skandia International and Risk
Management (Vermont), Inc. and Interstate Indemnity Company,
dated December 15, 1992, is incorporated by reference to Exhibit
10.12 to the Registrant's Registration Statement on Form S-1,
File No. 33-641-22, effective July 22, 1993.
10.12 Agreement for the Allocation of Income Tax Liability between
Lynch Corporation and its Consolidated Subsidiaries, including
the Registrant (formerly Lynch Services Corporation), dated
December 13, 1988, as amended, is incorporated by reference to
Exhibit 10.13 the Registrant's Registration Statement on Form
S-1, File No. 33-641-22, effective July 22, 1993.
10.13 Certain Services Agreement, dated January 1, 1995, between Lynch
Corporation and the Registrant is incorporated by reference to
Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994, filed on March 30, 1995.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Barnes & Thornburg (contained in Exhibit 5 filed
herewith).*
24.1 Power of Attorney (set forth on the signature page to this
filing).
99.1 Form of Letter To Class A Stockholders of Record.*
99.2 Form of Letter from Brokers or Other Nominees to Beneficial
Owners of Class A Common Stock.*
99.3 Form of Instructions by Beneficial Owners to Brokers or Other
Nominees.*
- ---------------------------------------
* To be filed by amendment.