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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
Motor Cargo Industries, Inc.
(Name of Subject Company)
Motor Cargo Industries, Inc.
(Name of Person(s) Filing Statement)
Common Stock, No Par Value
(Title of Class of Securities)
CUSIP NO. 619907 10 8
(CUSIP Number of Class of Securities)
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Marvin L. Friedland, Esq.
Vice President and General Counsel
Motor Cargo Industries, Inc.
845 West Center Street
North Salt Lake, UT 84054
(801) 936-1111
(Name, address and telephone number of person authorized to receive notice and
communications on behalf of the person filing statement)
With a copy to:
Reed W. Topham, Esq.
Stoel Rives LLP
201 South Main Street, Suite 1100
Salt Lake City, UT 84111
(801) 328-3131
[_]Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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Item 1. Subject Company Information.
The name of the subject company is Motor Cargo Industries, Inc., a Utah
corporation ("Motor Cargo"). The address of the principal executive offices of
Motor Cargo is 845 West Center Street, North Salt Lake, Utah 84054, telephone
(801) 936-1111. The title of the class of equity securities to which this
Schedule 14D-9 relates is the common stock, no par value, of Motor Cargo. As of
October 26, 2001, there were 6,473,140 shares of Motor Cargo common stock
issued and outstanding.
Item 2. Identity and Background of Filing Person.
The name, business address and business telephone number of Motor Cargo,
which is the person filing this Schedule 14D-9, are set forth in Item 1 above.
This Schedule 14D-9 relates to the offer by Union Pacific Corporation, a
Utah corporation ("Union Pacific"), to exchange all outstanding shares of Motor
Cargo common stock for (i) 0.26 of a share of Union Pacific common stock, (ii)
$12.10 in cash or (iii) a combination of both, upon the terms and subject to
the conditions set forth in the Preliminary Prospectus, dated October 31, 2001,
and the related Letter of Election and Transmittal (which, as amended or
supplemented from time to time, together constitute the "Offer"). The Offer is
disclosed in a Tender Offer Statement on Schedule TO, dated October 31, 2001,
filed by Union Pacific with the Securities and Exchange Commission. As set
forth in the Schedule TO, the principal executive offices of Union Pacific are
located at 1416 Dodge Street, Omaha, Nebraska 68179, telephone (402) 271-5777.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of October 15, 2001 (the "Merger Agreement"), by and among Motor Cargo,
Union Pacific and Motor Merger Co., a Utah corporation and a wholly-owned
subsidiary of Union Pacific ("Merger Subsidiary"). The Merger Agreement
provides, among other things, that as soon as practicable after consummation of
the Offer and the satisfaction or waiver of certain conditions set forth in the
Merger Agreement, Motor Cargo will merge with Merger Subsidiary (the "Merger").
Unless certain specified conditions exist, Merger Subsidiary will be the
surviving corporation (the "Surviving Corporation").
Item 3. Past Contacts, Transactions, Negotiations and Agreements.
Certain contacts, transactions, negotiations and agreements between Motor
Cargo or its affiliates and certain of its directors and executive officers are
described in the Information Statement pursuant to Section 14(f) of the
Securities Exchange Act of 1934, as amended, and Rule 14f-1 thereunder (the
"Information Statement") that is attached as Annex I to this Schedule 14D-9 and
is incorporated herein by reference. Except as described in this Schedule 14D-9
or the Information Statement or as otherwise incorporated herein by reference,
to the knowledge of Motor Cargo, as of the date hereof, there are no material
contracts, agreements, arrangements or understandings, or any actual or
potential conflicts of interest, between Motor Cargo or its affiliates and (1)
Motor Cargo's executive officers, directors or affiliates, or (2) Union Pacific
or Merger Subsidiary, or their respective officers, directors or affiliates.
The Merger Agreement
The summary of the Merger Agreement and the description of the conditions of
the Offer contained in "The Merger Agreement" and "The Offer--Conditions of Our
Offer," respectively, in the Preliminary Prospectus, which has been filed as an
exhibit to the Schedule TO and is being mailed to Motor Cargo's shareholders
together with this Schedule 14D-9, are incorporated herein by reference. Such
summary and description are qualified in their entirety by reference to the
Merger Agreement, which has been filed as Exhibit (e)(1) hereto and is
incorporated herein by reference.
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The Shareholder Agreements
The summary of the Shareholder Agreements contained in "The Shareholder
Agreements" in the Preliminary Prospectus, which has been filed as an exhibit
to the Schedule TO and is being mailed to Motor Cargo's shareholders together
with this Schedule 14D-9, is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Shareholder Agreements, which
have been filed as Exhibits (e)(2) and (e)(3) hereto and are incorporated
herein by reference.
Confidentiality Agreement
Overnite Transportation Company, a wholly-owned subsidiary of Union Pacific
("Overnite"), entered into a customary confidentiality agreement with Morgan
Keegan & Company, Inc. ("Morgan Keegan"), as agent for Motor Cargo, on March 7,
2001 in order to receive information concerning Motor Cargo. A copy of the
Confidentiality Agreement has been filed as Exhibit (e)(4) hereto and is
incorporated herein by reference.
Stock Options
As a result of the approval of the Merger Agreement by the board of
directors of Motor Cargo (the "Board of Directors"), all stock options
outstanding under Motor Cargo's 1997 Stock Option Plan and 1999 Stock Option
Plan for Non-Employee Directors (collectively, the "Plans") became fully vested
and exercisable in accordance with the terms of the Plans. As permitted by the
Plans, the Board of Directors has determined that any unexercised options
outstanding on the date the Merger is consummated will terminate, and in
consideration of such termination, the holder of each option so terminated will
be entitled to receive, with respect to each share of Motor Cargo common stock
subject to such option, an amount in cash (net of applicable withholdings)
equal to the excess of $12.10 over the per share exercise price of such option.
Salary Continuation Agreements
Motor Cargo has salary continuation agreements with four of its key
management employees. Under the agreements, Motor Cargo is obligated to provide
for each such employee or his beneficiaries, during a period of not more than
ten years after the employee's death, disability or retirement, annual benefits
ranging from $17,000 to $23,000. Pursuant to the Merger Agreement, Union
Pacific has agreed to cause the Surviving Corporation and its subsidiaries to
honor and assume the salary continuation agreements.
Item 4. The Solicitation or Recommendation.
(a) Recommendation of the Board of Directors.
The Board of Directors, by unanimous vote, has approved and adopted the
Merger Agreement and the transactions contemplated by it, including the Offer
and the Merger, and has determined that the Offer and the Merger are advisable
and fair to and in the best interests of the shareholders of Motor Cargo and
recommends that shareholders of Motor Cargo accept the Offer and tender their
shares of Motor Cargo common stock pursuant to the Offer. In reaching their
decision as to whether to tender for cash or shares of Union Pacific common
stock, shareholders should consider their personal financial situation and
consult their own financial, accounting and tax advisors. The Board of
Directors also urges shareholders to obtain current quotations for Union
Pacific common stock and Motor Cargo common stock. In that regard, you should
be aware that on October 29, 2001, the closing market value of 0.26 of a share
of Union Pacific common stock was approximately $13.06, which is higher than
the per share cash alternative of $12.10 offered pursuant to the Offer. If your
shares are not exchanged in the Offer, you will receive the $12.10 in cash,
without interest, pursuant to the Merger, the receipt of which may be delayed
due to the possibility of a delay in completing the Merger after completion of
the Offer. Shareholders who do not tender their shares of Motor Cargo common
stock in the Offer will not have a right to receive Union Pacific common stock
in the Merger.
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(b) Background; Reasons for the Recommendation; Opinion of Morgan Keegan.
Background
In response to recent consolidations in the trucking industry, Motor Cargo
considered available options to bolster its competitive position, including the
possibility of entering into a business combination. On January 16, 2001, Motor
Cargo engaged Morgan Keegan to serve as its financial advisor. Representatives
of Motor Cargo had preliminary discussions with two potential acquirors but
concluded that neither company was prepared to make an offer to acquire Motor
Cargo on acceptable terms.
In February 2001, Marshall L. Tate, who was at that time the Chief Executive
Officer of Motor Cargo, was contacted by John Terry, a shareholder of Motor
Cargo and a consultant to Overnite. Mr. Terry and Mr. Marshall Tate discussed
whether Motor Cargo would be interested in discussing a potential acquisition
transaction with Overnite. Subsequently, on March 1, 2001, Mr. Marshall Tate
and Harold R. Tate, Motor Cargo's Chairman, each received a telephone call from
Leo H. Suggs, Chairman and Chief Executive Officer of Overnite, confirming
Overnite's interest in a potential transaction. Thereafter, Overnite contacted
Morgan Keegan to discuss the terms of a confidentiality agreement and arrange a
meeting between Mr. Harold Tate and Mr. Suggs.
On March 7, 2001, Overnite entered into a confidentiality agreement with
Morgan Keegan, on behalf of Motor Cargo. Pursuant to the terms of the
confidentiality agreement, Motor Cargo furnished Overnite with information in
connection with its evaluation of a possible transaction with Motor Cargo.
On March 16, 2001, following Overnite's review of the information provided
by Motor Cargo, Mr. Suggs, Patrick D. Hanley, Senior Vice President and Chief
Financial Officer of Overnite, and Mr. Terry met with Mr. Harold Tate and
Morgan Keegan in Phoenix, Arizona for preliminary discussions regarding whether
a transaction could be completed on terms acceptable to both parties.
As a result of the meeting, Motor Cargo agreed to allow Overnite to proceed
with its due diligence investigation of Motor Cargo by teleconference and by
conducting investigations in Salt Lake City, Utah. During the remainder of
March, Overnite conducted its due diligence activities and, on March 31, 2001,
Richard K. Davidson, Chairman, President and Chief Executive Officer of Union
Pacific, authorized Mr. Suggs to pursue a possible business combination
transaction with Motor Cargo.
On April 2, 2001, Mr. Suggs, Mr. Hanley and Mr. Terry met with Mr. Harold
Tate and Morgan Keegan at the offices of Motor Cargo in North Salt Lake, Utah
and indicated that Overnite was potentially interested in acquiring all of the
outstanding common stock of Motor Cargo at a value of $10.25 per share. After
further discussions, the parties determined that further negotiations would not
be likely to produce definitive terms for an acquisition that would be
acceptable to both parties.
In a letter to Overnite, dated April 5, 2001, Motor Cargo's legal counsel
requested that all confidential information be returned to Morgan Keegan or
destroyed in accordance with the terms of the confidentiality agreement. In a
letter dated April 6, 2001, Mr. Suggs confirmed the termination of Overnite's
interest in a business combination transaction with Motor Cargo.
On April 9, 2001, the Board of Directors met and concluded that the terms of
the proposed transaction were inadequate.
Between the latter part of April 2001 and September 2001, Mr. Suggs and Mr.
Harold Tate occasionally discussed the operations of their respective
companies, and Overnite continued to follow the financial performance of Motor
Cargo. In addition, Morgan Keegan was frequently in contact with
representatives of Overnite regarding a possible acquisition by Union Pacific
of Motor Cargo.
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During the latter part of August and September 2001, Mr. Suggs and Mr.
Harold Tate arranged a meeting between Mr. Harold Tate and Mr. Davidson in
North Salt Lake, Utah for purposes of determining whether negotiation of an
acquisition could resume. On September 6, 2001, Mr. Suggs and Mr. Davidson
visited Motor Cargo's facilities in North Salt Lake, Utah and discussed with
Mr. Harold Tate a possible acquisition of Motor Cargo by Union Pacific,
although no negotiations took place.
On September 26, 2001, Mr. Suggs visited Motor Cargo's headquarters and made
a new proposal for the possible acquisition of Motor Cargo by Union Pacific.
Motor Cargo's management reviewed the proposal with Morgan Keegan and Motor
Cargo's legal counsel and proposed a modification to the proposal later that
day. The proposed modification increased the minimum exchange ratio applicable
to the exchange of Motor Cargo shares for shares of Union Pacific common stock.
On September 28, 2001, Mr. Suggs confirmed that Union Pacific was interested in
pursuing a possible acquisition as modified by Motor Cargo.
During the next two weeks, legal counsel for both parties negotiated the
terms and conditions of the Merger Agreement. Union Pacific and Mr. Harold Tate
and Mr. Marvin L. Friedland, Vice President and General Counsel of Motor Cargo,
also negotiated the terms and conditions of the Shareholder Agreements relating
to the exchange of shares by Mr. Harold Tate and Mr. Friedland, the execution
of which was a condition to Union Pacific's proceeding with the transaction
with Motor Cargo. During this two week period, representatives of Overnite and
Union Pacific conducted further due diligence by teleconference and by
investigations in Salt Lake City, Utah.
On October 15, 2001, the Board of Directors held a special meeting. At the
meeting, Motor Cargo's management and legal and financial advisors reviewed the
terms of the Merger Agreement and the Shareholder Agreements with the members
of the Board of Directors. Morgan Keegan made a presentation to the Board of
Directors, including a discussion of analyses used in evaluating the proposed
transaction. During the meeting, Morgan Keegan provided its opinion that the
consideration to be received by shareholders of Motor Cargo pursuant to the
Offer and the Merger is fair to those shareholders from a financial point of
view, which opinion was subsequently confirmed by Morgan Keegan in writing.
After full consideration and discussion, the Board of Directors unanimously
approved and adopted the Merger Agreement, including the Offer and the Merger.
Following the Board of Directors meeting, the appropriate parties signed the
Merger Agreement and the Shareholder Agreements, and the parties issued a joint
press release announcing the transaction.
On October 31, 2001, Union Pacific and Motor Cargo issued a joint press
release announcing the commencement of the Offer.
Reasons for the Recommendation
In making the determination and recommendation described above, the Board of
Directors considered a number of factors, including those described below:
. current industry, economic and market conditions, including recent
business combination transactions by other carriers;
. the Board of Directors' familiarity with the business, financial
condition, prospects and current business strategy of Motor Cargo; in this
regard, the Board of Directors particularly considered:
. the historical results, financial condition, results of operations, cash
flows, earnings and assets of Motor Cargo;
. Motor Cargo's future prospects; and
. the current near-term and long-term outlook for the less-than-truckload
("LTL") market;
. the strategic fit between Motor Cargo and Union Pacific's existing
trucking operations;
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. Motor Cargo's business, strategic objectives and prospects if it did not
pursue the transaction, and the risks and uncertainties associated
therewith, including risks associated with increased competition with
larger companies;
. the fact that Motor Cargo shareholders would be able to elect to receive
either $12.10 in cash or, alternatively, 0.26 of a share of Union Pacific
common stock (or a combination thereof) for each share of Motor Cargo
common stock;
. the fact that both the cash consideration of $12.10 and the value of Union
Pacific common stock based upon an exchange ratio of 0.26 of a share
represented a substantial premium over the average trading price of Motor
Cargo common stock over the past year;
. the fact that Union Pacific common stock is highly liquid, has a current
quarterly dividend of $0.20 per share and would provide shareholders
electing to receive Union Pacific common stock with an opportunity to
participate in the growth potential of Union Pacific;
. the Board of Directors' review of public disclosures about the business,
financial condition, prospects and current business strategy of Union
Pacific, the due diligence review by Motor Cargo's management and
financial and legal advisors of Union Pacific and Union Pacific's recent
historical stock price performance;
. Morgan Keegan's analyses presented to the Board of Directors and Morgan
Keegan's opinion that, based upon the assumptions, limitations and
qualifications in the opinion, the consideration to be received by
shareholders of Motor Cargo pursuant to the Offer and the Merger is fair
to shareholders from a financial point of view;
. the expected ability to consummate the Offer and the Merger as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended, which
would allow shareholders electing to receive shares of Union Pacific
common stock for their shares of Motor Cargo common stock to defer income
tax liability until such shares of Union Pacific common stock are sold;
. the fact that the Offer and the Merger provide for a prompt exchange offer
for all shares of Motor Cargo common stock to be followed by a second-step
merger at the same cash consideration per share, thereby enabling Motor
Cargo's shareholders to obtain the benefits of the transaction at the
earliest possible time;
. the fact that preliminary contacts with other potential buyers did not
yield an offer superior to the terms of the Merger Agreement;
. the belief, based in part upon the analyses of Morgan Keegan and the
opinion of senior management, that it was unlikely that a third party
would propose a transaction superior to the Union Pacific transaction;
. the terms of the Merger Agreement, which, subject to certain conditions,
allow Motor Cargo to terminate the Merger Agreement upon payment of a $5
million termination fee if a superior proposal to acquire Motor Cargo is
made;
. the significant likelihood that the transactions contemplated by the
Merger Agreement and the Offer will be consummated, particularly in light
of Union Pacific's reputation, ability to finance the transaction, lack of
any financing condition in the Merger Agreement, the ability to terminate
the Offer and the Merger Agreement only in limited circumstances and the
likely satisfaction of the conditions to the Offer, including the
condition that holders tender two-thirds of the outstanding shares of
Motor Cargo common stock and the regulatory approval requirements; and
. the fact that Harold R. Tate, Motor Cargo's majority shareholder, was in
favor of the transaction and willing to enter into a Shareholder Agreement
providing for the exchange of all of his shares of Motor Cargo common
stock for shares of Union Pacific common stock.
In view of the wide variety of factors considered by the Board of Directors
in connection with its evaluation of the Offer and the complexity of such
matters, the Board of Directors did not consider it practical to, nor did it
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attempt to, quantify, rank or otherwise assign relative weights to the specific
factors it considered in reaching its decision. In addition, the Board of
Directors did not undertake to determine specifically whether any particular
factor (or any aspect of any particular factor) was favorable or unfavorable to
its ultimate determination, but rather conducted a discussion of the factors
described above, including asking questions of Motor Cargo's management and
legal and financial advisors, and reached a general consensus that the Offer is
fair to and advisable and in the best interests of Motor Cargo and its
shareholders. In considering the factors described above, individual members of
the Board of Directors may have given different weight to different factors.
Opinion of Morgan Keegan
Motor Cargo retained Morgan Keegan pursuant to an engagement letter
agreement, dated January 16, 2001 (the "Engagement Letter"), to act as its
exclusive financial advisor with respect to a possible business combination
involving Motor Cargo. Morgan Keegan is a nationally recognized investment
banking firm and was selected by Motor Cargo based on its reputation and
experience in investment banking in general and its recognized expertise in the
valuation of businesses as well as its prior investment banking relationships
with Motor Cargo.
On October 15, 2001, at the special meeting of the Board of Directors,
Morgan Keegan delivered to the Board of Directors its oral opinion (which was
subsequently confirmed in a written opinion, dated October 15, 2001) that, as
of such date and based on and subject to the matters set forth therein, the
consideration to be received pursuant to the Offer and the Merger is fair, from
a financial point of view, to the shareholders of Motor Cargo.
You should consider the following when reading the discussion of the opinion
of Morgan Keegan herein:
. we urge you to read carefully the entire opinion of Morgan Keegan, which
is attached as Annex II to this Schedule 14D-9 and is incorporated herein
by reference;
. Morgan Keegan's advisory services and opinion were provided to the Board
of Directors for its information in its consideration of the Offer and the
Merger and was directed only to the fairness, from a financial point of
view, of the consideration to be received in the Offer and the Merger by
the shareholders of Motor Cargo; and
. Morgan Keegan's opinion does not constitute a recommendation as to whether
or not any shareholder should tender shares of Motor Cargo common stock in
connection with the Offer or as to how any shareholder should vote with
respect to the Merger.
Although Morgan Keegan evaluated the fairness, from a financial point of
view, of the consideration to be received by the shareholders of Motor Cargo
pursuant to the Offer and the Merger, the consideration itself was determined
by Motor Cargo and Union Pacific through arm's-length negotiations. Motor Cargo
did not provide specific instructions to, or place any limitations on, Morgan
Keegan with respect to the procedures to be followed or factors to be
considered by Morgan Keegan in performing its analyses or providing its opinion.
In connection with its opinion, Morgan Keegan reviewed, among other things,
the following:
. the draft Merger Agreement and the terms of the Offer and the Merger and
drafts of certain related documents;
. certain publicly available business and financial information relating to
Motor Cargo and Union Pacific; and
. certain other information provided to it by Motor Cargo and Union Pacific.
Morgan Keegan also held discussions with members of the senior management of
Motor Cargo and Union Pacific regarding the strategic rationale for, and the
potential benefits of, the transactions contemplated by the
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Merger Agreement and the past and current business operations, financial
condition and future prospects of their respective companies. In addition,
Morgan Keegan:
. reviewed the reported historical prices and historical trading activity
for Motor Cargo common stock and Union Pacific common stock for the period
from October 16, 2000 to October 15, 2001;
. compared the financial performance of Motor Cargo and Union Pacific and
the prices and trading activity of Motor Cargo common stock and Union
Pacific common stock with that of certain other publicly-traded companies
and their securities;
. reviewed the financial terms, to the extent publicly available, of certain
other business combinations and other transactions that it deemed relevant;
. reviewed the potential pro forma impact of the Offer and the Merger on the
estimated earnings per share for the year ended December 31, 2002 of Union
Pacific under certain scenarios; and
. performed such other analyses and considered such other factors as it
deemed appropriate.
Morgan Keegan assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by it for the purposes of
its opinion and did not assume any obligation independently to verify such
information. Morgan Keegan assumed that the internal financial statements and
other financial and operating data had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Motor Cargo. Morgan Keegan also assumed that there had been no
material changes in Motor Cargo's or Union Pacific's assets, financial
condition, results of operations, business or prospects since the respective
dates of the last financial statements made available to it. Morgan Keegan did
not make any independent valuation, inspection or appraisal of the assets or
liabilities of Motor Cargo or Union Pacific, nor was it furnished with any such
appraisals or valuations. In addition, Morgan Keegan was informed that it is
the intention of the parties that the Offer and the Merger qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended, and assumed that the Offer and the Merger would be
consummated in accordance with the terms set forth in the draft Merger
Agreement and in compliance with the applicable provisions of the Securities
Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and
all other applicable federal, state and local statutes, rules, regulations and
ordinances. Morgan Keegan's opinion was necessarily based on financial,
economic, market and other conditions as in effect on, and the information made
available to it as of, the date of its opinion. In addition, Morgan Keegan did
not express any opinion as to the actual value of the Union Pacific common
stock or the prices at which the Union Pacific common stock would trade
following the date of its opinion.
Morgan Keegan, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Morgan Keegan is
familiar with Motor Cargo, having provided certain investment banking services
to Motor Cargo from time to time, including having acted as its financial
adviser in connection with, and having participated in certain of the
negotiations leading to, the Merger Agreement.
Morgan Keegan provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of Motor Cargo or Union Pacific for its own account or for the accounts of
customers. Morgan Keegan may provide investment banking services to Union
Pacific and its subsidiaries in the future.
The following is a summary of the material financial analyses used by Morgan
Keegan in reaching its opinion and does not purport to be a complete
description of the analyses performed by Morgan Keegan. The following
quantitative information, to the extent it is based on market data, is based on
market data as it existed at or about October 15, 2001 and is not necessarily
indicative of current market conditions. Readers should understand that the
order of analyses and the results derived from these analyses described below
do not represent relative importance or weight given to these analyses by
Morgan Keegan. The summary of the financial
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analyses includes information presented in tabular format. In order to
understand fully the financial analyses used by Morgan Keegan, these tables
must be read together with the text of each summary. The tables alone do not
describe completely the financial analyses.
Historical Stock Price and Exchange Ratio Performance Analysis
Morgan Keegan examined the historical closing prices of Motor Cargo common
stock and Union Pacific common stock from October 16, 2000 to October 15, 2001.
During this time period, Motor Cargo common stock reached a high of $10.06 per
share and a low of $5.13 per share. For the same time period, Union Pacific
common stock reached a high of $60.60 per share and a low of $39.38 per share.
Morgan Keegan compared the historical ratios of the average closing price of
Union Pacific common stock to the average closing price of Motor Cargo common
stock for various periods ended October 15, 2001. Morgan Keegan also examined
the premium or discount represented by the transaction exchange ratio over the
average exchange ratio for various time periods. The following table sets forth
the results:
Average Market Transaction Exchange Ratio/
Period Ended 10/15/01 Exchange Ratio Avg. Market Exchange Ratio
--------------------- -------------- ---------------------------
1 trading day (Oct. 15, 2001) 0.2072 25.5%
Last 10 trading days......... 0.2073 25.4%
Last 30 trading days......... 0.1808 43.8%
Last 180 trading days........ 0.1596 62.9%
Since Oct. 16, 2000.......... 0.1530 70.0%
The transaction exchange ratio is higher than the average exchange ratio of the
closing prices for all time periods analyzed.
Peer Group Analysis
Morgan Keegan compared financial, market and operating information of Motor
Cargo and Union Pacific with corresponding data for two groups:
. a group of LTL carriers, consisting of Arkansas Best Corporation, Arnold
Industries, Consolidated Freightways, Old Dominion Freight Line, Roadway
Corporation, USFreightways and Yellow Corporation; and
. a group of Class I railroad companies, consisting of Burlington Northern
Santa Fe, CSX Corporation and Norfolk Southern.
Specifically, Morgan Keegan:
. calculated the enterprise value of each company as a multiple of its
respective: LTM sales, LTM EBITDA and LTM EBIT;
. calculated the market capitalization of each company as a multiple of its
respective: LTM net income from continued operations and its latest
publicly-available book value;
. applied the median valuation multiples from their respective peer group to
Motor Cargo's and Union Pacific's results for the latest twelve months
ended June 30, 2001 or book value as of June 30, 2001 to derive an implied
range of equity values and price per share for Motor Cargo and Union
Pacific; and
. used the implied price per share information to calculate an implied range
of exchange ratios.
The enterprise value of a company is equal to the value of its fully-diluted
common equity plus debt and the liquidation value of its preferred stock, if
any, minus cash and the value of certain other assets including minority
interests in other entities. LTM means the last twelve-month period for which
financial data for the company at issue has been reported. EBITDA means
earnings before interest, taxes, depreciation and amortization. EBIT means
earnings before interest and taxes.
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The results of that analysis are set forth in the following table:
Motor Cargo
Peer Group Implied Price
Median Multiples per Share
---------------- -------------
Sales..... 0.4x $ 8.66
EBITDA.... 3.8x 11.31
EBIT...... 7.3x 11.78
Book Value 1.3x 11.93
Net Income 11.8x 12.15
Union Pacific
Peer Group Implied Price
Median Multiples per Share
---------------- -------------
Sales..... 1.9x $51.44
EBITDA.... 9.0x 68.76
EBIT...... 15.3x 73.43
Book Value 1.2x 43.32
Net Income 23.1x 77.52
Based on peer group analysis, Morgan Keegan derived an implied share price
range of $8.66 to $12.15 for Motor Cargo and $43.52 to $77.52 for Union Pacific
and an implied exchange ratio range of 0.1568 to 0.2000.
Discounted Cash Flow Analysis
Morgan Keegan performed a discounted cash flow analysis on the projected
cash flows of Motor Cargo for the fiscal year ending December 31, 2002 through
December 31, 2006 using projections and assumptions provided by the management
of Motor Cargo. Morgan Keegan used a range of discount rates (10.17% to 11.17%)
and terminal multiples (3.0x to 4.0x) based on estimated EBITDA for the fiscal
year ending December 31, 2006 to calculate a range of implied equity values and
price per share for Motor Cargo common stock. The implied share prices were
compared to Union Pacific's closing share price on October 15, 2001 of $48.02
to calculate a range of implied exchange ratios.
Based on discounted cash flow analysis, Morgan Keegan derived an implied
Motor Cargo share price range of $10.47 to $13.53 and an implied exchange ratio
range 0.2266 to 0.2928.
Pro Forma Impact Analysis
Morgan Keegan analyzed certain pro forma effects of the Merger, including
the impact of the Merger on First Call's estimate of Union Pacific's earnings
per share for the year ended December 31, 2002 using different assumptions for
the composition of the stock/cash consideration. Morgan Keegan determined that
the transaction would be slightly dilutive to Union Pacific's stand-alone
consensus 2002 earnings per share estimates as reported by First Call, assuming
that 100% of the consideration is Union Pacific common stock. However, the
transaction would be slightly accretive to Union Pacific's estimated 2002
earnings per share if approximately 5% or more of the consideration is cash.
Morgan Keegan did not incorporate any synergies or cost savings into this
analysis and noted that since Union Pacific's estimated net income is
significantly larger than Motor Cargo's, the change in the accretive or
dilutive effect of the various scenarios is minimal. The pro forma impact
analysis assumed: acquisition debt is financed at 7.0%; effective tax rate of
37.5%; goodwill will not be amortized and will be accounted for in accordance
with Statement of Financial Accounting Standards No. 142; and transaction fees
of $2.0 million amortized over five years.
10
Premium Analysis
Morgan Keegan analyzed the premiums paid for selected completed
non-financial institution and non-technology mergers and acquisitions of
publicly-traded companies with equity values between $25 million and $100
million since January 1, 2000. Morgan Keegan analyzed the premiums paid for all
trucking (truckload and less-than-truckload) mergers and acquisitions of
publicly-traded companies since October 1, 1997. Morgan Keegan analyzed the
premiums paid over the analyzed target company's stock price one day, one week
and one month prior to the announcement date of their respective transactions,
calculated the median of these premiums and applied these premiums to Motor
Cargo's closing stock price on October 15, 2001, October 9, 2001 and August 28,
2001 to calculate an implied share price for Motor Cargo common stock. The
implied share price for Motor Cargo common stock was divided by Union Pacific's
closing price on October 15, 2001 to calculate an implied exchange ratio.
The median premiums over the one-day, five-day and thirty-day closing prices
for the non-financial institution and non-technology transactions were 25.5%,
30.3% and 45.8%, respectively. The median premiums over the one-day, five-day
and thirty-day closing prices for the trucking transactions were 24.2%, 23.1%
and 30.3%, respectively. Cash consideration of $12.10 per share of Motor Cargo
common stock represents a premium of 21.6%, 28.0% and 37.5% to its closing
price share on October 15, 2001, October 9, 2001 and August 28, 2001,
respectively.
Based on the average premium paid for non-financial and non-technology
transactions since January 1, 2000, the implied Motor Cargo share price range
is $12.32 to $12.83 and the implied exchange ratio is 0.2565 to 0.2672. Based
on the average premium paid in all trucking transactions since October 1, 1997,
the implied Motor Cargo share price range is $11.47 to $12.36 and the implied
exchange ratio is 0.2388 to 0.2574.
The preparation of a fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, is not necessarily susceptible to partial analysis or summary
description. Selecting portions of the analyses or of the summary set forth
above, without considering the analysis as a whole, could create an incomplete
view of the processes underlying Morgan Keegan's opinion. In arriving at its
fairness determination, Morgan Keegan considered the results of all such
analyses and did not attribute any particular weight to any factor or analysis
considered by it; rather, Morgan Keegan made its determination as to fairness
on the basis of its experience and professional judgment after considering the
results of all such analyses. No company or transaction used in the above
analyses is directly comparable to Motor Cargo or the contemplated
transactions. In addition, mathematical analysis such as determining the mean
or median is not in itself a meaningful method of using selected data. The
analyses were prepared solely for purposes of Morgan Keegan providing its
opinion to the Board of Directors as to the fairness, from a financial point of
view, of the consideration to be received by the shareholders of Motor Cargo
pursuant to the Offer and the Merger and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may
be sold. Analyses based on forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their respective advisors, none of Motor Cargo,
Morgan Keegan or any other person assumes responsibility if future results are
materially different from those forecast. As described below, the opinion of
Morgan Keegan to the Board of Directors was among many factors taken into
consideration by the Board of Directors in making its determination to approve
the Merger Agreement.
11
(c) Intent to Tender.
To Motor Cargo's knowledge, after reasonable inquiry, all of its executive
officers, directors, and affiliates currently intend to tender all shares of
Motor Cargo common stock that are held of record or are beneficially owned by
them pursuant to the Offer, other than the shares of Motor Cargo common stock,
if any, held by such persons that, if tendered, could cause them to incur
liability under Section 16(b) of the Securities Exchange Act of 1934. Prior to
the completion of the Offer, executive officers and directors have indicated
they may exercise options to purchase in the aggregate up to 229,000 shares of
Motor Cargo common stock and sell the underlying shares in brokerage
transactions. Harold R. Tate, Chairman of the Board and Chief Executive Officer
of Motor Cargo, and Marvin L. Friedland, Vice President and General Counsel of
Motor Cargo, have entered into Shareholder Agreements with Union Pacific,
pursuant to which they have agreed to tender all of their shares of Motor Cargo
common stock in the Offer. Mr. Tate and, subject to certain exceptions, Mr.
Friedland have agreed to elect to receive only Union Pacific common stock for
their shares of Motor Cargo common stock.
Item 5. Persons/Assets Retained, Employed, Compensated or Used.
Pursuant to the Engagement Letter, Motor Cargo retained Morgan Keegan to act
as its exclusive financial advisor with respect to a possible business
combination involving Motor Cargo. Morgan Keegan was retained to (1) provide
advisory services, including general business and financial analysis of Motor
Cargo, (2) identify opportunities for the sale of Motor Cargo including the
approach of two specific potential acquirors, (3) advise Motor Cargo concerning
opportunities for such sale, whether or not identified by Morgan Keegan, (4) if
requested by Motor Cargo, participate on Motor Cargo's behalf in negotiations
concerning such sale and (5) if requested by Motor Cargo, deliver an opinion to
the Board of Directors with respect to the fairness of any such transaction to
the shareholders of Motor Cargo, from a financial point of view.
As compensation for the services provided by Morgan Keegan, Motor Cargo
agreed to pay Morgan Keegan (1) an opinion fee of $250,000 upon delivery by
Morgan Keegan of a fairness opinion with respect to a sale of Motor Cargo, and
(2) a transaction fee of 1.25% of the gross value of all cash, securities and
other property paid directly or indirectly by an acquiror to the shareholders
of Motor Cargo, including the value of any indebtedness assumed by the
acquiring party. Motor Cargo also agreed to reimburse Morgan Keegan for its
reasonable out-of-pocket expenses incurred in connection with its engagement
and to indemnify Morgan Keegan against certain liabilities in connection with
its engagement. In the past, Morgan Keegan and its affiliates have provided
certain financial and investment banking services to Motor Cargo and have
received compensation for such services.
Morgan Keegan has informed Motor Cargo that, in the ordinary course of its
trading and brokerage activities, they or their affiliates may at any time hold
long or short positions and may trade or otherwise effect transactions, for
their own accounts and the accounts of customers, in debt or equity securities
of Motor Cargo or Union Pacific.
Except as set forth above, neither Motor Cargo nor any person acting on its
behalf has or currently intends to employ, retain or compensate any other
person to make solicitations or recommendations to shareholders of Motor Cargo
on Motor Cargo's behalf with respect to the Offer.
Item 6. Interest in Securities of the Subject Company.
To the knowledge of Motor Cargo, except as otherwise set forth in this
Schedule 14D-9, no transactions in Motor Cargo common stock have been effected
during the past 60 days by Motor Cargo or by any affiliate or subsidiary of
Motor Cargo or any of their officers or directors.
Item 7. Purposes of the Transaction and Plans or Proposals.
Motor Cargo is not currently undertaking or engaged in any negotiations in
response to the Offer that relate to (1) a tender offer for or other
acquisition of Motor Cargo's securities by Motor Cargo, any subsidiary of Motor
12
Cargo or any other person; (2) an extraordinary transaction, such as a merger,
reorganization or liquidation, involving Motor Cargo or any subsidiary of Motor
Cargo; (3) a purchase, sale or transfer of a material amount of assets of Motor
Cargo or any subsidiary of Motor Cargo; or (4) any material change in the
present dividend rate or policy, or indebtedness or capitalization of Motor
Cargo.
There are no transactions, resolutions of the Board of Directors, agreements
in principle or signed contracts in response to the Offer that relate to one or
more of the events referred to in the preceding paragraph.
Item 8. Additional Information.
Information Statement Pursuant to Rule 14f-1.
The Information Statement attached as Annex I to this Schedule is being
furnished in connection with the possible designation by Union Pacific, under
the terms of the Merger Agreement, of certain persons to be elected to the
Board of Directors other than at a meeting of Motor Cargo's shareholders.
Merger Statute
Under the Utah Revised Business Corporation Act, if Union Pacific acquires,
pursuant to the Offer or otherwise, at least 90% of the outstanding shares of
Motor Cargo common stock and contributes the acquired shares to Merger
Subsidiary, Merger Subsidiary may effect the Merger without the approval of
Motor Cargo's shareholders. If Merger Subsidiary does not acquire at least 90%
of the outstanding shares of Motor Cargo common stock, however, the approval of
Motor Cargo's shareholders will be required to effect the Merger.
Utah Control Shares Acquisition Act
The Utah Control Shares Acquisition Act provides that "control shares" of a
corporation acquired in a control share acquisition have no voting rights
except as granted by the shareholders of the corporation. "Control shares" are
shares that, when added to shares then owned or controlled by a shareholder,
increase the shareholder's control of voting power above one of three
thresholds: more than one-fifth, more than one-third, or more than one-half of
the outstanding voting power of the corporation. Under Utah law, a corporation
may
provide in its articles of incorporation or bylaws that the Control Shares
Acquisition Act does not apply to the corporation. Motor Cargo's bylaws, as
amended, provide that the Control Shares Acquisition Act does not apply to
acquisitions of Motor Cargo's capital stock.
Dissenters' Rights
In connection with the Offer, Motor Cargo shareholders do not have
dissenters' rights. Motor Cargo shareholders who choose not to tender their
shares in the Offer may exercise dissenters' rights in connection with the
Merger in accordance with the Utah Revised Business Corporation Act. The Utah
Revised Business Corporation Act provides that a shareholder, whether or not
entitled to vote, is entitled to dissent from a plan of merger and obtain
payment of the fair value of shares held by the shareholder. If a dissenting
shareholder and Motor Cargo do not agree on the fair value of the shareholder's
shares, the shareholder will have the right to judicial determination of the
fair value of the shares. The value so determined could be more or less than
the price per share to be paid under the Offer and the Merger. To assert
dissenters' rights, a shareholder must demand payment pursuant to Part 13 of
the Utah Revised Business Corporation Act. Failure to follow the steps required
by Part 13 may result in the loss of dissenters' rights.
United States Antitrust Compliance
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), certain transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice (the "Antitrust Division") and to the FTC and certain
waiting period requirements have been satisfied. The purchase of the shares of
Motor Cargo common stock pursuant to the Offer is subject to these requirements.
13
Pursuant to the requirements of the HSR Act, Union Pacific and Motor Cargo
each filed a Notification and Report Form with respect to the Offer with the
Antitrust Division and the FTC on October 26, 2001. The Offer cannot be
completed until a waiting period of 30 days has expired or been terminated
early by the federal agencies. The waiting period commences on the date that
both Motor Cargo and Union Pacific have substantially complied with the filing
requirements. The FTC or the Antitrust Division can also request additional
information and materials from Union Pacific and from Motor Cargo in connection
with their review of the Offer. Should there be a request for additional
information, Union Pacific and Motor Cargo cannot complete the Offer until 30
days after the parties have substantially complied with the request for
additional information, unless the 30-day waiting period is terminated early.
If either federal agency believes that the Offer would violate the federal
antitrust laws by substantially lessening competition in any line of commerce
affecting United States consumers, it has the authority to seek to enjoin the
transactions. Expiration or termination of the HSR Act waiting period is a
condition to the Offer.
Private parties (including individual states) may also bring legal actions
under the antitrust laws. We do not believe that the consummation of the Offer
will result in a violation of any applicable antitrust laws. However, there can
be no assurance that a challenge to the Offer on antitrust grounds will not be
made, or if such a challenge is made, what the result will be.
If the Antitrust Division, the FTC, a state or a private party raises
antitrust concerns in connection with the proposed transaction, Union Pacific
and Motor Cargo may engage in negotiations with the relevant governmental
agency or party concerning possible means of addressing these issues and may
delay consummation of the Offer or the Merger while those discussions are
ongoing. Union Pacific and Motor Cargo have agreed to use their respective
reasonable best efforts to resolve any antitrust issues.
Item 9. Exhibits.
Exhibit No. Description
----------- -----------
(a)(1) Preliminary Prospectus dated October 31, 2001 (incorporated by reference to Exhibit (a)(1) to the
Schedule TO of Union Pacific filed on October 31, 2001).
(a)(2) Letter of Election and Transmittal (incorporated by reference to Exhibit (a)(2) to the Schedule TO
of Union Pacific filed on October 31, 2001).
(a)(3) Letter to holders of Motor Cargo common stock, dated October 31, 2001.*
(a)(4) Joint Press Release issued by Union Pacific and Motor Cargo on October 15, 2001 (incorporated
by reference to Exhibit 99.1 to Motor Cargo's Current Report on Form 8-K filed on October 16,
2001).
(a)(5) Opinion of Morgan Keegan & Company, Inc., dated October 15, 2001 (included in Annex II
hereto).*
(e)(1) Agreement and Plan of Merger, dated as of October 15, 2001, by and among Motor Cargo, Union
Pacific and Merger Subsidiary (incorporated by reference to Exhibit 2.1 to Union Pacific's
Current Report on Form 8-K filed on October 16, 2001).
(e)(2) Shareholder Agreement, dated October 15, 2001, between Union Pacific and Harold R. Tate
(incorporated by reference to Exhibit 99.2 to Union Pacific's Current Report on Form 8-K filed
on October 16, 2001).
(e)(3) Shareholder Agreement, dated October 15, 2001, between Union Pacific and Marvin L. Friedland
(incorporated by reference to Exhibit 99.3 to Union Pacific's Current Report on Form 8-K filed
on October 16, 2001).
(e)(4) Confidentiality Agreement, dated March 7, 2001, between Overnite Transportation Company and
Morgan Keegan & Company, Inc., as agent for Motor Cargo.
(e)(5) Information Statement of Motor Cargo, dated October 31, 2001 (included as Annex I hereto).*
--------
* Included in copies mailed to shareholders
14
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
MOTOR CARGO INDUSTRIES, INC.
/s/ LYNN H. WHEELER
Lynn H. Wheeler
Vice President of Finance and
Chief Financial Officer
Dated: October 31, 2001
15
Annex I
Motor Cargo Industries, Inc.
845 West Center Street
North Salt Lake, Utah 84054
INFORMATION STATEMENT PURSUANT TO SECTION 14(f)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER
This Information Statement is being furnished to holders of the outstanding
shares of common stock, no par value, of Motor Cargo Industries, Inc., a Utah
corporation ("Motor Cargo"), in connection with the possible designation by
Union Pacific Corporation, a Utah corporation ("Union Pacific"), of at least a
majority of the members of the board of directors of Motor Cargo (the "Board of
Directors") pursuant to the terms of an Agreement and Plan of Merger, dated as
of October 15, 2001 (the "Merger Agreement"), by and among Motor Cargo, Union
Pacific and Motor Merger Co., a Utah corporation and a wholly-owned subsidiary
of Union Pacific ("Merger Subsidiary"). This information is being provided
solely for informational purposes and not in connection with a vote of Motor
Cargo's shareholders.
The Merger Agreement provides that upon the acceptance of shares of Motor
Cargo common stock for payment by Union Pacific in a tender offer for all
outstanding shares of Motor Cargo (the "Offer"), Union Pacific may designate
such number of directors on the Board of Directors (the "Union Pacific
Designees") as is equal to the product (rounded up to the next whole number)
obtained by multiplying the total number of directors then on the Board of
Directors by the percentage that the number of shares of Motor Cargo common
stock then owned or accepted for payment by Union Pacific bears to the total
number of shares of Motor Cargo common stock then outstanding; provided,
however, that prior to the completion of a merger as described in the Merger
Agreement (the "Merger"), the Board of Directors will always have at least two
members who were directors prior to the Offer. Motor Cargo will, to the extent
permitted by applicable law, increase the size of the Board of Directors or
secure the resignation of, or remove, existing directors so as to enable the
Union Pacific Designees to be appointed to the Board of Directors in accordance
with the Merger Agreement.
The information contained in this Annex I concerning Union Pacific and
Merger Subsidiary has been furnished to Motor Cargo by Union Pacific, and Motor
Cargo assumes no responsibility for the accuracy or completeness of any such
information.
VOTING SECURITIES
As of October 26, 2001, there were 6,473,140 shares of Motor Cargo common
stock outstanding. Each share of Motor Cargo common stock entitles its holder
to one vote.
I-1
BOARD OF DIRECTORS
The Board of Directors currently consists of six members, each of whom
serves a one-year term. The names and certain information concerning the
experience and background of the current directors are set forth below.
Name Age Position
---- --- --------
Harold R. Tate............. 75 Chief Executive Officer, Chairman of the Board,
Director
Louis V. Holdener.......... 63 President and Chief Operating Officer, Director
Marvin L. Friedland........ 59 Vice President, General Counsel and Secretary,
Director
Robert Anderson............ 80 Director
James Clayburn LaForce, Jr. 72 Director
Merlin J. Norton........... 72 Director
Harold R. Tate has over 50 years experience in the trucking industry and has
served as Chairman of the Board of Directors of Motor Cargo and its
predecessors since 1947. Mr. Tate served as Chief Executive Officer of Motor
Cargo and its predecessors from 1947 to March 1997, and was again elected as
Motor Cargo's Chief Executive Officer effective April 1, 2001. Mr. Tate also
serves as a member of the Board of Trustees of the Buffalo Bill Historical
Center.
Louis V. Holdener has over 30 years experience in the trucking industry. Mr.
Holdener has been employed by Motor Cargo since 1965, and was named President
and Chief Operating Officer of Motor Cargo and appointed to the Board of
Directors effective April 1, 2001. Mr. Holdener has also served as President of
Motor Cargo's primary operating subsidiary (the "Operating Subsidiary") since
1991, and served as Vice President of Motor Cargo from 1997 to 2001. Prior to
1991, Mr. Holdener served in various positions with Motor Cargo, including Vice
President of Operations of the Operating Subsidiary.
Marvin L. Friedland has served as Vice President and General Counsel of
Motor Cargo and its predecessors since 1982. Prior to joining Motor Cargo, Mr.
Friedland was an attorney in private practice. Mr. Friedland was appointed to
the Board of Directors in 1996. Mr. Friedland is a Certified Public Accountant
and a member of the California Bar and the Utah Bar.
Robert Anderson has served as a director of Motor Cargo since December 1,
1997. Mr. Anderson was formerly Chairman and Chief Executive Officer of
Rockwell International Corporation. He has served as Chairman Emeritus of
Rockwell International Corporation since 1990. Mr. Anderson is also a director
of Gulfstream Aerospace Corporation and Aftermarket Technology Corp.
James Clayburn LaForce, Jr. has served as a director of Motor Cargo since
December 1, 1997. Mr. LaForce is Dean Emeritus of the John B. Anderson School
of Management, University of California, Los Angeles. He is also a director of
BlackRock Funds, CancerVax Corporation, The Timken Company, Jacobs Engineering
Group, Inc. and Provident Investment Council Mutual Funds, and he is a trustee
of the Trust for Investment Managers.
Merlin J. Norton has served as a director of Motor Cargo since April 9,
2001. Mr. Norton is Chairman of Great Western Leasing and Sales, a provider of
trailers, storage containers and other equipment. Mr. Norton served as Chairman
of the Board of PST Vans, Inc. from 1980 to 1987. Prior to that, Mr. Norton
served as Chairman of the Board of FB Truckline Company from 1968 to 1978.
I-2
Meetings and Committees
The current committees of the Board of Directors include an Audit Committee,
a Compensation Committee and a Performance-Based Compensation Committee.
The functions of the Audit Committee are to recommend to the Board of
Directors independent auditors for Motor Cargo, to analyze the reports and
recommendations of such auditors and to review internal audit procedures and
controls. The Audit Committee consists of Robert Anderson, James Clayburn
LaForce, Jr. and Merlin J. Norton. Four meetings of the Audit Committee were
held in 2000.
The functions of the Compensation Committee are to review and adjust the
salaries of the principal officers and key executives of Motor Cargo. The
Compensation Committee also administers Motor Cargo's executive compensation
and benefit plans. The Compensation Committee consists of Harold R. Tate,
Robert Anderson, James Clayburn LaForce, Jr. and Merlin J. Norton. One meeting
of the Compensation Committee was held in 2000.
The sole function of the Performance-Based Compensation Committee is to
qualify certain stock options and rights granted under Motor Cargo's 1997 Stock
Option Plan as "performance-based compensation" within the meaning of Section
162(m) of the Internal Revenue Code. The Performance-Based Compensation
Committee consists of Robert Anderson and James Clayburn LaForce, Jr. No
meetings of the Performance Based Compensation Committee were held in 2000.
The Board of Directors held a total of four regular meetings in 2000. During
2000, each incumbent director attended 75% or more of the total number of
meetings of the Board of Directors and the committees of the Board of Directors
on which he served that were held during the periods he served.
UNION PACIFIC DESIGNEES
Union Pacific has informed Motor Cargo that it will select the Union Pacific
Designees from among James R. Young, Carl W. von Bernuth, Mary S. Jones, Joseph
E. O'Connor, Jr. and James J. Theisen, Jr., each of whom is an employee of
Union Pacific or its affiliates. Biographical information for each of these
persons is set forth below. Union Pacific has informed Motor Cargo that each of
these persons has consented to act as a director of Motor Cargo if so
designated. It is expected that none of the Union Pacific Designees will
receive any compensation for serving as a director. Pursuant to the Merger
Agreement, Union Pacific also has the right to designate the Union Pacific
Designees as members of the committees of the Board of Directors. Motor Cargo
has not been informed of any decision by Union Pacific as to the membership of
any such committees.
James R. Young, 48, was elected Executive Vice President--Finance of Union
Pacific and Chief Financial Officer of Union Pacific Railroad Company effective
December 1, 1999. Mr. Young was elected Controller of Union Pacific and Senior
Vice President--Finance of Union Pacific Railroad Company effective March 1999
and Senior Vice President--Finance of Union Pacific effective June 1998. He
served as Treasurer of Union Pacific Railroad Company from June 1998 to March
1999. Mr. Young was Vice President--Customer Service Planning and Quality of
Union Pacific Railroad Company from April 1998 to June 1998, Vice
President--Quality and Operations Planning from September 1997 to April 1998
and Vice President--Finance and Quality from September 1995 to September 1997.
Carl W. von Bernuth, 57, was elected Corporate Secretary of Union Pacific
effective April 1997. Mr. von Bernuth has been Senior Vice President and
General Counsel of Union Pacific during the past five years.
Mary S. Jones, 48, was elected Vice President and Treasurer of Union Pacific
effective March 1999. Ms. Jones served as Vice President--Investor Relations of
Union Pacific from June 1998 to March 1999. She
I-3
was Assistant Vice President--Treasury and Assistant Treasurer of Union Pacific
from September 1996 to June 1998 and prior thereto she was Assistant Treasurer.
Joseph E. O'Connor, Jr., 44, was named Vice President--Planning & Analysis
for Union Pacific Railroad Company in February 2000. Mr. O'Connor served as
Vice President--Bulk Products, Network Design & Integration for Union Pacific
Railroad Company from September 1998 to January 2000 and prior thereto he was
Vice President and Controller for Union Pacific.
James J. Theisen, Jr., 38, was named Senior Corporate Counsel for Union
Pacific in June 1999. Mr. Theisen has served as Assistant Secretary of Union
Pacific since November 1999 and Assistant Secretary of Union Pacific Railroad
Company since May 2000. Mr. Theisen served as General Attorney for Union
Pacific Railroad Company from August 1997 to May 1999 and prior thereto was
Senior Corporate Attorney for Union Pacific.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
executive officers and key employees of Motor Cargo.
Name Age Position
---- --- --------
Harold R. Tate....... 75 Chairman and Chief Executive Officer, Director
Louis V. Holdener.... 63 President and Chief Operating Officer, Director
Marvin L. Friedland.. 59 Vice President and General Counsel, Secretary, Director
Lynn H. Wheeler...... 60 Vice President and Chief Financial Officer
R. Scott Price....... 37 Vice President of Sales and Marketing
Matthew T. McClure(1) 39 Vice President of Operations
Steven E. Wynn(1).... 51 Vice President of Human Resources
Kevin L. Avery(1).... 43 Vice President of Traffic
--------
(1)Messrs. McClure, Wynn and Avery are officers of the Operating Subsidiary and
are not officers of Motor Cargo.
Harold R. Tate has over 50 years of experience in the trucking industry and
has served as Chairman of the Board of Motor Cargo and its predecessors since
1947. Mr. Tate served as Chief Executive Officer of Motor Cargo and its
predecessors from 1947 to March 1997, and was again elected as Motor Cargo's
Chief Executive Officer effective April 1, 2001. Mr. Tate also serves as a
member of the Board of Trustees of the Buffalo Bill Historical Center.
Louis V. Holdener has over 30 years experience in the trucking industry. Mr.
Holdener has been employed by Motor Cargo since 1965, and was named President
and Chief Operating Officer of Motor Cargo and appointed to the Board of
Directors effective April 1, 2001. Mr. Holdener has also served as President of
the Operating Subsidiary since 1991, and served as Vice President of Motor
Cargo from 1997 to 2001. Prior to 1991, Mr. Holdener served in various
positions with Motor Cargo, including Vice President of Operations of the
Operating Subsidiary.
Marvin L. Friedland has served as Vice President and General Counsel of
Motor Cargo and its predecessors since 1982. Prior to joining Motor Cargo, Mr.
Friedland was an attorney in private practice. Mr. Friedland was appointed to
the Board of Directors in 1996. Mr. Friedland is a Certified Public Accountant
and a member of the California Bar and the Utah Bar.
Lynn H. Wheeler has been employed by Motor Cargo since 1983 and has served
as Vice President of Finance of the Operating Subsidiary since 1988. Mr.
Wheeler was appointed Vice President and Chief Financial
I-4
Officer of Motor Cargo in March 1997. Mr. Wheeler is a Certified Public
Accountant, a Certified Internal Auditor and a member of the American Institute
of Certified Public Accountants.
R. Scott Price joined Motor Cargo in 1986 and has served as a Vice President
of Sales and Marketing of Motor Cargo since February 1999. From October 1997 to
February 1999, Mr. Price served as a Vice President of Motor Cargo responsible
for overseeing MCDS. From 1995 to 1997, Mr. Price served as Vice President of
Sales of the Operating Subsidiary. From 1986 to 1995, Mr. Price held various
positions with the Operating Subsidiary, including Service Center Manager and
Director of Corporate Accounts.
Matthew T. McClure joined Motor Cargo in 1987 and has served as Vice
President of Operations of the Operating Subsidiary since January 2001. Prior
to that, Mr. McClure served as Director of Linehaul Operations for the
Operating Subsidiary from 1998 to 2001. From 1987 to 1998, Mr. McClure served
in various positions with Motor Cargo.
Steven E. Wynn has been employed by the Operating Subsidiary since 1973 and
has served as Vice President of Human Resources of the Operating Subsidiary
since February 1999. From 1991 to 1999, Mr. Wynn served as Vice President of
Operations of the Operating Subsidiary. From 1973 to 1991, Mr. Wynn served in
various positions, including Director of Linehaul Operations and Director of
Operations for the Operating Subsidiary.
Kevin L. Avery joined Motor Cargo in 1985 and has served as Vice President
of Traffic of the Operating Subsidiary since 1992. From 1985 to 1992, Mr. Avery
served in various positions, including Director of Pricing, Rate Department
Manager and Director of Quality Assurance for the Operating Subsidiary.
BENEFICIAL OWNERSHIP OF MOTOR CARGO COMMON STOCK
Set forth below is certain information as of October 26, 2001 (except as
otherwise indicated below) with respect to the beneficial ownership of Motor
Cargo common stock by (i) each person who, to the knowledge of Motor Cargo, is
the beneficial owner of more than 5% of the outstanding shares of Motor Cargo
common stock (Motor Cargo's only class of voting securities), (ii) each
director, (iii) each Named Executive Officer (as defined in the Summary
Compensation Table, below) and (iv) all directors and executive officers as a
group.
Right to Acquire
Amount and Nature of Within 60 Days of Percent of
Name and Address of Beneficial Owner(1) Beneficial Ownership(2) October 19, 2001 Class
--------------------------------------- ----------------------- ----------------- ------------
Averitt, Inc.(3)............................... 369,600 -- 5.7%
J.P. Morgan Chase & Co.(4)..................... 438,455 -- 6.8%
Directors:
Harold R. Tate................................. 3,858,000 -- 59.6%
Louis V. Holdener.............................. 15,640 40,000 Less than 1%
Marvin L. Friedland............................ 188,153 32,500 3.2%
Robert Anderson................................ -- 17,500 Less than 1%
James Clayburn LaForce, Jr..................... 2,000 17,500 Less than 1%
Merlin J. Norton............................... -- -- --
Nondirector Named Executive Officers:
Marshall L. Tate(5)............................ 141,153 -- 2.7%
Lynn H. Wheeler................................ 1,000 27,500 Less than 1%
R. Scott Price................................. -- 25,000 Less than 1%
All directors and executive officers as a group
(12 persons)................................. 4,206,461 211,500 65.7%
I-5
--------
(1) Unless otherwise indicated in these footnotes, the mailing address of each
beneficial owner listed is 845 West Center Street, North Salt Lake, Utah
84054.
(2) Except as otherwise noted, each of the beneficial owners listed in the
table has, to the knowledge of Motor Cargo, sole voting and investment
power with respect to the indicated shares of Motor Cargo common stock.
(3) The mailing address for Averitt, Inc. is Corporate Service Center,
Perimeter Place One, 518 Old Kentucky Road, Cookeville, Tennessee 38501.
(4) The mailing address for J.P. Morgan Chase & Co., and its wholly-owned
subsidiary, Robert Fleming, Inc., is 270 Park Avenue, New York, New York
10017.
(5) Marshall L. Tate resigned as President and Chief Executive Officer of Motor
Cargo on March 31, 2001. The information regarding Mr. Tate's beneficial
ownership is as of that date.
On October 15, 2001, Union Pacific entered into Shareholder Agreements with
two principal shareholders of Motor Cargo who own, in the aggregate,
approximately 62.5% of the outstanding shares of Motor Cargo common stock. For
a description of these agreements, see "The Shareholder Agreements" under Item
3 of the Schedule 14D-9 to which this Information Statement is attached.
EXECUTIVE COMPENSATION
Set forth below is certain information with respect to the compensation paid
by Motor Cargo to the Chairman of the Board, the President and Chief Executive
Officer and each of the other three most highly compensated current executive
officers of Motor Cargo (each, a "Named Executive Officer"), for services in
all capacities to Motor Cargo and its subsidiaries during the years ended 2000,
1999 and 1998.
Summary Compensation Table
Long Term Compensation
------------------------------
Annual Compensation Awards Payouts
------------------------ --------------------- ------- ---------
Other Securities All
Annual Restricted Underlying Other
Compen- Stock Options/ LTIP Compen-
Name and Principal Salary Bonus sation(1) Award(s) SARs(2) Payouts sation(3)
Position Year ($) ($) ($) ($) (#) ($) ($)
---------------------------- ---- ------- ------ --------- ---------- ---------- ------- ---------
Harold R. Tate 2000 250,000 -- -- -- -- -- --
Chairman of the Board and 1999 250,000 -- -- -- -- -- --
Chief Executive Officer (4)........ 1998 250,000 -- -- -- -- -- --
Marshall L. Tate.................... 2000 175,000 41,040 -- -- -- -- --
President and Chief 1999 175,000 23,625 -- -- 65,000 -- --
Executive Officer 1998 175,000 21,000 -- -- -- -- --
until March 31, 2001(4)
Marvin L. Friedland 2000 140,769 25,080 -- -- -- -- 19,639
Vice President and 1999 130,000 16,800 -- -- 32,500 -- 19,375
General Counsel.................... 1998 130,000 16,000 -- -- -- -- 24,208
Louis V. Holdener 2000 146,538 33,659 -- -- -- -- 22,552
President (4)...................... 1999 135,000 23,625 -- -- 40,000 -- 19,870
1998 135,000 21,000 -- -- -- -- 24,650
Lynn H. Wheeler 2000 112,231 25,080 -- -- -- -- 21,108
Vice President and 1999 98,000 16,800 -- -- 27,500 -- 19,292
Chief Financial Officer............ 1998 98,000 16,000 -- -- -- -- 23,364
--------
(1)Perquisites and other personnel benefits, securities or property, in the
aggregate, are less than either $50,000 or 10% of the total annual salary
and bonus reported for the named executive officer.
I-6
(2)The options granted in 1999, were granted on January 26, 1999 and reflect
options that replaced options granted in 1997, which were cancelled, as well
as grants of new options. The options have an exercise price of $7.50 per
share and vest in equal installments over a four year period beginning with
the first anniversary of the date the options were granted and each year
thereafter. See "1997 Stock Option Plan" below.
(3)Amounts in this column include matching contributions made by Motor Cargo
under its 401(k) plan on behalf of Mr. Friedland, Mr. Holdener and Mr.
Wheeler of $1,652, $4,597 and $3,868, respectively, in 2000. Amounts in this
column also include accrued benefits under salary continuation agreements
between Motor Cargo and Mr. Friedland, Mr. Holdener and Mr. Wheeler of
$17,987, $17,955 and $17,240, respectively, in 2000.
(4)Marshall L. Tate resigned as President and Chief Executive Officer, and as a
director of Motor Cargo, effective March 31, 2001. Harold R. Tate, Motor
Cargo's Chairman, was elected to serve as Chief Executive Officer of Motor
Cargo upon Marshall Tate's resignation. At that time, Louis V. Holdener was
also promoted to serve as President of Motor Cargo.
The following table provides information as to the value of options held by
each of the Named Executive Officers at the end of 2000 measured in terms of
the last reported sale price for Motor Cargo common stock on December 29, 2000
($6.75, as reported on the Nasdaq National Market System).
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Shares Number of Securities Value of Unexercised In-
Acquired Underlying Unexercised the-Money Options/SARs at
on Value Options/SARs at FY-End (#) FY-End (#) Exercisable/
Name Exercise (#) Realized Exercisable/Unexercisable Unexercisable
---- ------------ -------- -------------------------- -------------------------
Harold R. Tate...... -- -- 0/0 0/0
Marshall L. Tate (1) -- -- 16,250/48,750 0/0
Marvin L. Friedland. -- -- 8,125/24,375 0/0
Louis V. Holdener... -- -- 10,000/30,000 0/0
Lynn H. Wheeler..... -- -- 6,875/20,625 0/0
--------
(1)Marshall L. Tate resigned as President and Chief Executive Officer of Motor
Cargo on March 31, 2001, and all of the options held by him were cancelled
as of that date.
1997 Stock Option Plan
On October 1, 1997, the Board of Directors adopted the Motor Cargo
Industries, Inc. 1997 Stock Option Plan (the "1997 Stock Option Plan"). The
purpose of the 1997 Stock Option Plan is to provide certain of Motor Cargo's
key employees who are responsible for the continued growth of Motor Cargo an
opportunity to acquire a proprietary interest in Motor Cargo and thereby create
in such key employees an increased interest in and a greater concern for the
welfare of Motor Cargo. The 1997 Stock Option Plan contains provisions for
granting various stock-based awards, including incentive stock options as
defined in Section 422 of the Internal Revenue Code of 1986 as amended (the
"Code"), nonqualified stock options and stock appreciation rights. The term of
the 1997 Stock Option Plan is ten years, subject to earlier termination or
amendment.
The Compensation Committee of the Board of Directors administers the 1997
Stock Option Plan. Under the terms of the 1997 Stock Option Plan, the committee
of the Board of Directors administering the plan is required to be composed of
two or more directors. The Compensation Committee has the authority to
interpret the 1997 Stock Option Plan and to determine and designate the persons
to whom options or awards shall be made and the terms, conditions and
restrictions applicable to each option or award (including, but not limited to,
the price, any restriction or limitation, any vesting schedule or acceleration
thereof, and any forfeiture restrictions). The Board of Directors may amend the
1997 Stock Option Plan but may not, without the prior approval of the
shareholders of Motor Cargo, amend the plan to increase the total number of
shares reserved for options and rights under the
I-7
plan, reduce the exercise price of any option granted under the plan that is
intended to qualify as an incentive stock option within the meaning of Section
422 of the Code, modify the provisions of the plan relating to eligibility, or
materially increase the benefits accruing to participants under the plan.
On January 26, 1999, the Board of Directors amended the 1997 Stock Option
Plan to permit administration by a committee consisting of "outside directors"
for the purpose of qualifying certain stock options and rights granted under
the 1997 Stock Option Plan as "performance-based compensation" within the
meaning of Section 162(m) of the Code. The Board of Directors has established
the Performance-Based Compensation Committee, consisting of Robert Anderson and
James Clayburn LaForce, Jr., for this purpose. The Compensation Committee
continues to administer all other aspects of the 1997 Stock Option Plan.
Motor Cargo has reserved 500,000 shares of common stock for issuance
pursuant to the 1997 Stock Option Plan. As of October 26, 2001, options to
purchase a total of 297,900 shares of common stock were outstanding under the
1997 Stock Option Plan, including options to purchase an aggregate of 100,000
shares held by certain Named Executive Officers. All such outstanding options
vest over a four year period, with 25% of these options vesting on each of the
first, second, third and fourth anniversaries of the date of grant. As a result
of the approval of the Merger Agreement by the Board of Directors, all options
outstanding under the 1997 Stock Option Plan became fully vested and
exercisable in accordance with the terms of the 1997 Stock Option Plan. As
permitted by the 1997 Stock Option Plan, the Board of Directors has determined
that any unexercised options outstanding on the date the Merger is consummated
will terminate, and in consideration of such termination, the holder of each
option so terminated will be entitled to receive, with respect to each share of
common stock subject to such option, an amount in cash (net of applicable
withholdings) equal to the excess of $12.10 over the per share exercise price
of such option.
401(k) Profit Sharing Plan
Motor Cargo maintains a defined contribution plan (the "401(k) Plan"), which
is intended to satisfy the tax qualification requirements of the Code. All
Motor Cargo personnel who work 1,000 or more hours per year are eligible to
participate in the 401(k) Plan after one year of service with Motor Cargo. The
401(k) Plan permits participants to contribute between 1% and 15% of their
annual compensation from Motor Cargo, subject to the limit imposed by the Code.
Motor Cargo is obligated to match at least 25% of employee contributions, up to
6% of a participant's annual compensation. All amounts contributed by a
participant fully vest immediately. A participant becomes vested over time and
is fully vested in any Motor Cargo matching contributions after seven years of
service. The 401(k) Plan also permits discretionary contributions by Motor
Cargo. Expenses for Motor Cargo contributions amounted to $475,000, $421,000
and $495,000 in 1998, 1999 and 2000, respectively.
Pension Plan
Motor Cargo has a defined benefit pension plan (the "Pension Plan") covering
substantially all of its employees. Benefits under the Pension Plan are based
upon years of service and hours of service in each year of service. A
participant is fully vested after five years of employment. Once vested,
employees are entitled to receive an annual benefit for each year of service in
which such employee worked at least 1,000 hours. The amount of benefit for each
year of service ranges from $144 for 1,000 hours of service to $240 for 1,800
hours or more of service. Harold R. Tate receives an annual benefit of $17,256
under the Pension Plan. The estimated annual benefits payable upon retirement
at normal retirement age for Marshall L. Tate, Marvin L. Friedland, Louis V.
Holdener, and Lynn H. Wheeler are $4,105, $5,832, $7,320, and $5,572,
respectively.
Salary Continuation Agreements
Motor Cargo has salary continuation agreements with four of its key
management employees: Marvin L. Friedland, Louis V. Holdener, Lynn H. Wheeler
and Steven E. Wynn. Under the agreements, Motor Cargo is obligated to provide
for each such employee or his beneficiaries, during a period of not more than
ten years after
I-8
the employee's death, disability or retirement, annual benefits ranging from
$17,000 to $23,000. Motor Cargo's current liability under each agreement is as
follows: Marvin L. Friedland, $156,760; Louis V. Holdener, $156,710; Lynn H.
Wheeler, $150,386; and Steven E. Wynn, $77,318.
Compensation Committee Report on Executive Compensation
Prior to November 28, 1997, the Board of Directors did not have a
compensation committee and the Board of Directors as a whole determined the
compensation to be paid to the executive officers of Motor Cargo. On November
28, 1997, the Board of Directors established a compensation committee. The
functions of the Compensation Committee are to review and adjust the salaries
of the principal officers and key executives of Motor Cargo. The Compensation
Committee also administers Motor Cargo's executive compensation and benefit
plans. The Compensation Committee consists of Harold R. Tate, Robert Anderson,
James Clayburn LaForce, Jr. and Merlin J. Norton.
The Compensation Committee considers a number of factors in establishing
compensation for executive officers, including the Chief Executive Officer and
the other Named Executive Officers. The goal of the Compensation Committee is
to create compensation packages for officers and key employees that will
attract, retain and motivate executive personnel who are capable of achieving
Motor Cargo's short-term and long-term financial and strategic goals. Executive
compensation at Motor Cargo is made up of three elements: (i) base salary, (ii)
bonuses and (iii) grants of equity-based compensation (e.g., stock options and
restricted stock).
Base Salary. Base salaries for all of the executive officers of Motor Cargo
for 1998 and 1999 were established by the Board of Directors based upon each
employee's job responsibilities. During 2000, the Compensation Committee
adjusted salaries of the executive officers, other than the Chairman and the
President and Chief Executive Officer, in order to bring these salaries in line
with market rates.
Bonuses. The Board of Directors awarded cash bonuses to executive officers
during 1998 based upon the financial performance of Motor Cargo. The
Compensation Committee awarded bonuses for 1999 and 2000. The Compensation
Committee considered a number of factors in awarding bonuses, including the
financial performance of Motor Cargo and the achievement by Motor Cargo of
short-term and long-term financial and strategic goals.
Stock Options and Restricted Stock. In addition to salary and bonus, Motor
Cargo has adopted the 1997 Stock Option Plan. Under the 1997 Stock Option Plan,
officers and key employees are eligible to receive awards of stock options,
stock appreciation rights and restricted stock. The number of stock options
and/or shares of restricted stock granted to each executive officer is
determined by a competitive compensation analysis and each individual's salary
and responsibility.
Harold R. Tate
Robert Anderson
James Clayburn LaForce, Jr.
Merlin J. Norton
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Motor Cargo's Chairman and Chief
Executive Officer and three non-employee directors. Currently, the members of
the Compensation Committee are Harold R. Tate, Robert Anderson, James Clayburn
LaForce, Jr. and Merlin J. Norton. None of the executive officers of Motor
Cargo serve as a director of another corporation in a case where an executive
officer of such other corporation serves as a director of Motor Cargo.
I-9
Corporate Performance
The following graph compares the performance (total return on investment as
measured by the change in the year-end stock price plus reinvested dividends)
of $100 invested in Motor Cargo common stock with that of $100 invested in the
U.S. Nasdaq Index and $100 invested in the Nasdaq Transportation Index for the
period from November 24, 1997 to December 31, 2000. Index data was furnished by
Standard & Poor's Compustat Services, Inc. Prior to Motor Cargo's initial
public offering in November 1997, there was no established trading market for
Motor Cargo common stock. Accordingly, no performance comparison is presented
for any period prior to November 25, 1997.
[CHART]
Base period Indexed Returns Years Ending
Company/Index 25 Nov 97 Dec 97 Dec 98 Dec 99 Dec 00
------------- --------- ------ ------ ------ ------
Motor Cargo Industries, Inc. 100 100.00 67.67 38.54 56.25
Nasdaq US 100 99.07 139.71 259.66 156.26
Nasdaq Transportation 100 101.45 91.21 88.16 80.13
Compensation of Directors
Motor Cargo pays each non-employee director $2,500 for each meeting of the
Board of Directors and $500 for each telephonic meeting of the Board of
Directors attended. Motor Cargo also reimburses such directors for their
expenses incurred in connection with their activities as directors. On November
24, 1997, in connection with Motor Cargo's initial public offering, a
non-qualified option to purchase 10,000 shares of Motor Cargo common stock at
the initial public offering price of $12.00 per share was granted to each of
Robert Anderson and James Clayburn LaForce, Jr.
On January 26, 1999, the Board of Directors adopted the 1999 Stock Option
Plan for Non-Employee Directors (the "1999 Stock Option Plan"). The purpose of
the plan is to encourage the highest level of performance from those members of
the Board of Directors who are not employees of Motor Cargo by providing them
with a proprietary interest in the financial success of Motor Cargo. Pursuant
to the 1999 Stock Option Plan, on January 26, 1999, the Board of Directors
approved the cancellation of the existing stock options held by Messrs.
Anderson and LaForce and granted new options to Mr. Anderson and Mr. LaForce.
An option to purchase 17,500 shares of common stock at $7.50 per share was
granted to each of Mr. Anderson and Mr. LaForce. The Board of Directors granted
an option to Merlin J. Norton to purchase 17,500 shares of common stock at
$8.19 per share upon his appointment to the Board of Directors on April 9,
2001. All outstanding options under the 1999 Stock Option Plan vest over a
four-year period, with 25% of these options vesting on each of the first,
second, third and fourth anniversaries of the date of grant. As a result of the
approval of the Merger Agreement by the Board of Directors, all options
outstanding under the 1999 Stock Option Plan became fully vested and
exercisable in accordance with the terms of the 1999 Stock Option Plan. As
permitted by the 1999 Stock Option Plan, the Board of Directors has determined
that any unexercised options outstanding on the date the Merger is consummated
will terminate, and in consideration of such termination, the holder of each
option so
I-10
terminated will be entitled to receive, with respect to each share of common
stock subject to such option, an amount in cash (net of applicable
withholdings) equal to the excess of $12.10 over the per share exercise price
of such option.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished
to Motor Cargo during its most recent fiscal year and Form 5 and amendments
thereto furnished to Motor Cargo with respect to its most recent fiscal year,
and any written representations furnished to Motor Cargo, Motor Cargo believes
that for the year ended December 31, 2000, all persons subject to the reporting
requirements of Section 16(a) of the Exchange Act filed the required reports on
a timely basis.
AUDIT COMMITTEE REPORT
The members of the Audit Committee are Robert Anderson, James Clayburn
LaForce, Jr. and Merlin J. Norton, each of whom is independent as defined in
Rule 4200(a)(15) of the National Association of Securities Dealers' listing
standards. The Board of Directors has adopted a written charter for the Audit
Committee.
The Audit Committee has reviewed and discussed Motor Cargo's audited
financial statements for the fiscal year ended December 31, 2000 with
management. The Audit Committee has also discussed with Grant Thornton LLP,
Motor Cargo's independent auditors, the matters required to be discussed by SAS
61. The Audit Committee has also received the written disclosures and the
letter from Grant Thornton required by Independence Standards Board Standard
No. 1 and has discussed with Grant Thornton the matter of Grant Thornton's
independence.
Based on the review and discussions described in the preceding paragraph,
the Audit Committee recommended to the Board of Directors that Motor Cargo's
audited financial statements for the fiscal year ended December 31, 2000 be
included in Motor Cargo's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 for filing with the Securities and Exchange Commission.
Robert Anderson
James Clayburn LaForce, Jr.
Merlin J. Norton
I-11
Annex II
[GRAPHIC]
LETTERHEAD OF MORGAN KEEGAN
October 15, 2001
Board of Directors
Motor Cargo Industries, Inc.
845 W. Center Street
Salt Lake City, UT 84054
Members of the Board:
We understand that Motor Cargo Industries, Inc. ("Motor Cargo") and Union
Pacific Corporation ("UP") propose to enter into an Agreement and Plan of
Merger, substantially in the form of the draft dated October 12, 2001 (the
"Agreement"). The Agreement contains an offer (the "Exchange Offer") by UP to
exchange the Consideration (defined below) for each share of common stock of
Motor Cargo, no par value per share, issued and outstanding (the "Motor Cargo
Common Stock") and provides, among other things, for the merger of Motor Cargo
with and into a wholly-owned subsidiary of UP (the "Merger") after completion
of the Exchange Offer (collectively the Exchange Offer and Merger are sometimes
hereinafter called the "Transaction"). The Exchange Offer is an offer by UP
to exchange each issued and outstanding share of Motor Cargo Common Stock for
.26 shares of common stock, par value of $2.50, of UP (the "UP Common Stock")
(the "Stock Consideration"), or $12.10 per share in cash (the "Cash
Consideration"), subject to certain procedures and limitations contained in the
Agreement, as to which procedures and limitations we are expressing no opinion.
After completing the Exchange Offer, in the Merger each share of Motor Cargo
Common Stock not so exchanged in the Exchange Offer (other than shares of Motor
Cargo Common Stock acquired by UP in the Exchange Offer or otherwise held by
UP, Motor Cargo or their respective affiliates) shall be converted into the
right to receive the Cash Consideration. The Stock Consideration and Cash
Consideration are hereafter collectively referred to as the "Consideration".
Upon consummation of the Transaction, the business historically conducted by
Motor Cargo will be operated as a separate wholly owned subsidiary of UP. The
terms and conditions of the Transaction are more fully set forth in the
Agreement.
You have asked for our opinion as to whether the Consideration pursuant to
the Agreement is fair, from a financial point of view, to the holders of the
Motor Cargo Common Stock.
For purposes of the opinion set forth herein, we have:
i. reviewed the draft Agreement and the terms of the Transaction and
drafts of certain related documents;
ii. reviewed certain publicly available business and financial
information relating to Motor Cargo and UP;
iii. reviewed certain other information provided to us by Motor Cargo and
UP and discussed the business prospects of Motor Cargo and UP with Motor
Cargo's and UP's management;
II-1
iv. reviewed the reported historical prices and historical trading
activity for Motor Cargo Common Stock and UP Common Stock for the period
from October 16, 2000 to the present;
v. compared the financial performance of Motor Cargo and UP and the
prices and trading activity of Motor Cargo Common Stock and UP Common Stock
with that of certain other publicly-traded companies and their securities;
vi. reviewed the financial terms, to the extent publicly available, of
certain other business combinations and other transactions that we deemed
relevant;
vii. reviewed the potential pro forma impact of the Transaction on the
estimated earnings per share for the year ended December 31, 2002 of UP
under certain scenarios;
viii. performed such other analyses and considered such other factors as
we deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion and have not assumed any obligation independently to verify such
information. We have assumed that the internal financial statements and other
financial and operating data have been reasonably prepared on bases reflecting
the best currently available estimates and judgments of the management of Motor
Cargo. We have also assumed that there have been no material changes in Motor
Cargo's or UP's assets, financial condition, results of operations, business or
prospects since the respective dates of the last financial statements made
available to us. We have not made any independent valuation, inspection or
appraisal of the assets or liabilities of Motor Cargo or UP, nor have we been
furnished with any such appraisals or valuations. In addition, you have
informed us that it is the intention of the parties that the Transaction will
qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and we have assumed that the
Transaction will be consummated in accordance with the terms set forth in the
draft Agreement and in compliance with the applicable provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended, and all other applicable federal, state and
local statutes, rules, regulations and ordinances. Our opinion is necessarily
based on financial, economic, market and other conditions as in effect on, and
the information made available to us as of, the date hereof. In addition, we
are not expressing any opinion as to the actual value of the UP Common Stock or
the prices at which the UP Common Stock will trade following the date of this
opinion.
We have acted as financial advisor to Motor Cargo in connection with the
Transaction and will receive a fee for such services, a portion of which will
be paid in connection with the delivery of this opinion and a significant
portion of which is contingent upon consummation of the Transaction.
Motor Cargo has agreed to indemnify us for certain liabilities that may
arise out of rendering this opinion. In the past, Morgan Keegan & Company, Inc.
has provided financial advisory and financing services for Motor Cargo and has
received fees for the rendering of these services. In the ordinary course of
our business, we may actively trade in the equity securities of Motor Cargo and
UP for our own account and the accounts of our customers and, accordingly, may
at any time hold a significant long or short position in such securities.
Our opinion is directed to the Board of Directors of Motor Cargo in
connection with its consideration of the Transaction and recommendation of the
Transaction to the holders of Motor Cargo Common Stock. Our opinion is not a
recommendation to any holder of Motor Cargo Common Stock to tender any shares
in the Exchange Offer or vote for or against the Merger, nor is our opinion a
recommendation or advice to any such holder as to the type of Consideration to
be received in the Transaction. Our opinion addresses only the fairness, from a
financial point of view, of the Consideration to the holders of Motor Cargo
Common Stock and does not address the underlying business decision of Motor
Cargo to engage in the Transaction, the relative merits of the Transaction as
compared to any other alternative business strategy that might exist for Motor
Cargo or the effect of any other transaction in which Motor Cargo might engage.
Our opinion is not to be quoted or referred to, in whole or in part, in a
registration statement, prospectus, tender offer statement, proxy statement or
any other document, nor shall this opinion be used for any other purpose,
without our prior written consent; provided,
II-2
however, that we hereby consent to the inclusion of this opinion as an exhibit
and/or appendix to Motor Cargo's Schedule 14D-9 and, if necessary, the proxy
statement in respect of the Transaction filed with the Securities and Exchange
Commission and delivered to Motor Cargo shareholders.
Based upon and subject to the foregoing, and in reliance thereon, we are of
the opinion on the date hereof that the Consideration is fair, from a financial
point of view, to the holders of the Motor Cargo's Common Stock.
Very truly yours,
Morgan Keegan & Company, Inc.
/s/ JOHN H. GRAYSON JR.
By: John H. Grayson, Jr.
Managing Director
II-3
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
(a)(1) Preliminary Prospectus dated October 31, 2001 (incorporated by reference to Exhibit (a)(1) to the
Schedule TO of Union Pacific filed on October 31, 2001).
(a)(2) Letter of Election and Transmittal (incorporated by reference to Exhibit (a)(2) to the Schedule TO
of Union Pacific filed on October 31, 2001).
(a)(3) Letter to holders of Motor Cargo common stock, dated October 31, 2001.*
(a)(4) Joint Press Release issued by Union Pacific Motor Cargo on October 15, 2001 (incorporated by
reference to Exhibit 99.1 to Motor Cargo's Current Report on Form 8-K filed on October 16,
2001).
(a)(5) Opinion of Morgan Keegan & Company, Inc. dated October 15, 2001 (included in Annex II
hereto).*
(e)(1) Agreement and Plan of Merger, dated as of October 15, 2001, by and among Motor Cargo, Union
Pacific and Merger Subsidiary (incorporated by reference to Exhibit 2.1 to Union Pacific's Current
Report on Form 8-K filed on October 16, 2001).
(e)(2) Shareholder Agreement, dated October 15, 2001, between Union Pacific and Harold R. Tate
(incorporated by reference to Exhibit 99.2 to Union Pacific's Current Report on Form 8-K filed on
October 16, 2001).
(e)(3) Shareholder Agreement, dated October 15, 2001, between Union Pacific and Marvin L. Friedland
(incorporated by reference to Exhibit 99.3 to Union Pacific's Current Report on Form 8-K filed on
October 16, 2001).
(e)(4) Confidentiality Agreement, dated March 7, 2001, between Overnite Transportation Company and
Morgan Keegan & Company, Inc., as agent for Motor Cargo.
(e)(5) Information Statement of Motor Cargo, dated October 31, 2001 (included as Annex1 hereto).*
--------
* Included in copies mailed to shareholders