SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [ X ]
File by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
TransFinancial Holdings, Inc.
-----------------------------
(Name of Registrant as Specified In Its Charter)
TransFinancial Holdings, Inc.
-----------------------------
(Name of Person(s) Filing Proxy Statement)
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which transaction applies: N/A.
--------
2. Aggregate number of securities to which transaction applies: N/A.
--------
3. Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): $3,460, which equals 0.02% of the
$17,300,000 purchase price.
4. Proposed maximum aggregate value of transaction: $17,300,000.
------------
5. Total fee paid: $2,800 previously paid, $660 with this filing.
---------------------------------------------
[ ] Fee paid previously with preliminary proxy materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and Identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1. Amount Previously Paid: $2800 .
-------------------------------
2. Form, Schedule or Registration Statement No.: PREM14A .
----------------------
3. Filing Party: TransFinancial Holdings, Inc. .
----------------------------------------
4. Date Filed: September 21, 2001 .
------------------------------------
TRANSFINANCIAL HOLDINGS, INC.
[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 22, 2002
The 2001 Annual Meeting of Stockholders of TransFinancial Holdings, Inc.
("TransFinancial," "we," "us," or "our"), a Delaware corporation, will be held
at the offices of Morrison & Hecker, L.L.P, 2600 Grand Avenue, 12th Floor,
Kansas City, Missouri 64108, on Tuesday, January 22, 2002, at 9:00 a.m., Central
Time, for the purpose of considering and acting upon the following proposals:
1. To elect four (4) directors to our Board of Directors ("Proposal 1");
2. To adopt and approve the Plan of Complete Liquidation of TransFinancial
Holdings, Inc, previously approved by the Company's Board of Directors
subject to stockholder approval, in the form attached as Appendix A to the
Proxy Statement accompanying this Notice (the "Plan of Liquidation" or the
"Plan") ("Proposal 2");
3. To approve the proposed sale of TransFinancial's Universal Premium
Acceptance Corporation and UPAC of California, Inc. subsidiaries, a
separate nonoperating subsidiary and certain real estate to Commercial
Equity Group, Ltd. ("CEG") (the "UPAC Sale") pursuant to the terms and
conditions of the Purchase Agreement attached as Appendix B to the Proxy
Statement accompanying this Notice (the "Purchase Agreement") ("Proposal
3");
4. To ratify the selection of Weaver & Martin as our independent accountants
for the year ended December 31, 2001 ("Proposal 4");
5. To adjourn the Annual Meeting from time to time if sufficient votes to
approve Proposal 2, Proposal 3 and/or Proposal 4 have not been received by
the time of the Annual Meeting or the reconvening of the meeting following
any such adjournment ("Proposal 5");
6. Any other matters that properly come before the meeting and any adjournment
thereof.
The foregoing matters are more fully described in the accompanying Proxy
Statement.
Stockholders of record on our books at the close of business on November
29, 2001 will be entitled to receive notice of and to vote at the meeting. A
complete list of such stockholders will be available for examination at our
principal executive offices at 8245 Nieman Road, Suite 100, Lenexa, Kansas 66214
by any stockholder, for any purpose germane to the Annual Meeting, for the 10
days immediately preceding the Annual Meeting.
YOUR VOTE IS IMPORTANT. TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU
ARE REQUESTED TO PROMPTLY DATE, SIGN AND RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE. Returning your proxy now will not
interfere with your right to attend the meeting or to vote your shares
personally at the meeting, if you wish to do so. The prompt return of your proxy
may save TransFinancial additional expenses of solicitation.
All stockholders are cordially invited to attend the meeting.
By Order of the Board of Directors
William D. Cox
Chairman of the Board, President and
Chief Executive Officer
Lenexa, Kansas
November __, 2001
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE PROPOSALS....................................1
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS To Be Held On JANUARY
22, 2002.....................................................................6
SUMMARY INFORMATION.......................................................6
Time and Place of the Annual Meeting.....................................6
Purpose Of The Proxy Statement And Proxy Card............................7
Proposals To Be Voted On At This Year's Annual Meeting...................7
Voting Procedure.........................................................7
You may vote by mail...................................................7
You may vote in person at the meeting..................................7
You may change your mind after you have returned your proxy............8
Multiple Proxy Cards.....................................................8
Quorum Requirement.......................................................8
Consequences of Not Returning Your Proxy; Broker Non-Votes...............8
No Dissenters Appraisal Rights...........................................9
Effect Of Abstentions....................................................9
Required Vote............................................................9
Vote Solicitation; Use Of Outside Solicitors.............................9
Voting Procedures.......................................................10
Publication Of Voting Results...........................................10
Other Business..........................................................10
Proposals For 2002 Annual Meeting.......................................10
ELECTION OF DIRECTORS (Proposal No. 1)......................................11
THE NOMINEES.............................................................11
COMPENSATION OF DIRECTORS................................................12
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..................12
COMMITTEES OF THE BOARD OF DIRECTORS.....................................12
RECOMMENDATION OF BOARD OF DIRECTORS.....................................13
APPROVAL OF PLAN OF LIQUIDATION (Proposal No. 2)...........................13
GENERAL..................................................................13
SUMMARY..................................................................14
BACKGROUND AND REASONS FOR THE PLAN......................................15
Company Background......................................................15
Background of Plan of Liquidation.......................................15
Conclusion of Our Board of Directors....................................17
FACTORS STOCKHOLDERS SHOULD CONSIDER WHEN DECIDING WHETHER TO APPROVE
THE PLAN.................................................................17
There Are Risks Associated With Forward Looking Statements..............18
Stockholders Have No Dissenter's Appraisal Rights.......................19
You May Be Required to Repay Amounts You Receive Under the Plan.........19
We Will Delist Our Stock and Close Our Stock Transfer Books.............19
No Governmental Authority Will Approve The Plan Or Oversee Its
Execution...............................................................20
Certain Directors and Executive Officers Will Receive a Material
Benefit.................................................................20
The Board of Directors Did Not Retain a Financial Adviser...............20
PRINCIPAL PROVISIONS OF THE PLAN.........................................21
Overview................................................................21
Adoption and Effective Date.............................................21
Liquidation of Assets; Prosecution of Claims............................21
Provisions for Liabilities..............................................22
Distributions to Stockholders...........................................22
Notice to Creditors.....................................................23
Certificate of Dissolution..............................................23
Amendment or Abandonment of the Plan....................................23
Powers of Directors and Trustees........................................23
Compensation and Indemnification........................................24
Cancellation of Stock...................................................24
Restrictions on Transfer of Stock.......................................24
The Liquidating Trust...................................................25
LIQUIDATING DISTRIBUTIONS; NATURE; AMOUNT; TIMING........................25
REPORTING REQUIREMENTS...................................................25
CONTINGENT LIABILITIES; CONTINGENCY RESERVE..............................26
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS..........................26
Federal Income Taxation of TransFinancial...............................27
Federal Income Taxation of the Stockholders.............................27
Certain Federal Income Tax Consequences Arising from Liquidating
Trusts..................................................................28
Taxation of Non-United States Stockholders..............................28
State and Local Tax.....................................................29
VOTE REQUIRED AND BOARD RECOMMENDATION...................................29
APPROVAL OF UPAC SALE UNDER THE PURCHASE AGREEMENT (Proposal No. 3).........29
GENERAL..................................................................29
BACKGROUND OF THE UPAC SALE..............................................30
CERTAIN TERMS OF THE PURCHASE AGREEMENT..................................32
Purchase Price and Property to be Transferred...........................32
Expected Timing of the Transaction......................................32
Representations and Warranties..........................................33
Agreements and Covenants................................................33
Limitation on TransFinancial's Ability to Consider Other Acquisition
Proposals...............................................................33
Conditions to Closing...................................................34
Termination of the Purchase Agreement...................................34
Indemnification.........................................................34
Expenses................................................................34
FACTORS TO BE CONSIDERED BY STOCKHOLDERS IN DECIDING WHETHER TO APPROVE
THE PURCHASE AGREEMENT...................................................34
Even If TransFinancial's Stockholders Approve the UPAC Sale, the UPAC
Sale May Not Be Completed...............................................35
ii
There Are Risks Associated with Forward-Looking Statements..............35
The Expenses of Continuing to Operate as a Public Company are High in
Relation to UPAC's Future Earnings......................................35
We Believe that Selling UPAC is Necessary in order to Raise Funds to
Repay Indebtedness......................................................35
There are No Dissenter's Appraisal Rights...............................35
We Have Not Retained a Financial Adviser................................35
Certain Directors and Executive Officers Will Receive a Material
Benefit.................................................................36
Regulatory Approvals....................................................36
VOTE REQUIRED AND BOARD RECOMMENDATION...................................36
PROPOSAL TO RATIFY SELECTION OF INDEPENDENT ACCOUNTANTS (Proposal No. 4)....36
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS................................37
AUDIT FEES...............................................................37
ALL OTHER FEES...........................................................37
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES.............37
VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION......................38
PROPOSAL TO ADJOURN ANNUAL MEETING TO AWAIT ADDITIONAL STOCKHOLDER VOTES
(Proposal No. 5)............................................................38
GENERAL..................................................................38
BOARD OF DIRECTORS RECOMMENDATION; VOTE REQUIRED.........................38
AUDIT COMMITTEE REPORT......................................................39
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............39
EXECUTIVE OFFICER COMPENSATION..............................................42
BOARD COMPENSATION COMMITTEE REPORT......................................42
Compensation of Chief Executive Officer.................................43
Compensation of Other Executive Officers................................43
Section 162(m)..........................................................44
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION..............45
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG TRANSFINANCIAL
HOLDINGS, INC. COMMON STOCK, AMEX MARKET AND PEER GROUP....................45
SUMMARY COMPENSATION TABLE..................................................46
OPTION GRANTS IN 2000.......................................................47
AGGREGATED OPTION EXERCISES IN 2000 AND FY END OPTION VALUES................47
EMPLOYMENT AGREEMENTS.......................................................48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................49
iii
STOCKHOLDER PROPOSALS.......................................................49
MISCELLANEOUS...............................................................50
APPENDIX A...................................................................1
APPENDIX B...................................................................1
APPENDIX C...................................................................1
iv
QUESTIONS AND ANSWERS ABOUT THE PROPOSALS
The following questions and answers are for your convenience only, and
briefly address some commonly asked questions about the proposals. You should
still carefully read this proxy statement in its entirety, including the
attached appendices.
Q: Tell me a little about TransFinancial's business and stock?
TransFinancial Holdings, Inc. ("TransFinancial," "we," "us," or "our"), a
Delaware corporation, discontinued its transportation operations in 2000 and is
liquidating its former transportation subsidiaries. We provide insurance premium
financing services through our Universal Premium Acceptance Corporation and UPAC
of California, Inc. subsidiaries (collectively "UPAC"). Our Common Stock is
publicly traded on the American Stock Exchange under the symbol "TFH".
Q: What will be voted on at the Annual Meeting?
A: The proposals to be voted on at the Annual Meeting are:
1. To elect four directors to our Board of Directors;
2. To approve and adopt the Plan of Complete Liquidation of TransFinancial
Holdings, Inc., attached as Appendix A (the "Plan of Liquidation" or
the "Plan");
3. To approve the sale of UPAC, a separate nonoperating subsidiary, and
certain real estate (the "UPAC Sale") to Commercial Equity Group, Ltd.
("CEG") pursuant to the Purchase Agreement attached as Appendix B (the
"Purchase Agreement");
4. To ratify the appointment of Weaver & Martin as TransFinancial's
independent accountants for the year ending December 31, 2001;
5. To adjourn the Annual Meeting from time to time if sufficient votes to
approve Proposal 2, Proposal 3 and/or Proposal 4 have not been received
by the time of the Annual Meeting or the reconvening of the meeting
following any such adjournment; and
6. To consider any other matter which may properly come before the
meeting.
Q: What does the plan of liquidation entail?
A: The Plan of Liquidation provides for the liquidation, winding up and
dissolution of TransFinancial. If the Plan of Liquidation is approved,
we will sell all of our non-cash assets, satisfy our obligations and
make liquidating distributions to our stockholders of our net available
assets if any. By the terms of the Plan of Liquidation, stockholder
approval of the Plan will also constitute stockholder approval of the
sale of all or substantially all of TransFinancial's assets in one or
more transactions. However, we are
1
also seeking separate stockholder approval of the UPAC Sale and will not
complete the UPAC sale without such approval.
Q: What is TransFinancial entitled to receive in the UPAC Sale?
A: The Purchase Agreement provides that CFG will pay $17.3 million in
cash, subject to certain adjustments.
Q: What will happen if stockholders approve the UPAC Sale but not the Plan
of Liquidation?
A: If the UPAC Sale is approved but the Plan of Liquidation is not approved,
we will proceed with the UPAC Sale but continue operating TransFinancial
as an ongoing concern. Following completion of the UPAC Sale, however, we
would have no substantial operating subsidiaries remaining.
Q: What will happen if stockholders approve the Plan of Liquidation but
not the UPAC Sale?
A: If the UPAC Sale is not approved, we will not proceed to liquidate even if
the Plan of Liquidation is approved. If the UPAC Sale to CEG is not
completed, the Board believes it unlikely that we would find another buyer
willing to purchase UPAC on more favorable terms.
Q: When do you expect to complete the UPAC Sale?
A: Several conditions must be met before the closing can occur, including
stockholder approval. We expect that the UPAC Sale will close as soon as
practicable after all conditions to closing are met.
Q: When will the stockholders receive any payment from the liquidation?
A: We anticipate that an initial distribution of available assets would be
made to stockholders as soon as practicable following completion of the
UPAC Sale. Thereafter, as we liquidate our remaining assets and
properties we will distribute available liquidation proceeds to
stockholders from time to as our Board of Directors deems appropriate.
We may at any time distribute remaining assets and liabilities to a
Liquidating Trust provided for in the Plan of Liquidation, and
stockholders would receive any further payments only from the
Liquidating Trust.
Q: How much will I receive from the liquidation?
A: We really don't know. It is uncertain how much we can collect for our
assets and how much we will have to pay to settle our liabilities. We
currently estimate that stockholders will receive liquidating
distributions totaling approximately $2.50 to $3.00 per share. In making
this estimate, we are assuming the UPAC Sale closes and that we experience
no surprises. The actual amount received could be outside this range.
2
Q: Can I be required to repay amounts I receive from the liquidation?
A: Yes. Distributions to stockholders under the Plan are subject to
repayment to the extent assets are insufficient to pay all creditors.
Q: Is there any cutoff to this exposure?
A: If we follow the procedures of Sections 280 and 281(a) of the Delaware
General Corporation Law, then this exposure ends 3 years after we are
dissolved. Otherwise, the exposure extends until statutes of limitations
expire on all claims or they are found to have no validity.
Q: Should I still vote to elect our Board of Directors and ratify the
selection of auditors if I approve the Plan of Liquidation and the UPAC
Sale?
A: Yes. If the Plan of Liquidation is adopted, our Board of Directors will
oversee, or will appoint trustee(s) to oversee, the orderly liquidation
and dissolution of TransFinancial. We will also still require the services
of independent accountants to conduct yearly audits and perform related
services so long as we are obligated to comply with reporting requirements
of the Securities Exchange Act of 1934, as amended.
Q: Why should I vote for adjournments of the Annual Meeting to await
additional votes if there is not a quorum or if any of Proposals 2-4 do
not have sufficient votes to pass by the Annual Meeting date or the date
of any such adjournment?
A: The Board of Directors believes that these proposals are in the best
interests of the corporation and stockholders and are likely to be
approved if all stockholders cast votes on all the proposals. It is
possible that by the time of the Annual Meeting or any adjournment of
it, there will either not be a quorum represented at the meeting or, if
there is a quorum, there will be insufficient votes to pass one or more
of the proposals so that if the polls were closed then, such proposals
would be defeated. Adjourning the meeting to await additional votes
would prevent the defeat of such proposals at that time, and would
allow the votes of more shareholders to be received and considered by
the time the meeting reconvenes following any such adjournment.
Q: What vote is required to approve the proposals?
A: A majority of shares entitled to vote must be represented at the
meeting to enable us to conduct business at the meeting. This is
called a "quorum." 3,278,291 shares were outstanding at the record
date.
o The four nominees receiving the highest number of yes votes will be
elected as directors.
o Approval of the Plan of Liquidation requires approval of a majority
of the shares outstanding at the record date.
3
o Approval of the UPAC Sales requires approval of a majority of the
shares outstanding at the record date.
o Ratification of the selection of independent accountants requires
the vote of a majority of shares present at the meeting.
o Approval of adjournments of the Annual Meeting to await additional
votes requires the vote of a majority of the shares voting for or
against the adjournment.
Q: Do I have dissenter's appraisal rights if I vote against the Plan of
Liquidation or the UPAC Sale?
A: No. Delaware law provides no dissenter's appraisal rights for
liquidations or for sales of substantially all of a corporation's
assets.
Q: What tax consequences will I experience?
A: The UPAC Sale will not result in tax liability to stockholders. Under the
Plan of Liquidation, you will realize for federal income tax purposes,
gain or loss equal to the difference between the amounts distributed to
you in liquidating distributions and the adjusted tax basis in your shares
of common stock. Tax consequences may differ depending on your
circumstances. We encourage you to consult with your own tax advisors.
Q: What does the Board of Directors recommend?
A: The Board recommends that you vote
o "FOR" each of the nominees for election as directors (Proposal No. 1),
o "FOR" the Plan of Liquidation (Proposal No. 2).
o "FOR" the UPAC Sale (Proposal No. 3),
o "FOR" ratification of the selection of accountants (Proposal No. 4),
and
o "FOR" adjournments of the meeting from time to time to await
additional stockholder votes (Proposal No. 5).
Q: What do I need to do now?
A: First carefully read and consider the information in this Proxy
Statement. Then complete and sign your proxy and return it to us so
that your shares will be represented at the meeting.
4
Q: Can I change my vote after I mail my signed proxies?
A: Yes. You can change your vote any time before proxies are voted at the
meeting. You can change your vote in one of three ways: You may do
this by:
o signing and delivering a written revocation dated after the original
proxy date,
o signing and delivering another proxy with a later date, or
o revoking your proxy and voting in person at the Annual Meeting.
Q: If my shares are held in "street name", will they be voted on my behalf
on the Plan of Liquidation and the UPAC Sale?
A: Not unless you instruct the record holder on how to vote. You should
follow directions about how to give the record holder voting
instructions.
Q: Can I sell my stock if the Plan of Liquidation is approved?
A: Yes. However, you can sell your stock and have it transferred on our
records only up to the date we file our Certificate of Dissolution with
the Delaware Secretary of State. We intend to close our stock transfer
books and restrict transfers of our Common Stock on that date. After
that date, you will not be able to transfer record ownership of your
stock to another person except to reflect transfers by will, intestacy
or operation of law. If stockholders approve the Plan of Liquidation,
we will likely delist our securities so they no longer trade on AMEX.
After that, any trading would be on the over-the-counter market in the
so-called "pink sheets" or on the "Electronic Bulletin Board" of the
National Association of Securities Dealers, Inc., and you may find it
more difficult to sell or get quotations about our stock.
Q. What do I do with my stock certificates?
A: Hold onto them for now. You will need to submit them to us in order to
obtain distributions under the Plan of Liquidation.
Q: Who can help answer questions?
A: If you have any additional questions about any of the proposals or if you
need additional copies of this Proxy Statement or any public filings
referred to in this Proxy Statement, you should contact: William D. Cox,
our President and Chief Executive Officer, at (913) 859-0055. You can
access our public filings at the SEC's web site at www.sec.gov.
5
TRANSFINANCIAL HOLDINGS, INC.
PROXY STATEMENT
FOR 2001 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 22, 2002
The Board of Directors is soliciting proxies for the 2001 Annual Meeting
of Stockholders and any adjournments. The Meeting is the 2001 Annual Meeting
notwithstanding that it is to be held during 2002. Later in 2002 there will be a
2002 annual meeting. This Proxy Statement contains important information for you
to consider when deciding how to vote on the matters brought before the meeting.
Please read it carefully. We will bear the cost of this solicitation.
Our Board set the close of business on November 29, 2001 as the record
date for the Meeting. If you owned our common stock of record on that date, you
are entitled to vote at and attend the Meeting, with share is entitled to one
vote. 3,278,291 shares of common stock were outstanding at the record date. We
have no other class of securities outstanding.
This proxy statement, the form of proxy, our Form 10-K for the year ended
December 31, 2000, and our Form 10-Q's for the quarters ending March 31, June 30
and September 30, 2001, will be mailed to stockholders on or about December __,
2001.
In this Proxy Statement:
o "We", "us," and "our" and "TransFinancial" refer to TransFinancial
Holdings, Inc.
o "Annual Meeting" or "Meeting" means our 2001 Annual Meeting of
Stockholders, including any adjournments.
o "Board of Directors" or "Board" means our Board of Directors.
o "SEC" means the United States Securities and Exchange Commission.
o "UPAC" means Universal Premium Acceptance Corporation and UPAC of
California, Inc.
o The "UPAC Sale" means the sale of UPAC, certain real estate and a
nonoperating subsidiary of TransFinancial pursuant to the Purchase
Agreement.
Summary Information
- -------------------
Time and Place of the Annual Meeting
------------------------------------
We will hold the Annual Meeting on Tuesday, January 22, 2002, at 9:00 a.m.
Central Time, at the offices of Morrison & Hecker, L.L.P., 2600 Grand Avenue,
12th Floor, Kansas City, Missouri 64108.
All stockholders who owned shares of our stock as of November 29, 2001,
the record date, may attend the Annual Meeting.
6
Purpose Of The Proxy Statement And Proxy Card
---------------------------------------------
You are receiving a Proxy Statement and proxy card from us because you
owned shares of our common stock on the record date. This Proxy Statement
describes issues on which we would like you, as a stockholder, to vote. It also
gives you information on these issues so that you can make an informed decision.
When you sign the proxy card, you appoint William D. Cox and Kurt W.
Huffman as your representatives at the Meeting. They will vote your shares, as
you have instructed them on the proxy card, at the Meeting. This way, your
shares will be voted whether or not you attend the Meeting. Even if you plan to
attend the Meeting it is a good idea to complete, sign and return your proxy
card in case your plans change.
Proposals To Be Voted On At This Year's Annual Meeting
------------------------------------------------------
You are being asked to vote on:
o The election of four directors to serve on our Board of Directors
("Proposal 1").
o The approval and adoption of the Plan of Liquidation ("Proposal 2").
o The approval of the UPAC Sale pursuant to the terms of the Purchase
Agreement ("Proposal 3").
o The ratification of our appointment of Weaver & Martin as our
independent accountants for the year ended December 31, 2001
("Proposal 4").
o To adjourn the Annual Meeting from time to time if sufficient votes
to approve Proposal 2, Proposal 3 and/or Proposal 4 have not been
received by the time of the Annual Meeting or the reconvening of the
Annual Meeting following any such adjournment ("Proposal 5").
Our Board of Directors recommends a vote FOR each these proposals.
Voting Procedure
----------------
You may vote by mail.
To vote by mail, please sign your proxy card and return it in the
enclosed, prepaid and addressed envelope. If you mark your voting instructions
on the proxy card, your shares will be voted as you instruct.
You may vote in person at the meeting.
We will pass out written ballots to anyone who wants to vote at the
meeting. If you hold your shares in street name, you must request a legal proxy
from the record holder in order to vote at the Meeting. Holding shares in
"street name" means your shares of stock are held in an account by your
stockbroker, bank, or other nominee, and the stock certificates and record
7
ownership are not in your name. If your shares are held in "street name" and you
wish to attend the Annual Meeting, you must notify your broker, bank or other
nominee and obtain the proper documentation to vote your shares at the Annual
Meeting.
You may change your mind after you have returned your proxy.
If you change your mind after you return your proxy, you make revoke your
proxy at any time before the polls close at the Meeting. You may do this by:
o signing and delivering a written revocation dated after the original
proxy date,
o signing and delivering another proxy with a later date, or
o revoking your proxy and voting in person at the Annual Meeting.
Attending the Annual Meeting will not automatically revoke your proxy. You must
revoke your proxy at the Annual Meeting if you desire to do so.
Multiple Proxy Cards
--------------------
If you received more than one proxy card, it means that you hold shares in
more than one account. Please sign and return all proxy cards to ensure that all
your shares are voted.
Quorum Requirement
------------------
Shares are counted as present at the meeting if the stockholder either:
o is present and votes in person at the meeting, or
o has properly submitted a proxy card.
A majority of our outstanding shares as of the record date must be present
at the Meeting (either in person or by proxy) in order to conduct business. This
is called a "quorum."
Consequences of Not Returning Your Proxy; Broker Non-Votes
----------------------------------------------------------
If your shares are held in your name, you must return your proxy (or
attend the Annual Meeting in person) in order to vote on the proposals. If your
shares are held in street name and you do not vote your proxy, your brokerage
firm may either:
o vote your shares on routine matters, or
o leave your shares unvoted.
Under the rules that govern brokers who have record ownership of shares
that are held in "street name" for their clients, brokers may vote such shares
on behalf of their clients with respect to "routine" matters (such as the
election of directors or the ratification of auditors or the adjournment of the
Annual Meeting), but not with respect to non-routine matters (such as the
8
Plan of Liquidation or the UPAC Sale). If the proposals to be acted upon at any
meeting include both routine and non-routine matters, the broker may turn in a
proxy card for uninstructed shares that vote FOR the routine matters, but
expressly states that the broker is not voting on non-routine matters.
This is called a "broker non-vote."
Broker non-votes will be counted for the purpose of determining the
presence or absence of a quorum, but will not be counted for the purpose of
determining the number of votes cast on non-routine matters.
We encourage you to provide instructions to your brokerage firm by voting
your proxy. This ensures that your shares will be voted at the Meeting.
No Dissenters Appraisal Rights
------------------------------
There are no dissenter's appraisal rights in connection with any matter
scheduled to be voted on at the Meeting.
Effect Of Abstentions
---------------------
Abstentions are counted as shares that are present and entitled to vote
for the purposes of determining the presence of a quorum and as votes AGAINST
for purposes of determining the approval of any matter submitted to the
stockholders for a vote.
Required Vote
-------------
The four nominees receiving the highest number of yes votes will be
elected as directors (Proposal No. 1). The approval of the Plan of Liquidation
(Proposal No. 2) and the approval of the UPAC Sale under the Purchase Agreement
(Proposal No. 3) will require the affirmative vote of a majority of the
outstanding shares as of the record date. The ratification of the independent
accountants (Proposal No. 4) requires the affirmative vote of a majority of
shares present in person or represented by proxy at the Meeting. The adjournment
of the Annual Meeting from time to time to await additional votes (Proposal No.
5) requires the affirmative vote of a majority of shares present in person or
represented by proxy at the Meeting that are voted for or against the motion.
Vote Solicitation; Use Of Outside Solicitors
--------------------------------------------
TransFinancial is soliciting your proxy to vote your shares at the Annual
Meeting. In addition to this solicitation by mail, our directors, officers, and
other employees may contact you by telephone, Internet, in person or otherwise
to obtain your proxy. These persons will not receive any additional compensation
for assisting in the solicitation. We will also request brokerage firms,
nominees, custodians and fiduciaries to forward proxy materials to the
beneficial owners. We will reimburse these entities and our transfer agent for
their reasonable out-of-pocket expenses in forwarding proxy materials.
9
Voting Procedures
-----------------
Proxies submitted by stockholders prior to the Annual Meeting will be
tabulated by the Company's transfer agent, UMB Bank, N.A. Votes cast and proxies
received at the Annual Meeting will be manually tabulated by an inspector of
election and the proxy count certified by the Company's transfer agent will be
adjusted accordingly. The inspector of election will also determine whether a
quorum is present at the Annual Meeting.
The shares represented by the proxy cards received, properly marked,
dated, signed and not revoked, will be voted at the Annual Meeting. If the proxy
card specifies a choice with respect to any matter to be acted on, the shares
will be voted in accordance with that specified choice. Any signed proxy card
which is returned but not marked will be voted FOR each of the director
nominees, FOR each of the other proposals discussed in this Proxy Statement, and
as the proxy holders deem appropriate for any other matters that may come before
the Meeting. Broker non-votes will not be considered as voting with respect to
any matter for which the broker does not have voting authority.
We believe that the procedures to be used by the Inspector to count the
votes are consistent with Delaware law concerning voting of shares and
determination of a quorum.
Publication Of Voting Results
-----------------------------
We will announce preliminary voting results at the meeting. We will
publish the final results in our quarterly report on Form 10-Q for the quarter
in which the Meeting occurs, which we will file with the SEC. You can get a copy
by contacting William D. Cox, our President and Chief Executive Officer, at
(913) 859-0055 or the SEC at (800) 732-0330 for the location of the nearest
public reference room, or through the EDGAR system at www.sec.gov.
Other Business
--------------
We do not know of any business to be considered at the 2001 Annual Meeting
other than the proposals described in this Proxy Statement. However, because we
did not receive notice of any other proposals to be brought before the meeting
by March 2, 2001, if any other business is properly presented at the Annual
Meeting, your signed proxy card gives authority to William D. Cox and Kurt W.
Huffman to vote on such matters in their discretion.
Proposals For 2002 Annual Meeting
---------------------------------
The Meeting is the 2001 Annual Meeting notwithstanding that it is
scheduled to be held in 2002. Later in 2002 there will be a 2002 Annual Meeting.
To have your proposal included in our proxy statement for the 2002 Annual
Meeting, you must submit your proposal in writing by February 23, 2002 to
TransFinancial Holdings, Inc, 8245 Nieman Road, Suite 100, Lenexa KS 66214 Attn:
Chief Executive Officer.
IF YOU SUBMIT A PROPOSAL FOR THE 2002 ANNUAL MEETING AFTER FEBRUARY 23,
2002, MANAGEMENT MAY OR MAY NOT, AT THEIR DISCRETION, PRESENT THE PROPOSAL AT
THAT MEETING, AND THE PROXIES FOR THE 2002 ANNUAL MEETING WILL CONFER DISCRETION
ON THE MANAGEMENT PROXY HOLDERS TO VOTE AGAINST YOUR PROPOSAL.
10
ELECTION OF DIRECTORS
(Proposal No. 1)
The Nominees
- ------------
Four directors are to be elected at the Annual Meeting to serve until our
2002 Annual Meeting of the stockholders or until their successors are elected
and qualified. In the absence of contrary instructions, each proxy will be voted
for the election of the persons listed below.
Each of the nominees has advised us that he can and will serve as a
director if elected. If for any reason any of the nominees becomes unavailable
for election, the persons named in the accompanying proxy will vote for the
other nominees and for a substitute nominee or nominees designated by the Board
of Directors. The following information is given with respect to each nominee as
of December 1, 2001.
Director
of the
Name, Principal Occupation and Company
Other Directorships Age Since
- ------------------------------------------- ---- --------
William D. Cox 58 1991
President and Chief Executive Officer of the Company
since July 2001 and Chairman of the Board of Directors
since June 1997. Mr. Cox has served as President of
various family-owned, commercial and residential
construction and land development companies in Wichita,
Kansas, currently Applewood Homes, Inc., from 1967 to
the present
Harold C. Hill, Jr. 65 1995
Retired as a partner of Arthur Andersen LLP in 1993.
Mr. Hill's 35 years of service with that firm included
responsibility as partner in charge of the
transportation, financial services and government
practices in Kansas City, and National Technical
Coordinator of that firm's trucking industry practice
group.
Roy R. Laborde 62 1991
Vice Chairman of the Board of Directors since June
1997. Chairman of the Board of Directors from May 1992
to June 1997. President of Amboy Grain, Inc., Amboy,
Minnesota, since 1985; President and Chief Operating
Officer for Rapidan Grain & Feed, Rapidan, Minnesota,
from 1968 through 1988 and has continued to merchandise
grain for that company.
11
Clark D. Stewart 62 1997
President and Chief Executive Officer of Butler National
corporation, a publicly-held company headquartered in
Olathe, Kansas, with operations primarily in
modification of business jet aircraft, manufacture of
avionics for "classic" aircraft and management services
for Indian gaming enterprises, since September 1989.
During the fiscal year ended December 31, 2000, the Board of Directors
held seven (7) regular meetings and eight (8) special meetings. Each director
attended 75 percent or more of the total number of all meetings of the Board and
of committees of which he or she was a member during 2000.
Compensation Of Directors
- -------------------------
Directors who are not employees of the Company or its subsidiaries
received compensation of $8,000 per annum, plus $750 for each board meeting
attended and $750 for each committee meeting attended when held on a day on
which they were not compensated for attending another meeting, except the
Chairman of the Board who received $1,500 for each board meeting and committee
meeting attended and chairmen of Committees who received $1,000 for each
committee meeting chaired. Directors received $200 for telephonic meetings of
either the board or its committees. Directors were also reimbursed for
reasonable travel and other expenses incurred by them in performance of their
duties as directors of the Company. Directors who are not employees receive
options to purchase 2,000 shares of Common Stock on the first stock trading day
immediately following each Annual Meeting of the Stockholders of the Company at
which they are elected to the Board of Directors, at market value on such date.
Section 16(A) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires directors, executive officers and beneficial owners of
more than ten (10) percent of the Common Stock to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission (the "SEC") and the American Stock Exchange, and to provide copies to
the Company. Based solely on a review of the copies of such reports provided to
the Company and written representations from the directors and executive
officers, the Company believes that all applicable Section 16(a) filing
requirements have been met.
Committees of the Board Of Directors
- ------------------------------------
The Company's Board of Directors has standing Audit, Compensation and
Corporate Governance Committees.
Members of the Audit Committee are Harold C. Hill, Jr. (Chairman), Roy
R. Laborde and Clark D. Stewart. During 2000 and until July 2001, William D.
Cox was also a member of the committee. The Audit Committee met two (2)
times during the fiscal year ended December 31, 2000. The Audit Committee
advises, reports to and makes recommendations to the Board of Directors on
(i) audit procedures of the Company and its subsidiaries, (ii) general policy
with
12
regard to audit matters, (iii) the financial and accounting controls of the
Company and its subsidiaries, (iv) nominating independent accountants to conduct
the annual examination of the Company's financial statements, and (v) the
results of the examination performed by the independent accountants.
Members of the Compensation Committee are Clark D. Stewart (Chairman),
Harold C. Hill, Jr. and Roy R. Laborde. During 2000 and until July 2001,
William D. Cox was also a member of the committee. The Compensation
Committee met one (1) time during the fiscal year ended December 31, 2000.
The Compensation Committee (i) approves salaries and other compensation to be
paid to the officers of the Company, (ii) administers the 1992 Incentive
Stock Plan and the 1998 Long-Term Incentive Plan and makes recommendations
for option grants under these plans, and (iii) reviews and makes
recommendations to the Board of Directors on any proposed employee benefit
plans and any proposed material changes to existing employee benefit plans
for the Company and its subsidiaries.
Members of the Corporate Governance Committee are Harold C. Hill, Jr.
(Chairman), Roy R. Laborde and Clark D. Stewart. During 2000 and until July
2001, William D. Cox was also a member of the committee. The Corporate
Governance Committee met one (1) time during the fiscal year ended December 31,
2000. The Corporate Governance Committee advises, reports to and makes
recommendations to the Board of Directors on corporate governance issues,
including nominations for the Board of Directors of the Company. The Corporate
Governance Committee will consider candidates for the Board of Directors
suggested by stockholders. Stockholders desiring to suggest candidates for
nomination at the 2002 Annual Meeting should advise the Secretary of the Company
in writing by December 31, 2001 and include sufficient biographical material to
permit an appropriate evaluation. The Corporate Governance Committee and the
Board of Directors continue to consider qualified candidates for the Board of
Directors and may add new members to the Board of the Directors before the 2002
Annual Meeting.
Recommendation of Board of Directors
- ------------------------------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE NOMINEES FOR DIRECTOR PRESENTED IN PROPOSAL 1.
APPROVAL OF
PLAN OF LIQUIDATION
(Proposal No. 2)
General
- -------
Our Board of Directors is proposing the Plan of Complete Liquidation of
TransFinancial Holdings, Inc. (the "Plan of Liquidation" or the "Plan") for your
approval at the Annual Meeting. The Plan was adopted by our Board of Directors,
subject to stockholder approval, on September 14, 2001. A copy of the Plan is
attached as Exhibit A to this Proxy Statement. Certain material features of the
Plan are summarized below. You should read the Plan in its entirety.
13
Summary
- -------
Under the Plan, we will
o file a Certificate of Dissolution with the Secretary of State of the
State of Delaware shortly after stockholder approval of the Plan. See
"Principal Provisions of the Plan--Certificate of Dissolution."
o close our stock transfer books at the close of business on the date we
file that Certificate of Dissolution and delist our shares from AMEX.
See "Factors Stockholders Should Consider When Deciding Whether to
Approve the Plan--We Will Delist our Stock and Close Stock Transfer
Records."
o initiate the dissolution and complete liquidation of TransFinancial.
See "Background and Reasons for Plan;" "Principal Provisions of the
Plan."
o not engage in any business activities except for the purpose of :
o preserving the value of our assets,
o prosecuting and defending lawsuits by or against us or our
subsidiaries,
o adjusting and winding up our business and affairs,
o selling and liquidating all or substantially all of our properties
and assets, including our intellectual property and other
intangible assets, and
o paying our creditors and making distributions to stockholders.
See "Principal Provisions of the Plan," "Liquidating Distributions--Nature,
Amount, Timing."
At any time within three years after the Certificate of Dissolution is
filed (or longer if the period is extended by a court), we may transfer our
remaining assets and liabilities to a Liquidating Trust pursuant to the Plan.
Our Board of Directors may appoint one or more of its members or an officer of
TransFinancial or one or more other persons to act as trustee(s) of the
Liquidating Trust. Your approval of the Plan will also constitute your approval
of the appointment and compensation of such trustees. We are not, however,
required to create or utilize a Liquidating Trust and may not do so.
During the liquidation of our assets, we may pay to our officers,
directors, employees, and agents, or any of them, compensation for services
rendered in connection with the implementation of the Plan and/or retention and
severance benefits. Your approval of the Plan will constitute your approval of
the payment of such compensation.
The following resolution will be offered at the Annual Meeting:
"RESOLVED, THAT THE PLAN OF COMPLETE LIQUIDATION OF
TRANSFINANCIAL HOLDINGS, INC., PREVIOUSLY APPROVED BY THE
14
BOARD OF DIRECTORS, IS HEREBY ADOPTED AND APPROVED IN ALL RESPECTS, AND
THE BOARD OF DIRECTORS SHALL HAVE AUTHORITY TO ABANDON SUCH PLAN WITHOUT
FURTHER STOCKHOLDER APPROVAL IF IT DEEMS IT ADVISABLE TO DO SO."
Background And Reasons For The Plan
- -----------------------------------
Company Background
------------------
We historically provided transportation services and financial services
through various subsidiaries. We discontinued transportation operations during
2000 and are now liquidating our former transportation subsidiaries. We have
also provided financial services related to the financing of insurance premiums
through UPAC. Pursuant to the Purchase Agreement we would sell UPAC, certain
real estate and a certain nonoperating subsidiary to CEG. That sale would
dispose of our only substantial operating assets.
Background of Plan of Liquidation
---------------------------------
During the late 1990's our transportation operations as a whole became
unprofitable. We shut down our largest transportation subsidiary, Crouse Cartage
Company, in September of 2000. During December 2000, we shut down our other
transportation subsidiary when the liability insurer cancelled the insurance
policy covering its operations. At the time the transportation operations were
closed, we questioned whether the costs to be incurred in connection with
shutting down those operations might ultimately require us to sell UPAC, and
whether the earnings prospects of UPAC alone were enough to justify the costs of
remaining a public company.
Beginning in approximately August 2000, management of UPAC attempted
through discussions with individuals and companies that management considered to
be knowledgeable about the premium finance industry, the current investment
climate, or the interests of certain possible investors, to ascertain what
prospects might exist for selling UPAC should the Board ever consider such a
sale advisable. The knowledge gained by UPAC management in those inquiries forms
part of the basis for the Board's conclusion that the purchase price and other
terms and conditions provided in the Purchase Agreement with CEG are fair, and
that the UPAC Sale should be concluded with CEG on those terms.
During July 2001, we reached agreements that quantified and settled
certain liabilities, including a liability relating to the pension plans of the
transportation subsidiaries and another with the former liability insurer for
our transportation subsidiaries. The payments required by us under these
settlement agreements totaled approximately $4.75 million. We had to borrow the
funds necessary to make such payments during August 2001. $1.25 million of these
borrowings were from CEG, the purchaser in the UPAC Sale. This brought the
indebtedness at the end of August 2001 related to liquidation of the
transportation operations to $6.0 million.
By July 2001, it had become apparent to the Board that UPAC should be
sold. The board considered several factors in reaching this decision (but did
not weight or rank the factors in relative importance):
15
o the need to raise funds to repay our indebtedness,
o the high cost of our continuing to operate as a public company in
comparison with the earnings we might reasonably expect from UPAC,
o the fact that we now have no substantial operating subsidiaries other
than UPAC, and
o the Board's belief that it is unlikely that any prospective purchaser
would offer a higher price for UPAC than that provided in the Purchase
Agreement.
In connection with the August 2001 borrowing from CEG, we granted CEG
certain rights in connection with a possible sale of UPAC. The loan documents
for that loan provide for the following among other things:
o a CEG security interest in all UPAC stock,
o a 30-day exclusive right by CEG to negotiate for the purchase of UPAC,
o agreement on a $14 million purchase price for UPAC,
o a $500,000 fee to CEG (the Purchase Agreement for the UPAC Sale now
provides for an $800,000 fee) if we sell UPAC to another party within
one year of the full payment of the loan and any additional borrowings
from CEG,
o a CEG right of first refusal on any proposed sale of UPAC to a third
party within one year after full payment of the loan and any additional
borrowings from CEG, and
o a requirement that sale of UPAC to a third party following failure of
CEG to exercise its right of first refusal be at a price approximately
$875,000 higher than the last price offered by CEG.
On September 14, 2001, the Board approved an earlier purchase agreement
for the UPAC Sale to CEG and directed that it be submitted to stockholders for
their approval. Under the terms of the earlier purchase agreement, CEG was to
pay $14 million in cash, subject to certain adjustments, for UPAC, certain real
estate and a separate nonoperating subsidiary. Following the issuance of a press
release and the filing of preliminary proxy materials, we received a letter from
Premium Financing Specialists, Inc. indicating an interest in purchasing
substantially the same assets for a higher amount. We negotiated with that party
and entered into a purchase agreement with PFS Holding Company, Inc. on October
22, 2001. That agreement was then referred to CEG so that CEG could consider
matching or topping the PFS offer pursuant to its right of first refusal.
Following negotiations, we entered into the Purchase Agreement with CEG on
November 6, 2001, subject to a 5-business-day due diligence period that expired
at the close of business on November 13, 2001. Under the terms of the Purchase
Agreement, CEG is to pay $17.3 million, subject to certain adjustments, for
UPAC, certain real estate and a separate nonoperating subsidiary. See "Proposal
to Approve UPAC Sale Under Purchase Agreement (Proposal No. 3)." The UPAC Sale
will leave us with no substantial operating subsidiaries.
16
The Board did not retain the services of any broker or investment banker
as a financial adviser to advise it concerning these matters.
Conclusion of Our Board of Directors
------------------------------------
On September 14, 2001, our Board of Directors unanimously adopted the Plan
of Liquidation and directed that it be presented to stockholders for their
approval at the Annual Meeting. In arriving at this conclusion, our Board
considered a number of factors, including alternatives to the proposal and the
future prospects of TransFinancial. Our Board of Directors concluded that the
Plan of Liquidation was in the best interests of TransFinancial and our
stockholders. The factors considered by the Board in reaching this conclusion
included the following (which the Board did not weight or rank in relative
importance):
o The expenses of maintaining our status as a public company appear high
in comparison with earnings we could expect to receive from UPAC if
UPAC is not sold.
o Sale of UPAC will leave us with no substantial operating subsidiaries.
o We need to repay indebtedness of approximately $6.0 million, including
the $4.75 million borrowed in August 2001 as described above.
o Other than the sale of UPAC, we have no source of funds sufficient to
repay our indebtedness.
o We do not expect the proceeds from any sales of the non-UPAC assets
will be material compared to proceeds from the UPAC Sale. These assets
include Presis, L.L.C., still in the development stage, and an interest
in an internet load matching company.
o Our Board of Directors believes that a distribution to the stockholders
of TransFinancial's net assets would return to them a greater likely
value, when adjusted for risk, than other alternatives, and that
dissolution would limit further erosion of stockholders' equity through
continuing net losses and market declines.
There can be no assurance that the liquidation value per share of Common
Stock in the hands of the stockholders will equal or exceed the price or prices
at which the Common Stock has recently traded or may trade during the brief time
following adoption of the Plan before we delist our stock and close our stock
transfer records to most future transfers.
Our Board of Directors believes that it is in the best interests of
TransFinancial and our stockholders to distribute to the stockholders
TransFinancial's net available assets pursuant to the Plan of Liquidation. If
the Plan is not approved by the stockholders, our Board of Directors will
explore the alternatives then available for the future of TransFinancial.
17
Factors Stockholders Should Consider When Deciding Whether To Approve The Plan
- ------------------------------------------------------------------------------
There are many factors that stockholders should consider when deciding
whether to vote to approve the Plan. Such factors include those set forth in
TransFinancial's Annual Report on Form 10-K for the fiscal year ended December
31, 2000, TransFinancial's Quarterly Report on Form 10-Q for the quarters ended
March 31, June 30, and September 30, 2001, as well as the factors set forth
below. See "--There Are Risks Associated with Forward Looking Statements."
There Are Risks Associated With Forward Looking Statements
----------------------------------------------------------
We have made forward-looking statements in this document, and in the other
documents that we refer to in this document. Forward-looking statements are
statements that are not historical in nature and can often be identified by the
use of forward-looking terminology, such as "believes," "expects," "may,"
"will," "should," "could," "intends," "plans," "estimates" or "anticipates,"
variations of these words or similar expressions. Examples of forward-looking
statements include:
o estimates of amounts stockholders might receive in a liquidation under
the Plan;
o pro forma financial information and projections or estimates relating
to revenues, income or loss, earnings or loss per share, financial
condition, capital expenditures, the payment or non-payment of
dividends, the value of assets or claims (by or against TransFinancial)
and other financial items, or relating to the time it may take to
accomplish something in the future;
o statements of plans and objectives;
o statements of future economic performance; and
o statements of the assumptions underlying these statements.
Forward-looking statements are not guarantees of future performance or
results. They involve risks, uncertainties and assumptions. Future results of
operations, financial condition, business and stock values of TransFinancial may
be materially different from those described in these forward-looking
statements. You are cautioned not to put undue reliance on any forward-looking
statement.
We have described in this Proxy Statement various factors that could cause
actual results to be materially different from those described in the
forward-looking statements. Other factors that we have not identified in this
document could also have this effect.
All forward-looking statements in this document are made as of the date of
this document. We may not publicly update or correct any of these
forward-looking statements in the future.
This Proxy Statement contains forward looking statements, including
statements contained under the heading "Liquidation Analysis and Estimates"
below and other statements concerning the value of TransFinancial's net assets,
the liquidation value per share of Common
18
Stock as compared to our market price absent the proposed liquidation, and the
likelihood of stockholder value resulting from sale of certain of our
significant assets. The methods used by our Board of Directors and management in
estimating the value of TransFinancial's assets do not result in an exact
determination of value nor are they intended to indicate definitively the amount
a stockholder might receive in liquidation. Specifically, estimates regarding
final proceeds from the UPAC Sale and the ultimate disposition of the remaining
non-cash assets to third party acquirers are subject to many variables and will
not be determined with certainty until the lapse of indemnity provisions
outlined in the definitive purchase agreements and the settlement of remaining
liabilities.
In addition, we will need to liquidate our excess property and equipment,
accounts receivable, and investments in non-public companies. The cash value we
may realize for these assets will be difficult to estimate, and we can give no
assurance that we will receive any material amounts for them.
Stockholders Have No Dissenter's Appraisal Rights
-------------------------------------------------
Stockholders who disagree with our Board of Directors' determination that
the adoption of the Plan is in the best interests of TransFinancial should vote
"against" approval of the Plan and should possibly consider whether they should
sell their shares while a trading market still exists. There are no dissenter's
appraisal rights.
You May Be Required to Repay Amounts You Receive Under the Plan
---------------------------------------------------------------
Stockholders may be liable to creditors of TransFinancial for up to
amounts received from us under the Plan if our reserves are inadequate to settle
claims and liabilities.
If the Plan is approved by the stockholders, we will file a Certificate of
Dissolution with the State of Delaware dissolving TransFinancial pursuant to the
Delaware General Corporation Law (the "DGCL"). TransFinancial will continue to
exist for three years after the dissolution becomes effective or for such longer
period as the Delaware Court of Chancery shall direct, for the purpose of
prosecuting and defending suits against it and enabling TransFinancial gradually
to close its business, to dispose of its property, to discharge its liabilities
and to distribute to its stockholders any remaining assets. Under the DGCL, if
TransFinancial fails to create an adequate contingency reserve for payment of
its expenses and liabilities during this period, each stockholder could be
required to repay to our creditors of such stockholder's pro rata share of
amounts owed to creditors in excess of the contingency reserve. The liability of
any stockholder would be limited to the amounts previously received by such
stockholder from TransFinancial (or from the Liquidating Trust) under the Plan.
Accordingly, in this event a stockholder could be required to return all
distributions previously made to such stockholder under the Plan. As a result, a
stockholder could receive nothing from TransFinancial under the Plan even though
earlier distributions were made. Moreover, in the event a stockholder has paid
taxes on amounts previously received, a repayment of all or a portion of such
amount could result in a stockholder incurring a net tax cost if the
stockholder's repayment of an amount previously distributed does not cause a
commensurate reduction in taxes payable. There can be no assurance that the
contingency reserve that we establish will be adequate to cover all expenses and
liabilities.
19
We Will Delist Our Stock and Close Our Stock Transfer Books.
------------------------------------------------------------
After the Effective Date, we may proceed to delist the common stock of the
Company from the stock exchange on which they are listed. Currently, the shares
are listed on the American Stock Exchange ("AMEX") with the symbol "TFH".
We intend to close our stock transfer books and discontinue recording most
transfers of Common Stock at the close of business on the day the Certificate of
Dissolution is filed with the Delaware Secretary of State (the "Final Record
Date"). After that, certificates representing the Common Stock shall not be
assignable or transferable on the books of TransFinancial except by will,
intestate succession or operation of law. The proportionate interests of all of
the stockholders of TransFinancial shall be fixed on the basis of their
respective stock holdings at the Final Record Date. The proportionate interests
of stockholders will be fixed on the basis of their respective stock holdings at
the close of business on the Final Record Date. After that, any distributions
made by us will be made only to the stockholders of record at the close of
business on that date, except as may be necessary to reflect subsequent
transfers recorded on our books as a result of assignments by will, intestate
succession or operation of law. After the Final Record Date, TransFinancial will
not issue any new stock certificates, other than replacement certificates or
certificates that reflect transfers by will, intestate succession or operation
of law. Any person holding options, warrants or other rights to purchase Common
Stock must exercise such instruments or rights prior to the Final Record Date.
We anticipate that no further public trading of TransFinancial's shares
will occur on or after the Final Record Date and that such trading, if any, will
occur only on the over-the-counter market.
No Governmental Authority Will Approve The Plan Or Oversee Its Execution
------------------------------------------------------------------------
Except for certain provisions of the Delaware General Corporation Law, no
United States federal or state regulatory requirements must be complied with
(nor are any federal or state regulatory approvals required) in connection with
the Plan of Liquidation.
The Board may, however, elect to follow a method of liquidation under
the DGCL that provides for obtaining court approval for certain matters.
Certain Directors and Executive Officers Will Benefit
-----------------------------------------------------
In connection with its approval and adoption of the Plan, our Board
granted acceleration of unvested, unexercised, in-the-money stock options. Such
options will be accelerated and deemed exercised on the date we file our
Certificate of Liquidation with the Delaware Secretary of State. Executive
Officers and Directors as a group could net $103,722 if liquidation proceeds
under the Plan total $2.50 per share, and $153,797 if liquidation proceeds under
the Plan total $3.00 per share.
Mr. Kurt W. Huffman, our Executive Vice President and the Chief Executive
Officer of UPAC, will receive a payment of $150,000 if the UPAC Sale closes.
Moreover, the change in control of UPAC resulting from the UPAC Sale may trigger
certain parachute payments to Mr. Huffman totaling $500,000.
20
The Board of Directors Did Not Retain a Financial Adviser
----------------------------------------------------------
The Board did not retain the services of any broker or investment banker
as a financial adviser to advise it concerning these matters.
Principal Provisions Of The Plan
- --------------------------------
Overview
--------
The Plan of Liquidation provides for the liquidation, winding up and
dissolution of TransFinancial. If the Plan of Liquidation is approved, we
will
o sell all of our non-cash assets,
o satisfy our contractual and other obligations, and
o make liquidating distributions to our stockholders from our net
available assets, if any.
By the terms of the Plan of Liquidation, stockholder approval of the Plan
will also constitute stockholder approval of the sale of all or substantially
all of our assets in one or more transactions. However, assuming stockholders
approve the Plan of Liquidation, we are also seeking separate stockholder
approval of the UPAC Sale. UPAC is our only substantial operating subsidiary.
See "Proposal to Approve UPAC Sale Under Purchase Agreement (Proposal No. 3)."
Adoption and Effective Date
---------------------------
The effective date of the Plan (the "Effective Date") will be the date the
Certificate of Dissolution is filed following adoption of the Plan by
stockholders.
Liquidation of Assets; Prosecution of Claims
--------------------------------------------
As part of the liquidation, we may (but are not required to) use a
liquidating trust as provided for in the Plan (the "Liquidating Trust"). If the
Liquidating Trust is utilized, it may be formed at any time after approval of
the Plan.
As part of the liquidation, we may (but are not required to) form and use
a Liquidating Trust as provided for in the Plan. If a Liquidating Trust is
utilized, it may be formed at any time after the effective date of the Plan.
We will use commercially reasonable efforts to dispose of our assets as
promptly as practicable consistent with realizing full value thereon. Proceeds
of the assets will be held in cash or short-term fixed-income securities that we
may lawfully invest in. If we do not timely dispose of assets, we may contribute
them to the Liquidating Trust provided for in the Plan.
21
We will use commercially reasonable efforts to assert, prosecute, reduce
to judgment, settle and collect all claims that we have. If we do not timely
resolve a claim for its full value, we may contribute the claim to the
Liquidating Trust provided for in the Plan.
In addition to assets and claims, we will also contribute to the
Liquidating Trust amounts that might reasonably be required to resolve such
claims, dispose of assets in the Liquidating Trust and pay the reasonable
expenses of the Liquidating Trust.
Without further approvals by the stockholders except as required by law,
we will have authority to engage in other transactions as may be appropriate to
effect our complete liquidation and distribution, including authority to dispose
in any manner of our assets for cash or other property or to pay, provide for,
settle and resolve all liabilities of the TransFinancial, upon such terms as we
determine.
The Plan allows us to abandon property if the Board deems that course of
action to be in our best interests.
Provisions for Liabilities
--------------------------
We will pay or discharge or otherwise provide for the payment or discharge
of any liabilities and obligations. This will include contingent or
unascertained liabilities and obligations determined or otherwise reasonably
estimated to be due either by us or by a court of competent jurisdiction. This
may be accomplished through one or more trusts (including the Liquidating
Trust), escrows, reserve funds, plans or other arrangements as determined by us
or required by law. Approval of the Plan by stockholders will constitute
approval by them of all actions referred to in the Plan to be taken by us or on
our behalf, and of all actions reasonably required to effect the transactions
contemplated by the Plan.
Under the DGCL, we are required, in connection with our dissolution, to
pay or provide for payment of all of our liabilities and obligations. Following
approval of the Plan by stockholders, we will pay all expenses and fixed and
other known liabilities, or set aside cash and other assets, which we believe
adequate for payment thereof as a Contingency Reserve. We are currently unable
to estimate with precision the amount of any Contingency Reserve which may be
required, but any such amount (in addition to any cash contributed to a
liquidating trust, if one is utilized) will be deducted before the determination
of amounts available for distribution to stockholders. Under the Plan and the
DGCL, we may elect to follow a procedure in which court approval is obtained for
any distributions before they are made.
If we were held by a court to have failed to make adequate provision for
our expenses and liabilities or if the amount ultimately required to be paid in
respect of such liabilities exceeded the amount available from the Contingency
Reserve and the assets of the liquidating trust or trusts, a creditor might seek
an injunction against the making of distributions under the Plan on the ground
that the amounts to be distributed were needed to provide for the payment of
TransFinancial's expenses and liabilities. Any such action could delay or
substantially diminish or eliminate any cash distributions to stockholders.
22
Distributions to Stockholders
-----------------------------
From time to time after the Effective Date, we will distribute to the
stockholders cash or other assets and all other properties held by us, in excess
of amounts required for the payment or discharge of our liabilities or
obligations or for the liquidation of our assets, by way of one or more pro rata
liquidating distributions to the stockholders. Cash or other assets in the
Liquidating Trust, in excess of amounts required for the payment or discharge of
our liabilities and obligations or for the liquidation of our assets, will be
distributed to the stockholders at the time and under the conditions set forth
in the Liquidating Trust.
Notice to Creditors
-------------------
As soon as practicable after the Effective Date, we will mail notice to
our known creditors that the Plan has been approved by the Board and the
stockholders.
Certificate of Dissolution
--------------------------
As soon as practicable after stockholder approval of the Plan, and
pursuant to the DGCL, we will prepare and file a Certificate of Dissolution with
the Delaware Secretary of State. After that, we will conduct no business except
as permitted by the DGCL. The directors in office at that time shall continue in
office solely for the purpose of the Plan and shall have the powers provided to
them by the DGCL and the Plan. The DGCL allows dissolutions and liquidations to
proceed in more than one way, and the Plan makes clear that the Board may
proceed in any manner allowed by the DGCL.
Amendment or Abandonment of the Plan
-------------------------------------
We may modify or amend the Plan at any time without stockholder approval
if we determine that such action would be advisable and in the best interest of
TransFinancial and our stockholders. Such an amendment could include a change in
the form of the agreement governing the Liquidating Trust. However, stockholder
approval would be required for an amendment that would materially and adversely
affect the interests of stockholder or materially delay the time at which
distributions of our net assets will be made.
We may abandon the Plan at any time prior to the filing of the Certificate
of Dissolution if the Board determines that abandonment would be advisable and
in the best interests of TransFinancial and its stockholders. Such an
abandonment would not require further stockholder approval.
The DGCL also allows us to revoke the Plan and reactivate the corporation
within three years after the Certificate of Dissolution is filed if the Board
and stockholders approve such action.
Powers of Directors and Trustees
--------------------------------
Except as required by applicable law or the Plan, all actions and
transactions contemplated under the Plan will be made solely by or under the
direction of the Board or the
23
trustee(s) of the Liquidating Trust. Matters reserved exclusively to
stockholders under the Plan or applicable law will be exercised exclusively by
the stockholders.
The Board is authorized to
o approve changes in the terms of transactions referred to in the Plan,
o interpret any of the Plan's provisions,
o delegate the exercise of its rights and duties to officers or agents,
and
o make, execute, and deliver documents, and authorize others to do so,
that the Board deems necessary or desirable to carry out the purposes
of the Plan.
Compensation and Indemnification
---------------------------------
We may pay officers, directors, employees, agents and trustees
compensation for services rendered in connection with the Plan. Stockholder
approval of the Plan constitutes approval for the payment of such compensation.
Our Board of Directors has not established specific guidelines for
determination of the compensation to be paid to management and continuing
employees of TransFinancial following approval of the Plan by the stockholders.
Such compensation will be determined by evaluation of all factors the Board
deems relevant, including, without limitation, the efforts of such individuals
in successfully implementing the Plan and a review of compensation payable to
individuals exercising similar authority and bearing similar responsibilities.
We will continue to indemnify officers, directors, employees, agents and
trustees in accordance with our Articles of Incorporation, bylaws and any
contractual arrangements. Such indemnification shall apply to acts or omissions
in connection with the implementation of the Plan and the winding up of our
affairs. We or the trustee of the Liquidating Trust may maintain insurance to
cover, in whole or in part, such indemnification obligations. The obligation to
indemnify may be satisfied out of assets in the Liquidating Trust.
Cancellation of Stock
---------------------
Distributions to stockholders under the Plan shall be in complete
redemption and cancellation of all of our outstanding common stock. As a
condition to any distribution, we may require stockholders to surrender their
stock certificates for cancellation. If a stockholder's certificates have been
lost, stolen or destroyed, the stockholder must furnish satisfactory information
of this together with a surety bond or other security or indemnity reasonably
satisfactory to us. Stockholders should not forward their stock certificates
before receiving instructions to do so. All distributions otherwise payable by
TransFinancial or the Liquidating Trust to stockholders who have not surrendered
their stock certificates or made other satisfactory arrangements described above
may be held in trust for such stockholders, without interest (subject to escheat
pursuant to the laws relating to unclaimed property).
24
Restrictions on Transfer of Stock
---------------------------------
We will close our stock transfer books effective at the close of business
on the date we file the Certificate of Dissolution with the Delaware Secretary
of State (the "Final Record Date"). After that, certificates representing shares
of Common Stock will not be assignable or transferable on the books of
TransFinancial except to reflect transfers by will, intestate succession or
operation of law. After the Final Record Date, TransFinancial will not issue any
new stock certificates, other than replacement certificates or certificates that
reflect transfers by will, intestate succession or operation of law.
The Liquidating Trust
---------------------
As part of the liquidation, we may (but are not required to) form and use
a Liquidating Trust as provided for in the Plan. If a Liquidating Trust is
utilized, it may be formed at any time after the effective date of the Plan. The
Board may transfer all our liabilities and assets to the Liquidating Trust at
any time within three years after the Certificate of Liquidation is filed (or
any longer period provided by a court). If the Liquidating Trust is utilized,
the assignment of assets to the Trustees of the Liquidating Trust shall
constitute a final liquidating distribution by us to our stockholders of their
pro rata interests in such assets. Our stockholders will become the beneficial
owners of the Liquidating Trust. Interests in the Liquidating Trust will be
distributed to stockholders. Following this distribution to the Liquidating
Trust, no further distributions would be made to our former stockholders other
than any distributions that might be made by the Liquidating Trust. Beneficial
interests in the Liquidating Trust will not be transferable except by will,
intestate succession or operation of law. A form of agreement governing the
Liquidating Trust is included as an exhibit to the Plan; that form of agreement
may be modified in the discretion of the directors.
Liquidating Distributions; Nature; Amount; Timing
- -------------------------------------------------
Although our Board of Directors has not established a firm timetable for
distributions to stockholders if the Plan is approved by the stockholders, our
Board of Directors intends, subject to contingencies inherent in winding up
TransFinancial's business, to make such distributions, if any, as promptly as
practicable. The liquidation is expected to be concluded prior to the third
anniversary of the filing of the Certificate of Dissolution in Delaware by a
final liquidating distribution either directly to the stockholders or to the
Liquidating Trust. As promptly as practicable after the approval of the Plan by
the stockholders, based upon information presently available to us, assuming
that the UPAC Sale is completed and that there are no unanticipated claims or
other material adverse events, we believe we will provide distributions totaling
between $2.50 to $3.00 per share. Our Board of Directors is, however, currently
unable to predict the precise nature, amount or timing of any distributions
pursuant to the Plan. The actual nature, amount and timing of any distributions
will be determined by our Board of Directors or the Trustee(s) of the
Liquidating Trust, in their sole discretion, and will depend in part upon our
ability to convert our remaining assets into cash. We may elect to seek court
approval before making any distribution.
25
We do not plan to satisfy all of our liabilities and obligations prior to
making distributions to our stockholders, but instead will reserve assets
estimated by management and our Board of Directors to be adequate to provide for
such liabilities and obligations.
See "Factors to Be Considered by Stockholders in Deciding Whether to
Approve the Plan--There Are Risks Associated with Forward Looking Statements."
Reporting Requirements
- ----------------------
Whether or not the Plan is approved, we have an obligation to continue to
comply with the applicable reporting requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), even though compliance with such
reporting requirements is economically burdensome. If the Plan is approved and
in order to curtail expenses, we will, after filing our Certificate of
Dissolution, seek relief from the SEC from the reporting requirements under the
Exchange Act. We anticipate that, if such relief is granted, we would continue
to file current reports on Form 8-K to disclose material events relating to our
liquidation and dissolution along with any other reports that the SEC might
require.
Contingent Liabilities; Contingency Reserve
- -------------------------------------------
Our operating subsidiaries are parties to routine litigation. We and our
subsidiaries maintain insurance programs and accrue for expected losses in
amounts intended to cover liability resulting from these claims. In the opinion
of management, the outcome of such claims and litigation will not materially
affect the Company's financial position or results of operations.
We along with our directors have been named as defendants in a lawsuit
filed on January 12, 2000 in the Chancery Court in new Castle County, Delaware.
The suit seeks declaratory, injunctive and other relief relating to a proposed
management buyout. The suit alleges that our directors failed to seek bidders
for our subsidiary Crouse Cartage Company, failed to seek bidders for its
subsidiary Universal Premium Acceptance Corporation, failed to actively solicit
offers for TransFinancial, imposed arbitrary time constraints on those making
offers and favored a management buyout group's proposal. The suit seeks
certification as a class action complaint. The proposed management buyout was
terminated on February 18, 2000. The plaintiff filed an amended complaint on
August 9, 2000, seeking damages in excess of $4.50 per share for the alleged
breaches of fiduciary duties. A motion to dismiss and an amended complaint have
been filed. We believe we have good defenses to this action and that an adverse
outcome of this suit would not have a material adverse effect.
United States Federal Income Tax Considerations
- -----------------------------------------------
The following discussion is a general summary of the material United
States federal income tax consequences affecting TransFinancial's stockholders
that are anticipated to result from the liquidation and dissolution of
TransFinancial. This discussion does not purport to be a complete analysis of
all the potential tax effects. Moreover, the discussion does not address the tax
consequences that may be relevant to particular categories of investors subject
to special treatment under certain federal income tax laws (such as dealers in
securities, banks, insurance companies, tax-exempt organizations, mutual funds,
and foreign individuals and entities) and does not address any tax consequences
arising under the laws of any state, local or foreign
26
jurisdiction. The discussion is based upon the Internal Revenue Code of 1986, as
amended, Treasury Regulations, Internal Revenue Service ("IRS") rulings, and
judicial decisions now in effect, all of which are subject to change at any
time; any such changes may be applied retroactively. Distributions pursuant to
the Plan may occur at various times and in more than one tax year. No assurance
can be given that the tax treatment described herein will remain unchanged at
the time of such distributions.
The following discussion has no binding effect on the IRS or the courts
and assumes that TransFinancial will liquidate in accordance with the Plan in
all material respects. No ruling has been requested from the IRS with respect to
the anticipated tax treatment of the Plan, and TransFinancial will not seek an
opinion of counsel with respect to the anticipated tax treatment. If any of the
anticipated tax consequences described herein proves to be incorrect, the result
could be increased taxation at the corporate and/or stockholder level, thus
reducing the benefit to the stockholders and TransFinancial from the liquidation
and dissolution. Tax considerations applicable to particular stockholders may
vary with and be contingent on the stockholder's individual circumstances. This
discussion does not constitute legal advice to any stockholder.
Federal Income Taxation of TransFinancial
-----------------------------------------
After the approval of the Plan and until the dissolution is completed, we
will continue to be subject to federal income tax on our taxable income, if any.
We will recognize gain or loss on sales of our assets pursuant to the Plan. Upon
the distribution of any property, other than cash, to stockholders pursuant to
the Plan, we will recognize gain or loss as if such property were sold to the
stockholders at its fair market value, unless certain exceptions to the
recognition of gain or loss apply.
Federal Income Taxation of the Stockholders
-------------------------------------------
As a result of the liquidation and dissolution of TransFinancial, for
federal income tax purposes stockholders will recognize gain or loss equal to
the difference between (i) the sum of the amount of cash distributed to them and
the fair market value (at the time of distribution) of any property distributed
to them, and (ii) their tax basis for their shares of the Common Stock. A
stockholder's tax basis in his or her shares will depend upon various factors,
including the stockholder's cost and the amount and nature of any distributions
received with respect thereto.
A stockholder's gain or loss will be computed on a "per share" basis.
TransFinancial expects to make more than one liquidating distribution; each of
which will be allocated proportionately to each share of stock owned by a
stockholder. The value of each liquidating distribution will be applied against
and reduce a stockholder's tax basis in his or her shares of stock. Gain will be
recognized as a result of a liquidating distribution to the extent that the
aggregate value of the distribution and prior liquidating distributions received
by a stockholder with respect to a share exceeds his or her tax basis for that
share. Any loss will generally be recognized only when the final distribution
from TransFinancial has been received and then only if the aggregate value of
all liquidating distributions with respect to a share is less than the
stockholder's tax basis for that share. Gain or loss recognized by a stockholder
will be capital gain or loss provided the shares are held as capital assets.
Gain resulting from distributions of cash or assets from a corporation pursuant
to a plan of liquidation is, therefore, commonly capital
27
gain rather than ordinary income. Capital gains from the sale of capital assets
held more than twelve months are generally taxed at lower rates than ordinary
income. If it were to be determined that distributions made pursuant to the Plan
were not liquidating distributions, the result could be treatment of
distributions as dividends taxable at ordinary income rates, with no recovery of
tax basis.
Upon any distribution of property, the stockholder's tax basis in such
property immediately after the distribution will be the fair market value of
such property at the time of distribution. The gain or loss realized upon the
stockholder's future sale of that property will be measured by the difference
between the stockholder's tax basis in the property at the time of such sale and
the proceeds of such sale.
After the close of our taxable year, we will provide stockholders and the
IRS with a statement of the amount of cash distributed to the stockholders and
our best estimate as to the value of any property distributed to them during
that year. There is no assurance that the IRS will not challenge such valuation.
As a result of such a challenge, the amount of gain or loss recognized by
stockholders might be changed. Distributions of property other than cash to
stockholders could result in tax liability to any given stockholder exceeding
the amount of cash received, requiring the stockholder to meet the tax
obligations from other sources or by selling all or a portion of the assets
received.
It is possible that we will have liabilities not fully covered by our
Contingency Reserve for which the stockholders will be liable up to the extent
of any liquidating distributions they have received. (See "Contingent
Liabilities; Contingency Reserve; Liquidating Trust"). Such a liability could
require a stockholder to satisfy a portion of such liability out of prior
liquidating distributions received from TransFinancial and the liquidating trust
or trusts. Payments by stockholders in satisfaction of such liabilities would
commonly produce a capital loss, which, in the hands of individual stockholders,
could not be carried back to prior years to offset capital gains realized from
liquidating distributions in those years. Further, individual stockholders may
be subject to limitations on the deductibility of capital losses.
Certain Federal Income Tax Consequences Arising from Liquidating Trusts
-----------------------------------------------------------------------
If TransFinancial transfers assets to a liquidating trust or trusts,
TransFinancial intends to structure such trust or trusts so that stockholders
will be treated for tax purposes as having received their pro rata share of the
property transferred to the liquidating trust or trusts, reduced by the amount
of known liabilities assumed by the liquidating trust or trusts or to which the
property transferred is subject. Assuming such treatment is achieved, assets
transferred to a liquidating trust will cause the stockholder to be treated in
the same manner for federal income tax purposes as if the stockholder had
received a distribution directly from TransFinancial. The liquidating trust or
trusts themselves should not be subject to federal income tax, assuming that
they are treated as liquidating trusts for federal income tax purposes. After
formation of the liquidating trust or trusts, the stockholders must take into
account for federal income tax purposes their allocable portion of any income,
gain or loss recognized by the liquidating trust or trusts. As a result of the
transfer of property to the liquidating trust or trusts and the ongoing
operations of the liquidating trust or trusts, stockholders should be aware that
they may be subject to tax, whether or not they have received any actual
distributions from the liquidating
28
trust or trusts with which to pay such tax. There can be no assurance that the
liquidating trust or trusts described in the Plan will be treated as a
liquidating trust or trusts for federal income tax purposes.
Taxation of Non-United States Stockholders
------------------------------------------
Foreign corporations or persons who are not citizens or residents of
the United States should consult their tax advisors with respect to the U.S.
and non-U.S. tax consequences of the Plan.
State and Local Tax
-------------------
We may be subject to liability for state or local taxes with respect to
the sale of our assets. Stockholders may also be subject to state or local
taxes, including with respect to liquidating distributions received by them or
paid to a liquidating trust on their behalf, and with respect to any income
derived by a liquidating trust. Stockholders should consult their tax advisors
with respect to the state and local tax consequences of the Plan.
THE FOREGOING SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
IS INCLUDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE TO
ANY STOCKHOLDER. THE TAX CONSEQUENCES OF THE PLAN MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF THE STOCKHOLDER. TRANSFINANCIAL RECOMMENDS THAT EACH
STOCKHOLDER CONSULT ITS OWN TAX ADVISOR REGARDING THE FEDERAL INCOME TAX
CONSEQUENCES OF THE PLAN AS WELL AS THE STATE, LOCAL, AND FOREIGN TAX
CONSEQUENCES.
Vote Required and Board Recommendation
- --------------------------------------
The approval of the Plan of Liquidation requires the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock as of
November 29, 2001. 3,278,291 shares were outstanding at the record date, and at
least 1,639,146 shares must be voted in favor of this proposal for it to pass.
OUR BOARD BELIEVES THAT THE PLAN OF LIQUIDATION IS IN THE BEST INTERESTS
OF TRANSFINANCIAL'S STOCKHOLDERS AND RECOMMENDS A VOTE FOR THIS PROPOSAL. IT IS
INTENDED THAT SHARES REPRESENTED BY THE ENCLOSED FORM OF PROXY WILL BE VOTED FOR
THIS PROPOSAL UNLESS OTHERWISE SPECIFIED IN SUCH PROXY.
29
APPROVAL OF UPAC SALE UNDER THE PURCHASE AGREEMENT
(Proposal No. 3)
General
- -------
Our Board of Directors has approved the UPAC Sale to CEG under the
Purchase Agreement and directed that it be submitted to stockholders for their
approval at the Annual Meeting. A copy of the Purchase Agreement is attached as
Appendix B to this Proxy Statement.
Our Board of Directors authorized the execution of the Purchase Agreement
with CEG. CEG is headquartered in Des Moines, Iowa. Under the terms of the
Purchase Agreement, CEG will pay $17.3 million in cash, subject to certain
adjustments, for UPAC, certain real estate and a separate nonoperating
subsidiary. There is no assurance that the UPAC Sale will be completed even if
it is approved by stockholders, as several conditions must be met before a
closing can occur.
The following resolution will be offered at the Annual Meeting:
"RESOLVED, THAT THE SALE OF UNIVERSAL PREMIUM ACCEPTANCE
CORPORATION, UPAC OF CALIFORNIA, INC., AMERICAN FREIGHT SYSTEM,
INC. AND CERTAIN REAL ESTATE, PURSUANT TO THE PURCHASE AGREEMENT
DATED NOVEMBER 6, 2001, BETWEEN THIS CORPORATION AND COMMERCIAL
EQUITY GROUP, LTD., IS HEREBY APPROVED AND AUTHORIZED IN ALL
RESPECTS."
Background of the UPAC Sale
- ---------------------------
We historically provided transportation services and financial services
through various subsidiaries. We discontinued transportation operations during
2000 and are now liquidating our former transportation subsidiaries. We also
provide financial services related to the financing of insurance premiums
through UPAC. The Purchase Agreement would sell UPAC, certain real estate and
American Freight System, Inc., a nonoperating subsidiary of TransFinancial. That
sale would dispose of our only substantial remaining operating assets.
During the late 1990's our transportation operations as a whole became
unprofitable. We shut down our largest transportation subsidiary, Crouse Cartage
Company, in September of 2000. During December 2000, we shut down our other
transportation subsidiary when the liability insurer cancelled the insurance
policy covering its operations. At the time the transportation operations were
closed, we questioned whether the costs to be incurred in connection with
shutting down those operations might ultimately require us to sell UPAC, and
whether the earnings prospects of UPAC alone were enough to justify the costs of
remaining a public company.
Meanwhile, beginning in approximately August 2000, management of UPAC
attempted through discussions with individuals and companies that management
considered to be knowledgeable about the premium finance industry, the current
investment climate, or the interests of certain possible investors, to ascertain
what prospects might exist for selling UPAC
30
should the Board ever consider such a sale advisable. The knowledge gained by
UPAC management in those inquiries forms part of the basis for the Board's
conclusion that the purchase price and other terms and conditions provided in
the Purchase Agreement with CEG are fair, and that the UPAC Sale should be
concluded with CEG on those terms.
During July 2001, we reached agreements that quantified and settled a
liability relating to the pension plans of the transportation subsidiaries and a
liability with the former liability insurer for our transportation subsidiaries.
The payments required by us under these settlement agreements totaled
approximately $4.75 million. We had to borrow the funds necessary to make such
payments during August 2001, and $1.25 million of these borrowings were from
CEG, the purchaser in the UPAC Sale. Our total indebtedness at the end of August
2001 related to the shut down of our transportation subsidiaries were
approximately $6.0 million.
By July 2001, it had become apparent to the Board that UPAC should be
sold. The board considered several factors in reaching this decision (but did
not weigh or rank such factors in order of importance):
o the need to raise funds to repay our indebtedness,
o the high cost of our continuing to operate as a public company in
comparison with the earnings we might reasonably expect from UPAC,
o the fact that we now have no substantial operating subsidiaries other
than UPAC, and
o the Board's belief that it is unlikely that any prospective purchaser
would offer a higher price for UPAC than that provided in the Purchase
Agreement.
During August 2001, $4.75 million was borrowed to fund payments under
settlement agreements with certain creditors, as discussed above. $1.25 million
of this amount was borrowed from CEG, the purchaser in the UPAC sale.
Discussions with CEG regarding its possible purchase of UPAC were an integral
part of our negotiations with CEG as to the terms of that loan. In connection
with this loan, we granted CEG certain rights in connection with a possible sale
of UPAC. The loan documents for that loan provide for the following among other
things:
o a CEG security interest in all UPAC stock,
o a 30-day exclusive right by CEG to negotiate for the purchase of UPAC,
o agreement on a $14 million purchase price for UPAC,
o a $500,000 fee to CEG if we sell UPAC to another party within one year
of the full payment of the loan and any additional borrowings from
CEG,
o a CEG right of first refusal on any proposed sale of UPAC to a third
party within one year after full payment of the loan and any
additional borrowings from CEG, and
31
o a requirement that sale of UPAC to a third party following failure of
CEG to exercise its right of first refusal be at a price approximately
$875,000 higher than the last price offered by CEG.
Additional negotiations with CEG followed the closing of the loan, and on
September 14, 2001, the Board approved a purchase agreement for the UPAC Sale to
CEG and directed that it be submitted to stockholders for their approval. Under
the terms of that purchase agreement, CEG was to pay $14 million in cash,
subject to certain adjustments, for UPAC, certain real estate and a certain
nonoperating subsidiary of TransFinancial. Following the issuance of a press
release and the filing of preliminary proxy materials, we received a letter from
Premium Financing Specialists, Inc., indicating an interest in purchasing
substantially the same assets for a higher amount. We negotiated with that party
and subsequently entered into a purchase agreement with PFS Holding Company,
Inc. on October 22, 2001. That agreement provides for a $500,000 breakup fee to
PFS. The PFS agreement was then referred to CEG so that CEG could consider
matching or topping the PFS officer pursuant to its right of first refusal.
Following negotiations with CEG, we entered into the Purchase Agreement with CEG
on November 6, 2001, subject to a 5-business-day due diligence period that
expired at the close of business on November 13, 2001. Under the terms of the
Purchase Agreement, CEG is to pay $17.3 million, subject to certain adjustments,
for UPAC, certain real estate and a separate nonoperating subsidiary. Completion
of the UPAC Sale will leave us with no substantial operating subsidiaries.
The Board did not retain the services of any broker, investment banker or
other financial adviser to advise it concerning these matters.
Certain Terms of the Purchase Agreement
- ---------------------------------------
Certain features of the Purchase Agreement are summarized below. This
discussion of the Purchase Agreement is qualified by reference to the full
agreement attached as Appendix A. You should read the Purchase Agreement in its
entirety.
Purchase Price and Property to be Transferred
---------------------------------------------
The Purchase Agreement provides for the sale of UPAC, the real estate at
8245 Nieman Road, Lenexa, Kansas (the "Real Estate") and American Freight
System, Inc. a nonoperating subsidiary of TransFinancial. UPAC and
TransFinancial are now headquartered in part of the Real Estate. We are to
contribute the Real Estate to the capital of UPAC before transferring all the
stock of UPAC to CEG at the closing.
Under the terms of the Purchase Agreement, CEG will pay $17.3 million in
cash, subject to certain adjustments. These adjustments in favor of CEG include:
o any amount by which the annualized rental rates for the Real Estate
are less than $250,000 on an annualized basis as of closing;
o any amount by which UPAC's combined tangible net assets are less than
$8,000,000 as of closing;
32
o any amount outstanding at closing of UPAC's or APR's line of
credit with DG Bank due to the draw of $3,500,000 on August
27, 2001 which has not been repaid by us;
o 40% of the any amount by which the federal net operating loss carry
forward attributable to the companies being sold as shown on our 2001
federal income tax return is less than $3,960,000; plus
o up to $500,000 of any amount that CEG accepts and assumes at closing
with respect to a liability of TransFinancial to Kurt W. Huffman for
certain parachute payments that Mr. Huffman becomes entitled to upon a
change of control of UPAC.
Expected Timing of the Transaction
----------------------------------
Under the Purchase Agreement, the transaction will close on a date
following approval by TransFinancial's stockholders of the UPAC Sale and the
satisfaction or waiver of all other conditions to the closing.
Representations and Warranties
------------------------------
The Purchase Agreement contains representations and warranties by
TransFinancial to CEG regarding aspects of our assets, business, financial
condition and other facts pertinent to the UPAC Sale. The representations and
warranties made by TransFinancial cover subjects that are customarily covered in
such agreements.
CEG has also made certain representations and warranties to us.
Agreements and Covenants
------------------------
We agree to certain restrictions on operations, expenditures and
transactions by UPAC up to the closing.
CEG agrees not to disclose or use trade secrets or confidential
information unless the Purchase Agreement is fully consummated.
We agree to be responsible for preparing tax filings for tax periods
ending on or before closing and for control, conduct and resolution of any tax
audits for such periods. We have agreed not to take action in such a matter that
would reduce the federal net operating loss carry forward attributable to the
companies being sold as shown on our 2001 federal income tax return below
$3,960,000 without CEG's consent.
Limitation on TransFinancial's Ability to Consider Other Acquisition
Proposals
--------------------------------------------------------------------
We agree not to solicit or initiate a proposal that might lead to an
alternative acquisition proposal. However, we retain the right to consider
certain more favorable acquisition proposals that we conclude in good faith we
must consider to comply with the Board's fiduciary duties under Delaware law.
33
The loan documents for the $1.25 million borrowed from CEG during August
2001, provide for the following among other things:
o a CEG security interest in all UPAC stock,
o a $500,000 fee to CEG if we sell UPAC to another party within one year
after full payment of the loan and any additional borrowings from CEG
(the Purchase Agreement now provides for an $800,000 fee in that
event),
o a CEG right of first refusal on any proposed sale of UPAC to a third
party within one year after full payment of the loan and any
additional borrowings from CEG, and
o a requirement that sale of UPAC to a third party following failure of
CEG to exercise its right of first refusal be at a price approximately
$875,000 higher than the last price offered by CEG.
Conditions to Closing
---------------------
CEG's obligation to close the transaction is subject to the satisfaction
or waiver of several conditions.
Our obligation to close the transaction is subject to the satisfaction or
waiver of several conditions including approval of the UPAC Sale by our
stockholders.
Termination of the Purchase Agreement
-------------------------------------
The Purchase Agreement may be terminated under various conditions
including the following:
o Either CEG or we may terminate if certain obligations of the other
cannot be met by closing.
o Either party may terminate if without that party's fault the
transaction has not closed by June 1, 2002.
Indemnification
---------------
We and CEG each indemnify the other for losses, damages, liabilities
and expenses resulting from
o inaccuracy or breach or non-fulfillment of our respective
representations, warranties, obligations, covenants or agreements made
or undertaken in the Purchase Agreement,
o third party claims resulting from such inaccuracy or breach or
non-fulfillment, and
o costs or expenses including reasonable attorney's fees incident to
such matters.
We and CEG also agree to certain procedures for resolving any such
indemnification matters that may arise.
34
These indemnity claims expire unless asserted in writing by ten days after
Buyer receives our 2001 Federal Corporate Income Tax Return.
Expenses
--------
The Purchase Agreement provides that each party shall pay its own expenses
relating to the agreement.
Factors To Be Considered By Stockholders In Deciding Whether To Approve The
- ---------------------------------------------------------------------------
Purchase Agreement
- ------------------
There are many factors that TransFinancial's stockholders should consider
when deciding whether to vote to approve the Purchase Agreement and the UPAC
Sale pursuant to that agreement. Besides the factors discussed below, these
factors include the matters set forth in TransFinancial's Annual Report on Form
10-K for the fiscal year ended December 31, 2000, TransFinancial's Quarterly
Report on Form 10-Q for the quarters ended March 31 and June 30, 2001 When you
decide whether to vote for approval of the Purchase Agreement, you should
consider the following factors in conjunction with the other information
included or incorporated by reference in this proxy statement.
Even If TransFinancial's Stockholders Approve the UPAC Sale, the UPAC
----------------------------------------------------------------------
Sale May Not Be Completed
-------------------------
Even if a majority in interest of TransFinancial's stockholders vote to
approve the UPAC Sale, TransFinancial cannot guarantee that the UPAC Sale will
be completed. If it is not completed, the Board believes we would likely not be
able to sell our assets to another buyer on terms as favorable as those provided
in the Purchase Agreement. This would mean that fewer assets would be available
for distribution to TransFinancial's stockholders under the Plan of Liquidation
than if the UPAC Sale is completed.
There Are Risks Associated with Forward-Looking Statements.
----------------------------------------------------------
We have made forward-looking statements in this Proxy Statement, and
future developments could differ materially from what such forward-looking
statements indicate. See "Approval of Plan of Liquidation--Factors Stockholders
Should Consider When Deciding Whether to Approve the Plan--There Are Risks
Associated with Forward Looking Statements."
The Expenses of Continuing to Operate as a Public Company are High in
----------------------------------------------------------------------
Relation to UPAC's Future Earnings
----------------------------------
If the UPAC Sale is not approved, we would continue to operate as a public
company. The Board believes that the ongoing expenses associated with continuing
to be a public company are high in relation to the earnings that could be
expected from UPAC.
35
We Believe that Selling UPAC is Necessary in order to Raise Funds to
---------------------------------------------------------------------
Repay Indebtedness
------------------
The Board believes that Selling UPAC is the best way to raise funds to
repay our indebtedness.
There are No Dissenter's Appraisal Rights
-----------------------------------------
Under the DGCL, the stockholders of TransFinancial are not entitled to
appraisal rights for their shares of Common Stock in connection with the UPAC
Sale.
We Have Not Retained a Financial Adviser
----------------------------------------
We have not retained a broker or investment banker to advise us in
connection with the UPAC Sale.
Certain Directors and Executive Officers Will Benefit
-----------------------------------------------------
In connection with its approval and adoption of the Plan, our Board
granted acceleration of unvested, unexercised, in-the-money stock options. Such
options will be accelerated and deemed exercise on the date we file our
Certificate of Liquidation with the Delaware Secretary of State. Executive
Officers and Directors as a group could net $103,722 if liquidation proceeds
under the Plan total $2.50 per share, and $153,797 if liquidation proceeds under
the Plan total $3.00 per share.
Mr. Kurt W. Huffman, our Executive Vice President and the Chief Executive
Officer of UPAC, will receive a payment of $150,000 if the UPAC Sale closes.
Moreover, the change in control of UPAC resulting from the UPAC Sale may trigger
certain parachute payments to Mr. Huffman totaling $500,000.
Regulatory Approvals
--------------------
Except for certain provisions of the Delaware General Corporation Law, no
United States federal or state regulatory requirements must be complied with
(nor are any federal or state regulatory approvals required) in connection with
the UPAC Sale.
Vote Required And Board Recommendation
- --------------------------------------
The approval of the Purchase Agreement requires the affirmative vote of
the holders of a majority of the 3,278,291 outstanding shares of Common Stock as
of November 29, 2001.
OUR BOARD BELIEVES THE UPAC SALE PURSUANT TO THE TERMS OF THE PURCHASE
AGREEMENT IS IN THE BEST INTERESTS OF TRANSFINANCIAL'S STOCKHOLDERS; AND IT
RECOMMENDS A VOTE FOR THIS PROPOSAL. IT IS INTENDED THAT SHARES REPRESENTED BY
THE ENCLOSED FORM OF PROXY WILL BE VOTED IN FAVOR OF THIS PROPOSAL UNLESS
OTHERWISE SPECIFIED IN SUCH PROXY.
36
PROPOSAL TO RATIFY SELECTION OF INDEPENDENT ACCOUNTANTS
(Proposal No. 4)
Our Board of Directors has selected the accounting firm of Weaver & Martin
as our independent auditors for the year ending December 31, 2001. A
representative of Weaver & Martin is expected to be present at the Meeting with
the opportunity to make a statement if such representative so desires and to
respond to appropriate questions.
Relationship With Independent Accountants
- -----------------------------------------
The accounting firm of Weaver & Martin has served as independent
accountants for the Company since December 2000.
On July 12, 2000, PricewaterhouseCoopers LLP ("PwC") informed us that it
had resigned as our independent accountant. PwC's reports on our financial
statements for the last two years did not contain an adverse opinion or
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles. PwC's most recent report did contain a
paragraph discussing going concern uncertainty. During our two most recent
fiscal years and the interim period prior to the resignation of PwC, there were
not any disagreements with PwC on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PwC, would have caused it
to make reference to the subject matter of the disagreement in connection with
its report. None of the events described in Item 304(a)(1)(v)(A) - (D) of
Regulation S-K has occurred within our two most recent fiscal years and the
interim period prior to the resignation of PwC.
On December 19, 2000, we engaged Weaver & Martin to conduct the audit of
the 2000 consolidated financial statements. Weaver & Martin had no prior
relationship with us, were not consulted on accounting or audit issues prior to
their engagement, and have not performed any consulting work for us subsequent
to their engagement.
During 2001 we engaged Weaver & Martin to conduct an audit of the 1998 and
1999 consolidated financial statements as well. We did this because it appeared
that it would be less expensive to do so than to arrange for the consent of PwC
to the inclusion of their auditor's opinions for those two years in our annual
report.
Audit Fees
- ----------
The aggregate fees billed by Weaver & Martin for professional services
rendered for the audit of our annual financial statements for the fiscal years
ended December 31, 1998, 1999 and 2000 were $85,576.
All Other Fees
- --------------
The aggregate fees billed by Weaver & Martin for services rendered to us
other than the services described above under "Audit Fees" for the fiscal year
ended December 31, 2000 were $10,258 for review of our tax returns.
37
The audit committee has considered whether the provision of non-audit
services is compatible with maintaining Weaver & Martin's independence. See
"AUDIT COMMITTEE REPORT".
Financial Information Systems Design and Implementation Fees
- -------------------------------------------------------------
Weaver & Martin did not render any professional services relating to
financial information systems design and implementation for the fiscal year
ended December 31, 2000.
Vote Required and Board of Directors Recommendation
- ---------------------------------------------------
Approval of Proposal No. 4 requires the affirmative vote of the holders
of a majority of the shares of our outstanding voting stock that are present
at the Meeting in person or by proxy.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE PROPOSAL. IT IS INTENDED THAT SHARES REPRESENTED BY THE ENCLOSED FORM OF
PROXY WILL BE VOTED IN FAVOR OF THIS PROPOSAL UNLESS OTHERWISE SPECIFIED IN SUCH
PROXY.
PROPOSAL TO ADJOURN ANNUAL MEETING TO AWAIT ADDITIONAL STOCKHOLDER VOTES
(Proposal No. 5)
General
- -------
If a quorum is present and any of the proposals being presented to the
Annual Meeting have sufficient votes for adoption on the date the Annual Meeting
is convened, the polls will be closed on such date with respect to such
proposals and the proposals will be deemed adopted. Even if there is a quorum
when the Annual Meeting convenes, however, it is possible that an insufficient
number of shares will have been voted on Proposal 2, Proposal 3 and/or Proposal
4 to adopt such proposal or make it clear to management that adoption is
unlikely even if the meeting is adjourned to await additional votes from
stockholders. Under these circumstances, if the polls were to be closed on these
proposals on the original meeting date without adjourning to await additional
stockholder votes, the proposals would be defeated despite the possibility that
a vote of all or most shares held by stockholders would result in passage of the
proposals. The Board of Directors believes that all the proposals are in the
best interests of TransFinancial and its stockholders, and are likely to be
adopted if all or most stockholders vote their shares on all proposals.
The DGCL and our By-Laws allow us to adjourn the Annual Meeting from time
to time. However, the recent decision of the Delaware Court of Chancery in State
of Wisconsin Investment Board v. Peerless Systems Corporation indicates that
authority to adjourn a meeting may not always be exercised if it would affect
the outcome of a vote. The purpose of this separate proposal is to provide for a
specific stockholder vote for one or more such adjournments so that it cannot be
argued that the stockholder franchise was impaired in effecting an adjournment
to await additional stockholder votes.
38
Board of Directors Recommendation; Vote Required
- ------------------------------------------------
Approval of Proposal No. 5 requires the vote of a majority of the shares
of stock present at the meeting and voting for or against any motion to adjourn
the meeting to a later date. Members of our Board of Directors and the executive
officers of TransFinancial who hold (or are deemed to hold) an aggregate of
355,865 shares of Common Stock (approximately 9.77% of the outstanding shares of
Common Stock as of November 29, 2001) have indicated that they will vote in
favor of the proposal.
OUR BOARD RECOMMENDS A VOTE FOR THIS PROPOSAL. IT IS INTENDED THAT SHARES
REPRESENTED BY THE ENCLOSED FORM OF PROXY WILL BE VOTED IN FAVOR OF THIS
PROPOSAL UNLESS OTHERWISE SPECIFIED IN SUCH PROXY.
AUDIT COMMITTEE REPORT
The audit committee operates under a written charter approved by the
committee and adopted by our board of directors. The committee's charter is
attached to this proxy statement as Appendix C. All of the members of the
committee are independent under the corporate governance standards of the
American Stock Exchange.
In fulfilling its responsibilities, the committee reviewed and discussed
our audited financial statements for the fiscal year ended December 31, 2000
with our management and independent auditors. The committee also discussed with
our independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61, "Communication with Audit Committees." In addition,
the committee received the written disclosures and the letter from the
independent auditors required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees," and discussed with the
independent auditors their independence in relation to TransFinancial and its
management. The committee also considered the non-audit services provided to the
Company by the independent auditors and concluded that such services were
compatible with maintaining their independence.
Based upon the reviews and discussions referred to above, the committee
has recommended to the board of directors that the audited financial statements
be included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2000 to be filed with the Securities and Exchange Commission.
Submitted by the Audit Committee
Harold C. Hill, Jr., Chairman
39
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information as of November 29, 2001, unless
otherwise indicated, with respect to the beneficial ownership of our Common
Stock by (a) persons known to us to be beneficial owners of 5% or more of the
outstanding Common Stock, (b) executive officers listed in the Summary
Compensation Table, (c) directors and nominees for director and (d) all our
directors and executive officers as a group.
Name of Beneficial Owners Amount and Nature
(and address of beneficial owners other than of Beneficial Percent
executive officers, directors and nominees) Ownership (1) of Class
-------------------------------------------- --------------- --------
Franklin Advisory Services
Charles B. Johnson
Rupert H. Johnson, Jr.
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94404............................ 254,500 (2) 6.99%
Roy R. Laborde.................................. 176,365 (3) 4.84%
C/o TransFinancial Holdings, Inc.
8245 Nieman Road, Suite 100
Lenexa, KS 66214
Timothy P. O'Neil (former director and executive 345,340 (4) 9.48%
officer).
8245 Nieman Road, Suite 100
Lenexa, KS 66214
William D. Cox.................................. 98,000 (5) 2.69%
Harold C. Hill, Jr.............................. 15,500 (6) .43%
Clark D. Stewart................................ 8,000 (7) .22%
David D. Taggart (former director and executive 90,000 (8) 2.47%
officer)...
Kurt W. Huffman................................. 58,000 (9) 1.59%
Directors and executive officers as a group (7
persons, including the above)................... 791,205 (10) 21.72%
(1) Unless otherwise indicated, each person has sole voting and investment power
with respect to the shares listed.
(2) The shares shown in the table are beneficially owned by one or more open
or closed-end investment companies or other managed accounts which are
advised by Franklin Advisory Services, Inc. ("Franklin"), a subsidiary of
Franklin Resources, Inc. ("FRI"). Franklin has all investment and/or voting
power over the shares owned by such advisory clients and may be deemed the
beneficial owner of the shares shown in the table. Charles B. Johnson and
Rupert H. Johnson, Jr. (the "Principal Stockholders") each own in excess of
10% of the outstanding common stock of FRI and are the principal stockholders
of FRI. FRI, the Principal Stockholders and Franklin disclaim any economic
interest or beneficial ownership in any of the shares. The
40
information contained in this footnote was obtained from the Amendment No. 4
to Schedule 13G filed by these persons on February 7, 2001.
(3) Includes 17,150 shares subject to exercisable outstanding stock options and
1,415 shares owned by and registered in the name of his wife, over which they
share voting power but Mrs. Laborde retains sole investment power.
(4) Includes 192,000 shares subject to exercisable outstanding stock options.
Does not include 32,600 shares held in various irrevocable trusts for the
benefit of Mr. O'Neil's children and over which he has no voting or investment
power.
(5) Includes 19,000 shares subject to exercisable outstanding stock options.
(6) Includes 4,500 shares in the Francile Hill Revocable Trust. Both Mr.
Hill and Francile Hill are trustees and each has shared voting and investment
power. Also includes 11,000 shares subject to exercisable outstanding stock
options.
(7) Includes 7,000 shares subject to exercisable outstanding stock options.
(8) Represents 90,000 shares subject to exercisable outstanding stock
options.
(9) Includes 28,000 shares subject to exercisable outstanding stock options.
(10) Includes a total of 364,150 shares subject to exercisable outstanding stock
options. The total includes shares held by Messrs. O'Neil and Taggert even
though they were no longer directors or executive officers at November 29, 2001.
41
EXECUTIVE OFFICER COMPENSATION
Board Compensation Committee Report
- -----------------------------------
The responsibilities of the Compensation Committee ("Committee") include
approval of the salaries and other compensation paid to our executive officers.
The Committee attempts to set executive officers' compensation at levels which
are fair and reasonable to our stockholders and which will attract, motivate,
retain and appropriately reward experienced executive officers who contribute to
our success and the returns to our stockholders.
In 1998, the Committee engaged a compensation consulting company to
perform a review of the our executive compensation program. The current
compensation levels were compared to geographical and industry averages and
found to be substantially less than average for all executive positions. The
compensation consulting company reviewed various compensation surveys and
prepared for the Committee a summary of average salary, average incentive
compensation and average total compensation for different executive positions,
summarized according to geographical area (generally the Kansas City and Des
Moines metropolitan areas), by industry (motor carrier trucking and financial
services) and by size of company (amount of revenues). The Committee does not
know whether the companies included in the compensation surveys reviewed by the
consultant include any companies used by us in our peer group index in the
performance graph. In order to bring our current executive management team
closer to average market total compensation levels, and to tie each executive's
performance to our strategic plan, the Committee adopted a new executive
compensation program. The new program divides the elements of compensation into
two categories: performance and opportunity. Performance compensation is
comprised of base salary paid to each executive to accomplish their standard job
duties, functions and responsibilities. Opportunity compensation is comprised of
"at risk" short-term and long-term incentives which reward the management team
members for achieving or exceeding measurable goals. The short-term incentive
compensation program permits executives the opportunity to earn an additional
43% of their base compensation by achieving budgeted net income levels in each
operating segment or TransFinancial as a whole, and meeting certain other
subjective criteria. Executives also have the opportunity to earn additional
short-term incentive compensation ratably if the operating segments or
TransFinancial as a whole exceed budgeted net income levels. The Committee
selected the various amounts which may be earned by an executive under the
short-term incentive compensation program in order to cause the executive's
total compensation package to meet our target for the executive's total
compensation if, and only if, we meet budgeted net income levels. To ensure
internal equity each executive's total compensation was benchmarked at 40% to
75% of the CEO's total compensation as recommended by the compensation
consulting company based upon each executive's position and responsibilities. To
provide a long-term incentive and link a portion of each executive's
compensation with the interests of stockholders, we generally includes stock
options in each executive's compensation package. In 2000, the Committee
continued this compensation program without substantial modification.
42
Compensation of Chief Executive Officer
---------------------------------------
Timothy P. O'Neil served as our President and Chief Executive Officer
during 2000. The Committee increased Mr. O'Neil's base salary in 2000 from
$160,680 to $192,500 because he assumed additional duties as our Secretary and
Chief Financial Officer. In order to bring Mr. O'Neil's total compensation
package within total market compensation levels, a short-term incentive program
was provided to Mr. O'Neil which gives him the opportunity to earn additional
cash compensation of 43% of his base compensation, or $69,000, for achieving
budgeted net income levels for UPAC and TransFinancial as a whole. No short-term
incentive was earned in 2000 as we did not achieve budgeted net income levels.
The Board of Directors approved a retention bonus of $192,500 to Mr. O'Neil in
2000 in exchange for Mr. O'Neil's agreement to remain in his position until
liquidation of our transportation operations was substantially completed.
The Committee's determination to recommend an option grant in 2000 to Mr.
O'Neil was based upon its subjective and informal review of a number of factors,
including the number of options held by Mr. O'Neil, the exercise prices of such
options, the amount of Mr. O'Neil's total compensation package, the amounts
which Mr. O'Neil is eligible to earn under the short-term incentive program, the
past performance of Mr. O'Neil and the Committee's desire to provide a long-term
incentive component to Mr. O'Neil's compensation. The decision to grant the
option was not based upon any specific criteria or financial performance
measure.
As described under "Employment Agreements," we entered into employment
agreements with Mr. O'Neil and several other executive officers in 1998. The
Committee determined that it was in the best interests of TransFinancial and its
stockholders to enter into the agreements in light of the competitive market for
qualified and experienced executives and with respect to the agreement with Mr.
O'Neil, in light of the then ongoing hostile takeover attempt. The Committee
believes that the employment agreements will help to ensure the retention of
valued executives. The Committee also believes that it is very important to
maintain the management team intact in the event of any future pending or
threatened change of control. In determining the amount of severance
compensation payable to Mr. O'Neil and the triggering events for the payment of
such compensation, the Committee approved provisions that it considered
reasonable to the Company and which would satisfy the goals described above. The
triggering event for the payment of such compensation occurred during 2001, and
Mr. O'Neil received severance compensation of $475,000 during 2001.
Compensation of Other Executive Officers
----------------------------------------
We had two executive officers in addition to Mr. O'Neil in 2000. The
Committee approved increases in base salary for the executive officers for 2000
to maintain a competitive level of total compensation as compared to
compensation rates prevailing in their industry and region. Each of the
executive officers had the opportunity to earn 43% of his base compensation as
cash incentive compensation based on the achievement of budgeted net income
levels for each operating segment or TransFinancial as a whole, and meeting
certain other subjective criteria. The executive officers earned $19,333 under
the short-term incentive program. The executive officers were awarded cash
incentive compensation of 7% on a discretionary basis by the
43
Compensation Committee. The decision to award these bonuses was not based on
any specific financial performance measures.
Both of the executive officers received stock option grants in 2000. All
of the options were Incentive Stock Options. Each option provides for a term of
ten years, subject to earlier termination upon certain events, and an exercise
price equal to the fair market value of the common stock on the date of grant.
The Committee's determination to recommend the grant of options to each of the
executive officers was based upon its subjective and informal review of a number
of factors including the number of options held by the executive, the exercise
prices of such options, the amount of the executive's total compensation
package, the amounts which the executive is eligible to earn under the short-
term incentive program, the position held by the executive, the duties and
responsibilities of the executive, the past performance of the executive and the
Committee's desire to provide a long-term incentive component to the executive's
compensation. The decision to grant the options was not based upon any specific
criteria or financial performance measure.
As described under "Employment Agreements," we entered into employment
agreements with Mr. O'Neil and several other executive officers in 1998. The
Committee's determinations with respect to the employment agreements are
described above in the discussion of the compensation of the Chief Executive
Officer.
Section 162(m)
--------------
The Committee has considered the potential impact of Section 162(m) of the
Internal Revenue Code of 1986, as amended, regarding non-deductibility of annual
compensation in excess of $1,000,000. The Committee does not believe that
Section 162(m) will have any material impact upon TransFinancial, given the
current cash compensation levels of our executive officers, the number of
options granted to such officers and the treatment of such options under Section
162(m). The Committee believes that many of the options currently outstanding
are exempt from the deductibility limit under the transition provisions set
forth in the regulations under Section 162(m). It is the Committee's intention
that options granted under the 1998 Long-Term Incentive Plan will qualify as
performance-based compensation and be exempt from the deductibility limits of
Section 162(m). The Committee will continue to evaluate the advisability of
qualifying executive compensation for deductibility under Section 162(m).
COMPENSATION COMMITTEE
Clark D. Stewart, Chairman
44
Compensation Committee Interlocks And Insider Participation
- ------------------------------------------------------------
The Compensation Committee consists exclusively of non-employee directors
appointed by resolution of the entire Board of Directors. William D. Cox, former
Chairman of the Compensation Committee, was a non-employee Chairman of the Board
of Directors from the 1997 Organization Meeting of the Board of Directors until
he was appointed President and Chief Executive Officer of the Company in July
2001. He resigned from the Compensation Committee at the time of his election as
President and Chief Executive Officer of the Company in July 2001.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG TRANSFINANCIAL HOLDINGS, INC.
COMMON STOCK, AMEX MARKET AND PEER GROUP
Based on data furnished by Media General Financial Services, Richmond,
Virginia. Assumes $100 invested at the close of business at December 31, 1995 in
our Common Stock, the Amex Market Index and the selected peer group. The total
return calculated assumes the reinvestment of any dividends. Numbers used to
prepare the above graph were:
Year Ending December 31
1995 1996 1997 1998 1999 2000
TransFinancial 100.00 90.00 102.14 51.43 60.00 6.43
Peer Group 100.00 99.51 151.86 136.70 148.77 146.35
Amex Market Index 100.00 105.52 126.97 125.25 156.15 154.23
The industry peer group ("Peer Group") consists of all predominantly
less- than-truckload motor carriers (or parent companies) publicly traded on
any stock exchange for the last five years (6 companies: Arkansas Best
Corporation, Arnold Industries, Inc., CNF Transportation, Inc., Old Dominion
Freight Line, Inc., USFreightways, Inc., and Yellow Corporation). Each
member of the peer group had a much larger market capitalization than
TransFinancial.
45
SUMMARY COMPENSATION TABLE
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
-------------------------------------- ------------------------ ----------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Compensation Award(s) Options/ Payouts Compensation
Principal Position Year Salary Bonus ($)(3) ($) ($) SARs (#) ($) ($)
- --------------------- ------ ---------- -------------- --------- ---------- ------------ -------- -----------
Timothy P. O'Neil, 2000 $192,500 $192,500(4) -0- -0- 100,000 -0- $ 25,000 (2)
Former President, Chief 1999 160,680 -0- -0- -0- 20,000 -0- 25,000 (2)
Executive Officer and 1998 160,680 11,500 -0- -0- 20,000 -0- 25,000 (2)
Secretary
Kurt W. Huffman, 2000 $143,000 $ 3,750 $7,200 -0- 50,000 -0- $ -0-
Executive Vice President 1999 125,000 9,000 $7,200 -0- 10,000 -0- -0-
of the Company and Chief 1998 110,908 9,000 -0- -0- 10,000 -0- -0-
Executive Officer of
UPAC and Presis
David D. Taggart, Former 2000 $147,887 $ -0- -0- -0- 50,000 -0- $306,000 (1)
Executive Vice President 1999 143,000 10,333 -0- -0- 10,000 -0- 10,000 (1)
of the Company and 1998 140,000 10,333 -0- -0- 10,000 -0- 10,000 (1)
Former Chief Executive
Officer
(1) Pursuant to Mr. Taggart's employment agreement an interest free loan
secured by his personal residence is being forgiven ratably over eight years,
at $10,000 per year. The remaining amount for 2000 represents severance
payments to Mr. Taggart under his employment agreement upon termination of
his employment.
(2) Represents the annual insurance premiums paid by the Company with respect to
a split-dollar life insurance policy for the benefit of Timothy P. O'Neil. For a
description of such arrangement see Employment Agreements.
(3) Except as described herein, bonuses represent incentive compensation awarded
on a discretionary basis based on subjective criteria.
(4) Retention bonus paid to Mr. O'Neil for agreeing to stay with the Company
until completion of the liquidation of the transportation operations.
46
OPTION GRANTS IN 2000
Number of
Securities % of Total Value at Assumed Annual
Underlying Options Granted Exercise Rates of Stock Price
Options to Employees in Price Expiration Appreciation for Option Term
Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
----------- ----------- ------ ---- ------ -------
Timothy P. O'Neil (1) 100,000 50% $1.50 04/19/2010 $94,320 $239,055
David D. Taggart (1) 50,000 25% 1.50 04/19/2010 47,160 119,527
Kurt W. Huffman (1) 50,000 25% 1.50 04/19/2010 47,160 119,527
(1) Grants are "Incentive Stock Options" under the Internal Revenue Code. The
exercise prices equal the market value on the date of grant. The options become
exercisable ratably on April 19th of the years 2001 through 2005 and remain
exercisable through 2010.
AGGREGATED OPTION EXERCISES IN 2000 AND FY END OPTION VALUES
Number of Value of
Securities Unexercised
Shares Underlying In-the-Money
Acquired Unexercised Options at
on Options at FY-End FY-End ($)
Exercise Value (#) Exercisable/ Exercisable/
Name (#) Realized ($) Unexercisable Unexercisable (1)
- ----------------- --------- ----------- ------------------ ----------------
Timothy P. O'Neil -- $ -- 52,000/140,000 $-0-/-0-
David D. Taggart -- -- 21,200/68,800 -0-/-0-
Kurt W. Huffman -- -- 12,000/68,000 -0-/-0-
(1) All of the exercisable and unexercisable options held as of the fiscal
yearend were exercisable at prices above the closing market price of $.56 per
share as of December 31, 2000.
47
EMPLOYMENT AGREEMENTS
TransFinancial, UPAC and Presis are parties to an Employment Agreement
with Kurt W. Huffman, Executive Vice President of TransFinancial, President and
Chief Executive Officer of Presis and President and Chief Executive Officer of
UPAC. The Employment agreement provides for the employment at will of Mr.
Huffman by TransFinancial. Under the Employment Agreement, Mr. Huffman is
entitled to (a) salary of $143,000 per year, subject to increase by us from time
to time, (b) annual incentive compensation of 36% of base salary, or $51,667,
based on achieving budgeted net income levels for TransFinancial and an
additional 7% of base salary, or $10,333, based on subjective criteria, (c) such
stock options as we shall from time to time grant pursuant to stock option
plans, (d) certain additional fringe and other benefits. The Employment
Agreement provides that if Mr. Huffman's employment is terminated by us without
good cause (as defined in the agreement), he will be entitled to his then
existing base compensation and all related benefits for one year. The Employment
Agreement also includes a non-competition provision for one year after
termination. Under the Employment Agreement, Mr. Huffman is entitled to certain
payments upon termination of Mr. Huffman's employment after a change of control
of TransFinancial, UPAC or Presis. Mr. Huffman is entitled to such payments if,
within one year after such a change of control, Mr. Huffman's employment is
terminated other than by Mr. Huffman for any reason other than death, permanent
disability, retirement or Good Cause (as defined in the agreement), or is
terminated by Mr. Huffman for Stated Cause (as defined in the agreement). In
such event, Mr. Huffman is entitled to the following: (i) 2.99 times Mr.
Huffman's average annual compensation over the three most recent years prior to
the change of control, or such lesser period as Mr. Huffman shall have been
employed by us, excluding any amount which would constitute an "excess parachute
payment" under Section 280G of the Code, (ii) immediate 100% vesting of all
incentive compensation provided or to be provided under the Employment
Agreement, and (iii) three years participation in certain of our medical and
life insurance plans. During 2001, Mr. Huffman agreed to a cap of $500,000 on
parachute payments under this agreement.
We is a party to a Supplemental Benefit and Collateral Assignment
Split-Dollar Agreement with Timothy P. O'Neil, our former President and Chief
Executive Officer. Under the agreement, we agreed to pay the premiums on a life
insurance policy insuring the life of Mr. O'Neil with an initial death benefit
of $532,968 during the term of his employment by us. Mr. O'Neil has the right
under the agreement to designate the beneficiaries to whom the death benefits
under the policy shall be payable. We stopped paying premiums in July 2001 when
Mr. O'Neil's employment was terminated without cause. Upon the death of Mr.
O'Neil, or the earlier surrender or cancellation of the policy by him subsequent
to his retirement, disability or termination without cause, we is entitled to
the lesser of the cash surrender value of the policy and the amount of premiums
paid by us, and Mr. O'Neil is entitled to the remaining amounts payable upon
such event under the policy.
We were party to an Employment Agreement with Timothy P. O'Neil, our
former President and Chief Executive Officer. The Employment agreement provided
for the employment at will of Mr. O'Neil by us. Under the Employment Agreement,
Mr. O'Neil was entitled to (a) salary of $192,500 per year, subject to increase
by us from time to time, (b) annual incentive compensation of 36% of base
salary, or $69,300, based on achieving budgeted net income levels for
TransFinancial and an additional 7% of base salary, or $13,500, based on
48
subjective criteria, (c) such stock options as we from time to time granted
pursuant to stock option plans, (d) certain additional fringe and other
benefits, including a Supplemental Benefit and Collateral Assignment
Split-Dollar Agreement as described above. The Employment Agreement provided
that if Mr. O'Neil's employment was terminated by us without good cause (as
defined in the agreement), he would be entitled to his then existing base
compensation and all related benefits for two years. Mr. O'Neil's employment was
terminated without cause in July 2001.
We and Crouse Cartage Company were parties to an Employment Agreement with
David D. Taggart, a former Executive Vice President of TransFinancial and former
Chairman and Chief Executive Officer of Crouse. The Employment Agreement
provided for the employment at will of Mr. Taggart by TransFinancial. Under the
Employment Agreement, Mr. Taggart was entitled to (a) salary of $148,000 per
year, subject to increase by Crouse from time to time, (b) annual incentive
compensation of 36% of base salary, or $53,300, based on achieving budgeted net
income levels for Crouse or TransFinancial, and an additional 7% of base salary,
or $10,400, based on subjective criteria, (c) an interest free home loan from us
to be forgiven in equal annual installments, (d) such stock options as we shall
from time to time grant pursuant to stock option plans, and (e) certain
additional fringe and other benefits, including supplemental retirement benefits
as described above. The Employment Agreement provides that if Mr. Taggart's
employment is terminated by TransFinancial without cause (as defined in the
agreement) he will be entitled to an amount equal to his then existing base
compensation and all related benefits for two years. The Employment Agreement
also includes a non-competition provision for two years after termination. Mr.
Taggart's employment was terminated without cause during 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 2000, TransFinancial and its subsidiaries have not
engaged in any individual transactions or series of transactions with any
director, executive officer, nominee or person known to the Company to
beneficially own more than 5 percent of the Company's voting securities, or with
a member of any such person's immediate family, in which the amount involved
exceeded $60,000. Since January 1, 2000, no director, executive officer or
nominee, or a member of such person's immediate family, no company (other than
TransFinancial or its subsidiaries) of which such person is an executive officer
or director, and no trust or other estate in which such person has a beneficial
interest or of which such person is trustee, has been indebted to TransFinancial
or its subsidiaries in an amount aggregating more than $60,000.
STOCKHOLDER PROPOSALS
Any proposal that a stockholder desires to have included in our proxy
materials for our 2002 Annual Meeting of Stockholders must be received by our
Corporate Secretary at the Company's principal executive offices no later than
February 23, 2002, in order to be considered for possible inclusion in the proxy
materials. Any such proposal must comply with the applicable rules of the
Securities and Exchange Commission.
In addition to the requirements set forth above, our By-laws contain
advance notice provisions governing certain matters, including stockholder
proposals and stockholder
49
nominations of candidates for election to the Board of Directors. Under our
By-laws, notice of any such proposal or nomination must be in writing and must
be delivered to the Corporate Secretary at our principal executive offices by
the later of: (a) sixty (60) days prior to the scheduled date of the
stockholders' meeting, or (b) ten (10) days following the day on which we mail
notice or make a public announcement of the scheduled date of the meeting. Any
such stockholder proposal or nomination for election to the Board of Directors
must also comply with the other applicable provisions of the advance notice
provisions in our By-laws.
We currently anticipates that the 2002 Annual Meeting of Stockholders will
be held on April 23, 2002. Assuming that the date of the meeting is not changed,
notice of any stockholder proposal or nomination to be considered at the 2002
Annual Meeting of Stockholders must be received by the Corporate Secretary no
later than February 23, 2002 in order to be timely under the advance notice
provisions of our By-laws.
No stockholder proposal or nomination will be considered at the 2002
Annual Meeting of Stockholders unless it is presented in accordance with the
foregoing requirements. A copy of our By-laws containing the advance notice
provisions can be obtained by any stockholder by written request to our
Corporate Secretary at the Company's principal executive offices.
MISCELLANEOUS
As of the date of this Proxy Statement, the Board of Directors knows of no
other matter to be presented for consideration at the Annual Meeting. Although
TransFinancial knows of no items of business which will be presented at the
Annual Meeting other than those described herein, proxies in the accompanying
form confer upon the persons named in such proxies discretionary authority to
vote upon any other matters that may properly come before the meeting, to the
extent permitted under the applicable rules of the SEC.
All expenses incurred in connection with this proxy solicitation will be
borne by TransFinancial. In addition to solicitation of proxies by mail, proxies
may be solicited by the Company's directors, officers and other employees, by
personal interview, telephone and telegram. The Company will also request
brokers and other fiduciaries to forward solicitation materials to the
beneficial owners of shares held of record by them, and will pay all expenses in
connection therewith.
DATE: ______________, 2001
William D. Cox
Chairman of the Board, President and
Chief Executive Officer
50
A-1
APPENDIX A
Plan of Complete Liquidation
of
TransFinancial Holdings, Inc.
----------------
(Includes TransFinancial Liquidating Trust)
A-1
PLAN OF COMPLETE LIQUIDATION
OF
TRANSFINANCIAL HOLDINGS, INC.
The Board of Directors (the "Board") of TransFinancial Holdings, Inc., a
Delaware corporation (the "Company") approved and adopted this Plan of Complete
Liquidation of TransFinancial Holdings, Inc. (the "Plan"). In adopting the Plan,
the Board determined that the Plan and the transactions contemplated by it are
advisable and in the best interests of the Company and its stockholders. The
Board directed that the Plan be submitted to the holders of the outstanding
shares of the Company's common stock (the "stockholders") for adoption and
approval at their annual meeting and authorized the distribution of a proxy
statement (the "Proxy Statement") to be used in soliciting proxies for that
meeting. If the stockholders adopt and approve the Plan, the Company shall
voluntarily dissolve and completely liquidate, subject to this Plan and in
accordance with the requirements of the Delaware General Corporation Law (the
"DGCL") and the Internal Revenue Code of 1986, as amended (the "Code").
1. Adoption of Plan. The effective date of the Plan (the "Effective Date")
shall be the date on which the Plan is adopted by the stockholders. Stockholder
approval of the Plan shall also constitute approval by the Company's
stockholders of the sale of all or substantially all of the Company's assets
under Section 271 of the DGCL and approval of each of the other actions
contemplated by the Plan.
2. Disposition of Assets. Prior to and after the Effective Date, the
Company shall use commercially reasonable efforts to dispose of all of its
assets as promptly as practicable consistent with realizing full value thereon
and shall hold or reinvest the proceeds thereof in cash and such short-term
fixed income securities as the Company may lawfully hold or invest in. To the
extent the Company does not timely dispose of any such assets, the Company may
contribute such assets to the Liquidating Trust referred to in Section 7 below.
Neither the Company nor the trust shall be required to obtain from third parties
opinions as to the value of the assets.
3. Remaining Assets. Prior to and after the Effective Date, the Company
shall use all commercially reasonable efforts to assert, prosecute, reduce to
judgment, settle and collect all claims (the "Claims") of the Company against
persons other than the Company. To the extent the Company does not timely
resolve any Claim for the full value thereof, the Company may contribute all
such Claims to the Liquidating Trust, referred to in Section 7, along with such
amounts of cash and other assets as the Company shall determine might reasonably
be required to resolve such claims, dispose of assets in such Trust and pay the
reasonable expenses thereof.
4. Transactions. The Company shall have the authority to engage in such
other transactions as may be appropriate to its complete liquidation and
dissolution, including without limitation, the authority to mortgage, pledge,
sell, lease, exchange or otherwise dispose of all or any part of its assets for
cash and/or shares, bonds, or other securities or property, and to pay, provide
for, settle and resolve all liabilities of the Company, upon such terms and
conditions as the Company shall determine, with no further approvals by the
stockholders except as required by law.
5. Provisions for Liabilities. The Company shall pay or discharge or
otherwise provide for the payment or discharge of, any liabilities and
obligations, including, without limitation,
A-2
contingent or unascertained liabilities and obligations determined or otherwise
reasonably estimated to be due either by the Company or a court of competent
jurisdiction (the "Liabilities"). The foregoing may be accomplished by use of
one or more trusts (including the Liquidating Trust), escrows, reserve funds,
plans or other arrangements as determined by the Company or required by law.
Approval of this Plan by the stockholders will constitute the approval by them
of all actions referred to herein to be taken by, or on behalf of the Company,
and all actions reasonably required to effect the transactions contemplated by
the Plan.
6. Distributions to Stockholders. From time to time after the Effective
Date, the Company shall distribute to the stockholders cash or other assets and
all other properties held by it (in excess of amounts required for payment or
discharge of the Company's liabilities and obligations or for the liquidation of
our assets), by way of one or more pro rata liquidating distributions to such
stockholders. Cash and other assets held in the Liquidating Trust, in excess of
the amounts required for the payment or discharge of the Company's liabilities
and obligations or for the liquidation of its assets, shall be distributed to
the stockholders at the time and under the conditions set forth in the
instruments establishing the Liquidating Trust.
7. Liquidating Trust. The Company may at any time after the effective date
of this Plan (i) create and execute with one or more trustees ("Trustees") who
may be officers or directors of the Company, selected by the Company, a
liquidating trust agreement substantially in the form annexed hereto, as the
same may be amended from time to time and with such changes in such form as the
directors shall deem advisable (the "Liquidating Trust Agreement") to establish
a liquidating trust (the "TransFinancial Liquidating Trust"), (ii) grant,
assign, and convey to the Trustees of the TransFinancial Liquidating Trust all
rights of ownership of any assets not yet distributed to the Company's
stockholders, subject to all of the Liabilities and (iii) distribute interests
in the TransFinancial Liquidating Trust to its stockholders.
8. Notice of Liquidation. As soon as practicable after the Effective Date,
the Company shall mail notice to its known creditors that this Plan has been
approved by the Board and the stockholders as provided in the DGCL.
9. Certificate of Dissolution. As promptly as practicable and pursuant to
the DGCL, the Company shall prepare and file a Certificate of Dissolution (the
"Certificate") with and for acceptance by the Delaware Secretary of State.
Thereafter, the Company shall conduct no business except as permitted by the
DGCL, and the directors in office at such time, and, at the pleasure of such
directors, the officers of the company, shall continue in office solely for the
purpose of the Plan and shall have all powers provided to them by the DGCL.
10. Amendment or Abandonment of Plan. The Company may modify or amend this
Plan at any time without stockholder approval if it determines that such action
would be advisable and in the best interests of the Company and its
stockholders. If any amendment or modification appears necessary and in the
judgment of the Company will materially and adversely affect the interests of
the stockholders or materially delay the time at which distributions of the
Company's net assets will be made, such an amendment or modification will be
submitted to the stockholders for approval. In addition, the Company may abandon
this Plan at any time prior to the filing of the Certificate of Dissolution if
the Board of Directors determines that abandonment would be advisable and in the
best interests of the Company and its stockholders without further action by the
stockholders.
A-3
11. Powers of Directors and Officers. Except as required by applicable law
or the terms of this Plan, all of the rights and duties of the Company relating
to the Plan and completion of the transactions contemplated thereby, including
modification, amendment or abandonment of the Plan, shall be made solely by or
under the direction of the Board of Directors of the Company, provided that any
rights and duties of the Company relating to the Plan and completion of the
transactions contemplated thereby that are reserved by law or this Plan
exclusively to the stockholders shall be exercised by the stockholders. In
addition to exercising the specific powers granted to the Company by the Plan,
the Directors are authorized to approve such changes to the terms of any of the
transactions referred to herein, to interpret any of the provisions of this
Plan, to delegate the exercise of their rights and duties to Officers or agents
of the Company and to make, execute and deliver or authorize the Officers or
agents of the Company to make, execute and deliver such other agreements,
conveyances, assignments, transfers, certificates and other documents and take
such other action as the Directors deem necessary or desirable in order to carry
out the provisions of this Plan and effect as promptly as practicable the
complete liquidation and dissolution of the Company in accordance with the Plan,
the Code and the DGCL.
12. Compensation. The Company may pay to its officers, directors, employees
and agents or trustees, or any of them, compensation for services rendered in
connection with the implementation of this Plan. Approval of this Plan by the
stockholders of the Company shall constitute the approval of the payment of any
such compensation.
13. Indemnification. The Company shall continue to indemnify its officers,
directors, employees, agents and trustees in accordance with its Articles of
Incorporation, bylaws and any contractual arrangements as therein or elsewhere
provided, and such indemnification shall apply to acts or omissions of such
persons in connection with the implementation of this Plan and the winding up of
the affairs of the Company. The obligation to indemnify such persons may be
satisfied out of the assets transferred to the Liquidating Trust, if any. The
Board and the trustees of any Trust are authorized to obtain and maintain
insurance as may be necessary to cover such indemnification obligations.
14. Cancellation of Stock. The distributions to stockholders pursuant to
this Plan shall be in complete redemption and cancellation of all of the
outstanding common stock of the Company. As a condition to any disbursement made
under the Plan, the Company may require stockholders to surrender their
certificates evidencing the common stock to the Company or its agent for
cancellation. If a stockholder's certificate for shares of common stock has been
lost, stolen or destroyed, such stockholder may be required, as a condition to
the disbursement of any distribution under this Plan, to furnish to the Company
satisfactory evidence of the loss, theft or destruction thereof, together with a
surety bond or other security or indemnity reasonably satisfactory to the
Company. Until a stockholder's certificates are surrendered or other
satisfactory arrangements are made as described in the immediately preceding
sentence, distributions otherwise payable to the stockholder on the affected
shares may be held in trust for such stockholder, without interest, and subject
to escheat pursuant to the laws relating to unclaimed property.
15. Restrictions on Transfer of Shares. After the Effective Date, the
Company may proceed to delist the common stock of the Company from any
securities exchange on which such shares may then be listed. Further, the
Company shall close its stock transfer books and
A-4
discontinue recording transfers of common stock at the close of business on the
date of the filing of the Certificate, and thereafter certificates representing
the common stock of the Company shall not be assignable or transferable on the
books of the Company except by will, intestate succession or operation of law.
The proportionate interests of all of the stockholders of the Company shall be
fixed on the basis of their respective stock holdings at the close of business
on the date the certificate is filed, and, after such date any distributions
made by the Company shall be made solely to the stockholders of record at the
close on business on such date, except as may be necessary to reflect subsequent
transfers recorded on the books of the Company as a result of any assignments by
will, intestate succession or operation of law.
16. Interpretation of this Plan. It is intended that this Plan shall be
deemed to authorize the dissolution and complete liquidation of the Company in
any manner permitted by the DGCL and the Code, and this Plan shall be
interpreted so as to give effect to this intention.
A-5
Exhibit A
LIQUIDATING TRUST AGREEMENT
By and Between
TRANSFINANCIAL HOLDINGS, INC.
as the Grantor,
and
---------------------------------------
as Trustee
Dated as of ______________, 2001
LIQUIDATING TRUST AGREEMENT
AGREEMENT AND DECLARATION OF TRUST, dated as of ____________, 2001 by and
between TransFinancial Holdings, Inc., a Delaware corporation
("TransFinancial"), and _____________________________, as trustee (the
"Trustee").
WHEREAS, TransFinancial has entered into an agreement to sell
substantially all of its assets;
WHEREAS, TransFinancial's Board of Directors has adopted and its
Stockholders approved a Plan of Complete Liquidation (the "Plan");
WHEREAS, as part of the Plan, TransFinancial's Board of Directors
intends to sell all its remaining assets;
A-6
WHEREAS, TransFinancial's Board of Directors anticipates that
TransFinancial may not be able to fully wind up all of its affairs prior to the
date by which TransFinancial shall dissolve, and therefore has made specific
arrangements for such contingency in the Plan;
WHEREAS, the Plan, among other things, (i) provides for the establishment
of a liquidating trust pursuant to the terms and conditions hereof (the
"Trust"), (ii) provides the methods by which the Trustee was selected to serve
as agent of the Beneficiaries (as defined below) and Trustee of the Trust, (iii)
authorizes and directs TransFinancial to transfer the Trust assets to the
Trustee as agent for the Beneficiaries, (iv) authorizes and directs the Trustee
to apply the proceeds from the disposition of the Trust Assets to the payment of
actual, anticipated, unforeseen or contingent liabilities of TransFinancial,
with no objective or authority to engage in the conduct of a trade or business
and (v) authorizes and directs the Trustee to make liquidating distributions to
the holder of Units (as defined below) in the Trust.
NOW, THEREFORE, in consideration of the premises, and subject to the terms
and provisions herein, effective as of the close of business on the Record Date
(as defined herein), TransFinancial hereby grants, releases, assigns, conveys
and delivers unto the Trustee for the benefit of the beneficiaries of the Trust
(the "Beneficiaries"), all of TransFinancial's right, title and interest in and
to the assets not distributed to Stockholders as of the Record Date for the uses
and purposes stated herein, and the Trustee hereby accepts such assets and such
Trust.
NAME AND DEFINITIONS
Name. This trust shall be known as the TransFinancial Liquidating Trust.
Certain Terms Defined. For all purposes of this instrument, unless the
context otherwise requires:
"Agreement" shall mean this instrument as originally executed or as it may from
time to time be amended pursuant to the terms hereof.
"Beneficial Interest" shall mean each Beneficiary's proportionate share of the
Trust Assets initially determined by the ratio of the number of Shares held by
the Initial Beneficiary (as defined below) on the close of business on the
Record Date over the total number of Shares issued and outstanding on such
Record Date and thereafter each Beneficiaries' proportional beneficial interest
in the Trust.
"Initial Beneficiary" shall mean each of the Stockholders as of the Record Date.
"Person" shall mean an individual, a corporation, a partnership, an association,
a joint stock company, a limited liability company, a trust, a joint venture,
any unincorporated organization, or a government or political subdivision
thereof.
"Record Date" shall mean the close of business on the date upon which
TransFinancial shall file with the Delaware Secretary of State its Certificate
of Dissolution.
"Shares" shall mean the shares of Common Stock, par value $.01 per share, of
TransFinancial.
A-7
"Stockholders" shall mean the holders of record of the outstanding Shares of
TransFinancial at the close of business on the Record Date.
"Trust" shall mean the Trust created by this Agreement.
"Trust Assets" shall mean all the property held from time to time by the Trustee
under this Agreement, and all dividends, rents, royalties, income, proceeds and
other receipts of, from, or attributable to any assets held by the Trust, less
any of the foregoing utilized by the Trustee to pay expenses of the Trust,
satisfy liabilities of TransFinancial or the Trust or make distributions to the
Beneficiaries.
"Trustee" shall mean the original Trustee, any Trustee appointed hereunder after
the date hereof, and its successors.
NATURE OF TRANSFER
Transfer of Property to the Trust. The Board of Directors of TransFinancial
shall forthwith assign, or cause TransFinancial to assign, to the Trustee, by
written instrument in proper form for record, all of its remaining assets, to be
held by the Trustee as herein provided.
Purpose of Trust.
The Trust is organized for the sole purpose of liquidating and distributing the
assets held by the Trust with no objective to continue or engage in the conduct
of a trade or business.
As TransFinancial shall dissolve prior to fully winding up its affairs,
including, but not limited to, the disposition of its remaining assets and the
payment of any unsatisfied debts, claims, liabilities, commitments, suits and
other obligations, whether contingent or fixed, arising from any source
whatsoever (the "Liabilities"), TransFinancial's Board of Directors and
Stockholders each approved the Plan, which calls for the establishment of the
Trust, and sets forth the manner in which the Trustee is selected, for the
purpose of providing a procedure that will enable TransFinancial to dissolve in
a timely manner, and wind up its affairs, by assigning and conveying to the
Trustee pursuant to the terms contained herein all assets of TransFinancial not
previously distributed to Stockholders or used to pay outstanding liabilities.
The assets granted, assigned and conveyed to the Trustee will be held in the
Trust, and the Trustee will: (i) further liquidate the Trust Assets if necessary
to carry out the purpose of the Trust and facilitate distribution of the Trust
Assets; (ii) allocate, protect, conserve and manage the Trust Assets in
accordance with the terms and conditions hereof; (iii) complete the winding up
of TransFinancial's affairs; (iv) act on behalf of the Beneficiaries and in the
capacity of TransFinancial in connection with any matters and (v) distribute the
Trust Assets in accordance with the terms and conditions hereof.
It is intended that the granting, assignment and conveyance of the initial trust
assets by TransFinancial to the Trustee pursuant hereto shall be treated for
federal and state income tax purposes as if TransFinancial made such
distributions directly to the Stockholders. It is further intended that for
federal, state and local income tax purposes the Trust shall be treated as a
liquidating trust under Treasury Regulation Section 301.7701-4(d) and any
analogous provision
A-8
of state or local law, and the Beneficiaries shall be treated as the owners of
their respective share of the Trust pursuant to Sections 671 through 679 of the
Internal Revenue Code of 1986, as amended (the "Code") and any analogous
provision of state or local law and shall be taxed on their respective share of
the Trust's taxable income (including both ordinary income and capital gains)
pursuant to Section 671 of the Code and any analogous provision of state or
local law. The Trustee shall file all tax returns required to be filed with any
governmental agency consistent with this position, including, but not limited
to, any returns required of grantor trusts pursuant to Section 1.671-4(a) of the
income tax regulations under the Code (the "Income Tax Regulations").
Prohibited Activities. The Trust shall not continue or engage in the conduct of
any trade or business, and the Trustee is expressly prohibited from, and shall
have no power or authority to, continue or engage in the conduct of any trade or
business on behalf of the Trust or the Beneficiaries, and all of the terms and
conditions hereof shall be construed accordingly.
No Reversion to TransFinancial. In no event shall any part of the Trust Assets
revert to or be distributed to TransFinancial.
Instruments of Further Assurance. After the dissolution of TransFinancial, such
persons as shall have the right and power to so act, will, upon reasonable
request of the Trustee, execute, acknowledge, and deliver such further
instruments and do such further acts as may be necessary or proper to carry out
effectively the purposes of this Agreement, to confirm or effectuate the
transfer to the Trustee of any property intended to be covered hereby, and to
vest in the Trustee, its successors and assigns, the estate, powers, instruments
or TransFinancial in trust hereunder.
Payment of Liabilities. The Trust hereby assumes all Liabilities. Should any
Liability be asserted against the Trust or the Trustee as the transferee of the
Trust Assets or as a result of the assumption made in this paragraph, the
Trustee may use such part of the Trust Assets as may be necessary in contesting
any such Liability or in payment thereof, but in no event shall the Trustee,
Beneficiaries or employees or agents of the Trust be personally liable, nor
shall resort be had to the private property of such Persons, in the event the
Trust Assets are not sufficient to satisfy the Liabilities of the Trust.
Incidents of Ownership. The Stockholders shall be the Initial Beneficiaries of
the Trust created by this Agreement and the Trustee shall retain only such
incidents of legal ownership as are necessary to undertake the actions and
transactions authorized herein.
Notice to Unlocated Stockholders. If the Trust holds Trust Assets for unlocated
Stockholders, due notice shall be given to such Stockholders in accordance with
local law.
A-9
BENEFICIARIES
Beneficial Interests.
The Initial Beneficial Interest of each former Stockholder as a Beneficiary
hereof shall be determined by the Trustee in accordance with a certified copy of
TransFinancial's Stockholder list as of the Record Date.
TransFinancial will deliver such certified copy of its Stockholder list to the
Trustee within a reasonable time after the date hereof. For ease of
administration, the Trustee shall express the Beneficial Interest of each
Beneficiary in terms of units ("Units"). Each record owner of shares of Common
Stock of TransFinancial at the Record Date shall be entitled to receive one Unit
in cancellation of each such share. The certificates representing shares will be
deemed to evidence the number of Units in the Trust owned by each Beneficiary,
provided, however, that upon exchange or transfer of such certificates, the
certificates shall be marked with an appropriate legend, or new certificates in
a form approved by the Trustee shall be issued and shall evidence the number of
Units owned. Such certificates will be legended to restrict transfer.
If any conflicting claims or demands are made or asserted with respect to the
ownership of any Units, or if there should be any disagreement between the
transferees, assignees, heirs, representatives or legatees succeeding to all or
part of the interest of any Beneficiary resulting in adverse claims or demands
being made in connection with such Units, then, in any of such events, the
Trustee shall be entitled, at its sole election, to refuse to comply with any
such conflicting claims or demands. In so refusing, the Trustee may elect to
make no payment or distribution with respect to such Units, or to make such
payment to a court of competent jurisdiction or an escrow agent, and in so doing
the Trustee shall not be or become liable to any of such parties for its failure
or refusal to comply with any of such conflicting claims or demands, nor shall
the Trustee be liable for interest on any amounts which it may so withhold. The
Trustee shall be entitled to refrain and refuse to act until either (i) the
rights of the adverse claimants have been adjudicated by a final judgment of a
court of competent jurisdiction, (ii) all differences have been adjusted by
valid written agreement between all of such parties, and the Trustee shall have
been furnished with an executed counterpart of such agreement, or (iii) there is
furnished to the Trustee a surety bond or other security satisfactory to the
Trustee, as it shall deem appropriate, to fully indemnify it with respect to all
conflicting claims or demands.
Rights of Beneficiaries. Each Beneficiary shall be entitled to participate in
the rights and benefits due to a Beneficiary hereunder according to his
Beneficial Interest. Each Beneficiary shall take and hold the same subject to
all the terms and provisions of this Agreement. The interest of the Beneficiary
hereby is declared and shall be in all respects personal property and upon the
death of an individual Beneficiary, his Beneficial Interest shall pass as
personal property to his legal representative and such death shall in no way
terminate or affect the validity of this Agreement. A Beneficiary shall have no
title to, right to, possession of, management of, or control of, the Trust
Assets except as herein expressly provided. No widower, widow, heir, or devisee
of any person who may be a Beneficiary shall have any right of dower, homestead,
or inheritance, or of partition, or of any other right, statutory or otherwise,
in any property forming a part of the Trust Assets but the whole title to all
the Trust Assets shall be vested in the Trustee
A-10
and the sole interest of the Beneficiaries shall be the rights and benefits
given to such Persons under this Agreement.
Transfer of Interests of Beneficiaries. The Beneficial Interest of a Beneficiary
may not be transferred either by the Beneficiary in person or by a duly
authorized agent or attorney, or by the properly appointed legal representatives
of the Beneficiary, nor may a Beneficiary have authority or power to sell,
assign, transfer, encumber, or in any other manner dispose of his Beneficial
Interest; provided, however, that the Beneficial Interest shall be assignable or
transferable by will, intestate succession, or operation of law. The Beneficial
Interests of the Beneficiaries hereunder shall not be subject to attachment,
execution, sequestration or any order of a court, nor shall such interests be
subject to the contracts, debts, obligations, engagements or liabilities of any
Beneficiary, but the interest of a Beneficiary shall be paid by the Trustee to
the Beneficiary free and clear of all assignments, attachments, anticipations,
levies, executions, decrees and sequestrations and shall become the property of
the Beneficiary only when actually received by such Beneficiary.
Trustee as Beneficiary. The Trustee, either individually or in a representative
or fiduciary capacity may be a Beneficiary to the same extent as if it were not
a Trustee hereunder and have all the rights of a Beneficiary, including, without
limitation, the right to receive distributions, to the same extent as if it were
not a Trustee hereunder.
DURATION AND TERMINATION OF TRUST
Duration. The existence of this Trust shall terminate upon the earliest of (i) a
termination required by the applicable laws of the State of Delaware, or (ii)
the termination due to the distribution of all the Trust Assets as provided in
Section 5.5; provided, however, the Trustee, in its discretion, may extend the
existence of this Trust to such later date as it may designate, if it determines
that an extension is reasonably necessary to pay or make provision for then
known liabilities, actual or contingent, or dispose of assets, and provided
further, however, that the Trust shall not in any event terminate prior to the
date the Trustee is permitted to make a final distribution in accordance with
Section 5.5.
Other Obligations of Trustee upon Termination. Upon distribution of all the
Trust Assets, the Trustee shall provide for the retention of the books, records,
lists of holders of Units, certificates for Shares and Units and files which
shall have been delivered to or created by the Trustee. At the Trustee's
discretion, all of such records and documents may be destroyed at any time after
seven years from the distribution of all the Trust Assets. Except as otherwise
specifically provided herein, upon the distribution of all the Trust Assets, the
Trustee shall have no further duties or obligations hereunder.
ADMINISTRATION OF TRUST ASSETS
Transactions with Related Persons. Notwithstanding any other provisions of this
Agreement, but only to the extent that such transactions have not been
previously approved by the Stockholders as part of the Plan, the Trustee shall
not knowingly, directly or indirectly, sell or otherwise
A-11
transfer all or any part of the Trust Assets to, or contract with, (i) any
Trustee, employee or agent (acting in their individual capacities) of this Trust
or (ii) any Person of which any Trustee, employee or agent of this Trust is an
affiliate by reason of being a Trustee, director, officer, partner or direct or
indirect beneficial owner of 5 percent (5%) or more of the outstanding capital
stock, shares or other equity interest of such Persons. The Trustee is entitled
to rely in good faith on certificates of any Person with respect to his
interests in any transaction.
Restriction on Trust Assets. The Trust shall not receive transfers of any assets
prohibited by Revenue Procedure 82-58, as the same may be amended, supplemented
or modified including, but not limited to, any listed stocks or securities, any
readily-marketable assets, any operating assets of a going business, any
unlisted stock of a single issuer that represents 80 percent (80%) or more of
the stock of such issuer or any general or limited partnership interests.
Payment of Claims, Expenses and Liabilities. The Trustee shall pay from the
Trust Assets all claims, expenses, charges, liabilities, and obligations of the
Trust and all Liabilities and obligations which the Trustee specifically assumes
and agrees to pay pursuant to this Agreement and such transferee liabilities
which the Trustee may be obligated to pay as transferee of the Trust Assets,
including among the foregoing, and without limiting the generality of the
foregoing, interest, penalties, taxes, assessments, and public charges of every
kind and nature and the costs, charges, and expenses connected with or growing
out of the execution or administration of this Trust and such other payments and
disbursements as are provided in this Agreement or which may be determined to be
a proper charge against the Trust Assets by the Trustee.
Interim Distributions. At such times as may be determined by it, the Trustee
shall distribute, or cause to be distributed, to the Beneficiaries, in
proportion to the number of Units held by each Beneficiary, such cash or other
property comprising a portion of the Trust Assets as the Trustee may in its sole
discretion determine may be distributed without detriment to the conservation
and protection of the Trust Assets.
Final Distribution. If the Trustee determines that the Liabilities and all other
claims, expenses, charges, liabilities and obligations of the Trust have been
paid or discharged, the Trustee shall, as expeditiously as is consistent with
the conservation and protection of the Trust Assets, distribute the Trust Assets
to the Beneficiaries in proportion to the number of Units held by each
Beneficiary.
Reports to Beneficiaries and Others. As soon as practicable after the end of
each taxable year of the Trust and after termination of the Trust, the Trustee
shall submit a written report and account to the Beneficiaries showing (i) the
assets and liabilities of the Trust at the end of such taxable year or upon
termination and the receipts and disbursements of the Trustees for such taxable
year or period, prepared in accordance with generally accepted accounting
principles, (ii) any changes in the Trust Assets that they have not previously
reported, and (iii) any action taken by the Trustee in the performance of its
duties under this Agreement that it has not previously reported and which, in
its opinion, materially affects the Trust Assets. The Trustee may submit similar
reports for such interim periods during the taxable year as it deems advisable
or as may be required by the Securities and Exchange Commission. The taxable
year of the Trust shall end on December 31 of each year unless the Trustee deems
it advisable to establish some other date as the date on which the taxable year
of the Trust shall end. The Trustee shall file with the
A-12
Securities and Exchange Commission such reports as are required under applicable
Securities and Exchange Commission requirements including (i) the filing of the
annual report sent to Beneficiaries with the Securities and Exchange Commission
under the cover of a Form 10-K and (ii) the filing of a Form 8-K with the
Securities and Exchange Commission whenever an event occurs for which Form 8-K
is required to be filed for the Trust or, in the opinion of the Trustee, a
material event relating to the trust assets has occurred. The Trustees shall
provide a copy of any Form 8-K to the Beneficiaries.
Federal Income Tax Information. As soon as practicable after the close of each
taxable year, the Trustee shall mail to each Person who was a Beneficiary at the
close of the year, a statement showing on a unit basis the dates and amounts of
all distributions made by the Trustee, the Trust Assets disposed of by the
Trust, if any, income earned on Trust Assets, if any, and such other information
as is reasonably available to the Trustee which may be helpful in determining
the amount of gross income attributable to the Trust that such Beneficiary
should include in such Person's Federal income tax return for the preceding
year. In addition, after receipt of a request in good faith, or in its
discretion without such request or if required by applicable law, the Trustee
shall furnish to any Person who has been a Beneficiary at any time during the
preceding year a statement containing such further information as is reasonably
available to the Trustee that shall be helpful in determining the amount of
taxable income that such Person should include in such Person's Federal income
tax return.
POWERS OF AND LIMITATIONS ON THE TRUSTEE
Limitations on Trustee.
The Trustee shall not at any time, on behalf of the Trust or Beneficiaries,
enter into or engage in any trade or business, and no part of the Trust Assets
shall be used or disposed of by the Trustee in furtherance of any trade or
business. The Trustee shall be restricted to the holding and collection of the
Trust Assets and the payment and distribution thereof for the purposes set forth
in this Agreement and to the conservation and protection of the Trust Assets and
the administration thereof in accordance with the provisions of this Agreement.
In no event shall the Trustee take any action which would jeopardize the status
of the Trust as a "liquidating trust" for federal income tax purposes within the
meaning of Treasury Regulation Section 301.7701-4(d). This limitation shall
apply regardless of whether the conduct of any such trade or business is deemed
by the Trustee to be necessary or proper for the conservation and protection of
the Trust Assets. The Trustee shall not invest any of the funds held as Trust
Assets, except that the Trustees may invest any portion of the Trust Assets in
(i) direct obligations of the United States of America or obligations of any
agency or instrumentality thereof which mature not later than one year from the
date of acquisition thereof; (ii) money market deposit accounts, checking
accounts, savings accounts, or certificates of deposit, or other time deposit
accounts which mature not later than one year from the date of acquisition
thereof which are issued by a commercial bank or savings institution organized
under the laws of the United States of America or any state thereof; or (iii)
any other investments which may be determined by the Trustee to be permissible
under Revenue Procedure 82-58, as the same may be amended, supplemented or
modified.
A-13
Specific Powers of Trustee.
Subject to the provisions of Section 6.1, the Trustee shall have the following
specific powers in addition to any powers conferred upon it by any other Section
or provision of this Agreement or any statutory laws of the State of Delaware;
provided, however, that the enumeration of the following powers shall not be
considered in any way to limit or control the power of the Trustee to act as
specifically authorized by any other Section or provision of this Agreement and
to act in such a manner as the Trustee may deem necessary or appropriate to
conserve and protect the Trust Assets or to confer on the Beneficiaries the
benefits intended to be conferred upon them by this Agreement:
To determine the nature and amount of the consideration to be received with
respect to the sale or other disposition of, or the grant of interests in, the
Trust Assets.
To collect, liquidate or otherwise convert into cash, or such other property as
it deems appropriate, all property, assets and rights in the Trust Assets, and
to pay, discharge and satisfy all other claims, expenses, charges, Liabilities,
and obligations existing with respect to the Trust Assets, the Trust or the
Trustee.
To elect, appoint, engage, retain or employ any Persons as agents,
representatives, employees, or independent contractors (including without
limitation, investment advisors, accountants, transfer agents, attorneys-at-law,
managers, appraisers, brokers, or otherwise) in one or more capacities, and to
pay compensation from the Trust Assets for services in as many capacities as
such Person may be so elected, appointed, engaged, retained or employed, to
prescribe the titles, powers and duties, terms of service and other terms and
conditions of the election, appointment, engagement, retention or employment of
such Persons and, except as prohibited by law, to delegate any of the powers and
duties of the Trustee to any one or more agents, representatives, employees,
independent contractors or other Persons.
To retain and set aside such funds out of the Trust Assets as the Trustee shall
deem necessary or expedient to pay, or provide for the payment of (i) unpaid
claims, expenses, charges, Liabilities, and obligations of the Trust or
TransFinancial, (ii) contingencies, and (iii) the expenses of administering the
Trust Assets.
To do and perform any and all acts necessary or appropriate for the conservation
and protection of the Trust Assets, including acts or things necessary or
appropriate to maintain assets held by the Trustee pending sale or other
disposition thereof or distribution thereof to the Beneficiaries.
To hold legal title to property of the Trust in the name of the Trust, or in the
name of the Trustee, or of any other Person, without disclosure of the interest
of the Trust therein.
To cause any investments of any part of the Trust Assets to be registered and
held in the name of any nominee or nominees without increase or decrease of
liability with respect thereto.
To institute or defend actions or declaratory judgments or other actions,
arbitrations or mediations and to take such other action, in the name of the
Trust or TransFinancial or as otherwise required, as the Trustee may deem
necessary or desirable to enforce any instruments, contracts, agreements, causes
of action or rights relating to or forming a part of the Trust Assets.
A-14
To determine conclusively from time to time the value of and to revalue the
Trust Assets, in accordance with or in the absence of independent appraisals or
other information as it deems satisfactory.
To cancel, terminate, or amend any instruments, contracts, agreements,
obligations or causes of action relating to or forming a part of the Trust
Assets and to execute new instruments, contracts, agreements, obligations or
causes of action notwithstanding that the terms of any such instruments,
contracts, agreements, obligations or causes of action may extend beyond the
terms of this Trust, provided that no such new instrument, contract, agreement,
obligation or cause of action shall permit the Trustee to engage in any activity
prohibited by Section 6.1.
To vote by proxy or otherwise on behalf of the Beneficiaries and with full power
of substitution all shares of stock and all securities held by the Trustee
hereunder and to exercise every power, election, discretion, option and
subscription right and give every notice, make every demand, and to do every act
or thing in respect to any shares of stock or any securities held by the Trustee
which the Trustee might or could do if it were the absolute owner thereof.
To undertake or join in any merger, plan of reorganization, consolidation,
liquidation, dissolution, readjustment or other transaction of any corporation,
any of whose shares of stock or other securities, obligations, or properties may
at any time constitute a part of the Trust Assets, and to accept the substituted
shares of stock, bonds, securities, obligations and properties and to hold the
same in trust in accordance with the provisions hereof.
In connection with the sale or other disposition or distribution of any
securities held by the Trustee, to comply with the applicable Federal and state
securities laws, and to enter into agreements relating to sale or other
disposition or distribution thereof.
To authorize transactions between corporations or other entities whose
securities, or other interests therein (either in the nature of debt or equity)
are held by the Trustee as part of the Trust Assets.
To abandon any Trust Assets to the extent the Trustee concludes that the same
are without significant value, or that the continued retention thereof, with the
attendant costs of continued administration of the Trust, is not in the best
interest of the Beneficiaries.
To perform any act authorized, permitted, or required under any instrument,
contract, agreement, right, obligation or cause of action relating to or forming
a part of the Trust Assets whether in the nature of an approval, consent, demand
or notice thereunder or otherwise, unless such act would require the consent of
the Beneficiaries in accordance with the express provisions of this Agreement.
CONCERNING THE TRUSTEE,
BENEFICIARIES, EMPLOYEES AND AGENTS
Generally. The Trustee accepts and undertakes to discharge the trust created
by this Agreement, upon the terms and conditions thereof on behalf of the
Beneficiaries. The Trustee shall exercise such of the rights and powers
vested in it by this Agreement, and use the same degree of care and
A-15
skill in their exercise as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs. No provision of this Agreement
shall be construed to relieve the Trustee from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
No successor Trustee shall be in any way responsible for the acts or omissions
of any Trustee in office prior to the date on which he becomes a Trustee.
No Trustee shall be liable except for the performance of such duties and
obligations as are specifically set forth in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against any Trustee.
In the absence of bad faith on the part of the Trustee, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this Agreement; but in the case of
any such certificates or opinions that are specifically required to be furnished
to the Trustee by any provision hereof, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Agreement.
No Trustee shall be liable for any error of judgment made in good faith.
No Trustee shall be liable with respect to any action taken or omitted to be
taken by it in good faith in accordance with the direction of Beneficiaries
having an aggregate Beneficial Interest of more than 50 percent (50%) relating
to the time, method, and place of conducting any proceeding available to the
Trustee, or exercising any trust or power conferred upon the Trustee under this
Agreement.
Except as otherwise provided in Section 7.1:
The Trustee may rely and shall be protected in acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, or other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties.
The Trustee may consult with legal counsel, auditors or other experts to be
selected by it, and the advice or opinion of such counsel, auditors or other
experts shall be full and complete personal protection to Trustee, employees and
agents of the Trust in respect of any action taken or suffered by them in good
faith and in reliance on, or in accordance with, such advice or opinion.
Persons dealing with the Trustee shall look only to the Trust Assets to satisfy
any liability incurred by the Trustee to such Person in carrying out the terms
of this Trust, and the Trustee shall have no personal or individual obligation
to satisfy any such liability.
As far as practicable, the Trustee shall cause any written instrument creating
an obligation of the Trust to include a reference to this Agreement and to
provide that neither the Beneficiaries, the Trustee nor their agents shall be
liable thereunder and that the other parties to such instrument shall look
solely to the Trust Assets for the payment of any claim thereunder or the
performance thereof; provided, however, that the omission of such provision from
any such instrument shall
A-16
not render the Beneficiaries, Trustee, or their agents liable nor shall the
Trustee be liable to anyone for such omission.
Liability to Third Persons. No Beneficiary shall be subject to any personal
liability whatsoever, in tort, contract or otherwise, to any Person in
connection with the Trust Assets or the affairs of this Trust; and no Trustee,
employee or agent of this Trust shall be subject to any personal liability
whatsoever, in tort, contract or otherwise, to any Person in connection with the
Trust Assets or the affairs of this Trust, except for his own willful
misconduct, knowingly and intentionally committed in bad faith; and all such
other Persons shall look solely to the Trust Assets for satisfaction of claims
of any nature arising in connection with the affairs of this Trust. The Trustee
may maintain insurance for the protection of the Trust Assets, its
Beneficiaries, Trustee, employees and agents in such amount as the Trustee shall
deem adequate to cover all reasonably foreseeable loss or liability to the
extent available at reasonable rates.
Recitals. Any written instrument creating an obligation of this Trust shall be
conclusively taken to have been executed or done by Trustee, employee or agent
of this Trust only in the capacity as a Trustee under this Agreement or in the
capacity as an employee or agent of the Trust.
Indemnification. The Trustee and each employee of the Trust and each agent of
the Trust and the directors, officers, partners, employees, equity owners and
agents of such agent (each an "Indemnified Person" and collectively, the
"Indemnified Persons") shall be indemnified out of the Trust Assets against all
liabilities and expenses, including amounts paid in satisfaction of judgments,
in compromise or as fines and penalties, and counsel fees, reasonably incurred
by the Indemnified Persons in connection with the defense or disposition of any
action, suit or other proceeding by the Trust or any other Person, whether civil
or criminal, in which the Indemnified Person may be involved or with which the
Indemnified Person may be threatened (i) in the case of any Trustee or any
employee or agent of the Trust, while in office or thereafter, by reason of his
being or having been such a Trustee, employee or agent, and (ii) in the case of
any director, officer, partner, employee, equity owner or agent of any agent of
the Trust by reason of any such Person exercising or failing to exercise any
right or duty hereunder; provided, however, that the Indemnified Person shall
not be entitled to such indemnification in respect of any matter as to which the
Indemnified Person shall have been adjudicated to have acted in bad faith or
with willful misfeasance or negligence, or in reckless disregard of the
Indemnified Person's duties; and provided, further, however, that, as to any
matter disposed of by a compromise payment by such Indemnified Person pursuant
to a consent decree or otherwise, no indemnification either for said payment or
for any other expenses shall be provided unless the Trustee shall have received
a written opinion from independent counsel approved by the Trustee to the effect
that if the foregoing matters had been adjudicated, such Indemnified Person
would not have been reasonably found to have acted in bad faith or with willful
misfeasance, negligence, or in reckless disregard of the Indemnified Person's
duties. The rights accruing to any Indemnified Person under these provisions
shall not exclude any other right to which the Indemnified Person may be
lawfully entitled; provided, however, that no Indemnified Person may satisfy any
right of indemnity or reimbursement granted herein or to which the Indemnified
Person may be otherwise entitled except out of the Trust Assets, and no
Beneficiary shall be personally liable to any person with respect to any claim
for indemnity or reimbursement or otherwise. The Trustee may make advance
payments in connection with indemnification under this Section, provided that
the Indemnified Person shall have given a written undertaking to repay any
amount
A-17
advanced to the Indemnified Person and to reimburse the Trust in the event it is
subsequently determined that the Indemnified Person is not entitled to such
indemnification. The Trustee may purchase such insurance as it feels, in the
exercise of its discretion, adequately insures that each Indemnified Person
shall be indemnified against any such loss, liability or damage pursuant to this
Section. The rights accruing to any Indemnified Person by reason of the
foregoing shall not be deemed to exclude any other right to which he may legally
be entitled nor shall anything else contained herein restrict the right of the
Trustee to indemnify or reimburse such Indemnified Person in any proper case
even though not specifically provided for herein, nor shall anything contained
herein restrict the right of any such Indemnified Person to contribution under
applicable law.
Rights of Trustee, Employees, Independent Contractors and Agents To Own Units or
Other Property and To Engage in Other Business. Any Trustee, employee,
independent contractor or agent may acquire, own, hold and dispose of Units for
his individual account, and may exercise all rights thereof and thereunder to
the same extent and in the same manner as if he were not a Trustee, employee,
independent contractor or agent. Any Trustee, employee, independent contractor
or agent may, in his personal capacity or in a capacity of Trustee, officer,
director, Stockholder, partner, member, advisor, employee of any Person or
otherwise, have business interests and holdings similar to or in addition to
those relating to the Trust. Subject to the provisions of Article V hereof, any
Trustee, employee, independent contractor or agent of the Trust may be a
Trustee, officer, director, Stockholder, partner, member, advisor, employee or
independent contractor of, or otherwise have a direct or indirect interest in,
any Person who may be engaged to render advice or services to the Trust, and may
receive compensation from such Person. None of these activities shall be deemed
to conflict with his duties as Trustee, employee, independent contractor or
agent.
COMPENSATION OF TRUSTEE
Compensation. The Trustee shall be entitled to receive reasonable
compensation in consideration for services rendered in administering the
Trust.
Expenses. The Trustee shall be reimbursed from the Trust Assets for all
expenses reasonably incurred by it in the performance of its duties in
accordance with this Agreement.
TRUSTEE AND SUCCESSOR TRUSTEE
Number and Qualification of Trustees. Subject to the provisions of Section 9.3
relating to the period pending the appointment of a successor Trustee, there
shall be no fewer than one nor more than three Trustees of this Trust, each of
whom shall be a resident of the United States. Within the limits set forth in
this Section 9.1, the number of Trustees may be increased or decreased from time
to time by the Trustees.
Resignation and Removal. Any Trustee may resign and be discharged from the
Trust hereby created by giving written notice thereof to the remaining
Trustee or Trustees or, if none, to the Beneficiaries at their respective
addresses as they appear in the records of the Trustees. Such
A-18
resignation shall become effective on the day specified in such notice or upon
the appointment of such Trustee's successor and such successor's acceptance of
such appointment, whichever is earlier. Any Trustee may be removed at any time,
with or without cause, by Beneficiaries having an aggregate Beneficial Interest
of at least 50 percent (50%) of the total Beneficial Interest.
Appointment of Successor. Should at any time a Trustee resign or be removed,
die, become mentally incompetent or incapable of action (as determined by a
majority of the remaining Trustees in their sole discretion), or be adjudged a
bankrupt or insolvent, a vacancy shall be deemed to exist and a successor shall
be appointed by the remaining Trustees, or if none, by Beneficiaries having an
aggregate Beneficial Interest of at least 50% of the total Beneficial Interest,
or by the Chancery Court of New Castle County, Delaware.
Acceptance of Appointment by Successor Trustees. Any successor Trustee appointed
hereunder shall execute an instrument accepting such appointment hereunder and
shall deliver one counterpart thereof to each of the other Trustees and, in case
of a resignation, to the retiring Trustee. Thereupon such successor Trustee
shall, without any further act, become vested with all the estates, properties,
rights, powers, trusts and duties of his or its predecessor in the Trust
hereunder with like effect as if originally named therein; but the retiring
Trustee shall nevertheless, when requested in writing by the successor Trustee
or by the remaining Trustees, execute and deliver an instrument or instruments
conveying and transferring to such successor Trustee upon the trust herein
expressed, all the estates, properties, rights, powers and trusts of such
retiring Trustee, and shall duly assign, transfer and deliver to such successor
Trustee all property and money held by him hereunder.
Bonds. No bond shall be required of any original Trustee or any successor
Trustee hereunder.
CONCERNING THE BENEFICIARIES
Limitation on Suits by Beneficiaries. No Beneficiary shall have any right by
virtue of any provision of this Agreement to institute any action or proceeding
at law or in equity against any party other than the Trustee upon or under or
with respect to the Trust Assets or the agreements relating to or forming part
of the Trust Assets, and the Beneficiaries do hereby waive any such right,
unless Beneficiaries having an aggregate Beneficial Interest of at least 25
percent (25%) shall have made written request upon the Trustee to institute such
action or proceeding in its own name as Trustee hereunder and shall have offered
to the Trustee reasonable indemnity against the costs and expenses to be
incurred therein or thereby, and the Trustee for 30 days after its receipt of
such notice, request, and offer of indemnity shall have failed to institute any
such action or proceeding.
Requirement of Undertaking. The Trustee may request any court to require, and
any court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Agreement, or in any suit against the Trustee for any
action taken or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or
A-19
defenses made by such party litigant; provided, however, that the provisions of
this Section shall not apply to any suit or other proceeding by the Trustee.
Meetings. The Trustee may, and at the direction of Beneficiaries having
aggregate Beneficial Interest of at least a majority or greater percentage,
shall call a meeting of Beneficiaries for any lawful purpose.
AMENDMENTS
Consent of Beneficiaries. At the direction or with the consent of Beneficiaries
having an aggregate Beneficial Interest of at least a majority, or such greater
percentage as shall be specified in this Agreement for the taking of an action
by the Beneficiaries under the affected provision of this Agreement, of the
total Beneficial Interest, the Trustee shall promptly make and execute a
declaration amending this Agreement for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or amendments thereto; provided, however, that no such amendment shall permit
the Trustee to engage in any activity prohibited by Section 6.1 hereof or affect
the Beneficiaries' rights to receive their pro rata shares of the Trust Assets
at the time of distribution; and provided further, however, that no consent of
the Beneficiaries shall be required with respect to any amendment made solely
for the purpose of facilitating the transferability by Beneficiaries of Units so
long as such amendment has been approved by the Trustee, or making any other
addition, change or deletion to resolve any ambiguity or inconsistency herein or
that does not materially and adversely affect any Beneficiary's Beneficial
Interest.
Notice and Effect of Amendment. Promptly after the execution by the Trustee of
any such declaration of amendment, the Trustee shall give notice of the
substance of such amendment to the Beneficiaries or, in lieu thereof, the
Trustees may send a copy of the amendment to each Beneficiary. Upon the
execution of any such declaration of amendment by the Trustee, this Agreement
shall be deemed to be modified and amended in accordance therewith and the
respective rights, limitations of rights, obligations, duties, and immunities of
the Trustee and the Beneficiaries under this Agreement shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modification and amendments, and all the terms and conditions of any such
amendment shall be thereby deemed to be part of the terms and conditions of this
Agreement for any and all purposes.
MISCELLANEOUS PROVISIONS
Filing Documents. This Agreement shall be filed or recorded in such office or
offices as the Trustee may determine to be necessary or desirable. A copy of
this Agreement and all amendments thereof shall be maintained in the office of
the Trustee and shall be available at all times during regular business hours
for inspection by any Beneficiary or his duly authorized representative. The
Trustee shall file or record any amendment of this Agreement in the same places
where the original Agreement is filed or recorded. The Trustee shall file or
record any
A-20
instrument which relates to any change in the office of Trustee in the same
places where the original Agreement is filed or recorded.
Intention of Parties to Establish Trust. This Agreement is not intended to
create and shall not be interpreted as creating a corporation, association,
partnership, or joint venture of any kind for purposes of Federal income
taxation or for any other purpose.
Beneficiaries Have No Rights or Privileges as Stockholders of TransFinancial.
Except as expressly provided in this Agreement or under applicable law, the
Beneficiaries shall have no rights or privileges attributable to their former
status as Stockholders of TransFinancial.
Laws as to Construction. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware. The Trustee, and the
Beneficiaries (by their vote with respect to the Plan and/or their acceptance of
any distributions made to them pursuant to this Agreement), consent and agree
that this Agreement shall be governed by and construed in accordance with such
laws.
Severability. In the event any provision of this Agreement or the application
thereof to any Person or circumstances shall be finally determined by a court of
proper jurisdiction to be invalid or unenforceable to any extent, the remainder
of this Agreement, or the application of such provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each provision of this Agreement shall be
valid and enforced to the fullest extent permitted by law.
Notices. Any notice or other communication by the Trustee to any Beneficiary
shall be deemed to have been sufficiently given, for all purposes, if deposited,
postage prepaid, in a post office or letter box addressed to such Person at his
address as shown in the records of the Trust.
All notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally or sent by cable,
telegram, telecopier or telex to the parties at the following addresses or at
such other addresses as shall be specified by the parties by like notice:
If to the Trustee:
-----------------------------
Facsimile: ------------------
A-21
If to TransFinancial:
TransFinancial Holdings, Inc.
Facsimile: ------------------
with a copy to:
Morrison & Hecker L.L.P.
2600 Grand Avenue
Kansas City, MO 64108-4606
Attention: Kent E. Whittaker, Esquire
Facsimile: (816) 474-4208
Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be an original, but such counterparts shall together
constitute but one and the same instrument.
Binding.
The obligations of TransFinancial are not personally binding upon, nor shall
resort be had to the private property of, any of the directors, Stockholders,
officers, employees or agents of TransFinancial, but only the property of
TransFinancial shall be bound.
The obligations of the Trust are not personally binding upon, nor shall resort
be had to the private property of, any of the Trustees, Beneficiaries, employees
or agents of the Trust, but only the Trust Assets shall be bound.
A-22
IN WITNESS WHEREOF, TransFinancial has caused this Agreement to be
executed by its President and Chief Executive Officer, and the Trustee herein
has executed this Agreement, as Trustee and not as an individual, this ___ day
of ________, 2001.
TRANSFINANCIAL HOLDINGS, INC.
By:
------------------------------------
Trustee:
By:
------------------------------------
A-23
APPENDIX B
PURCHASE AGREEMENT
This Purchase Agreement ("Agreement") is dated November 6, 2001, by and
between, COMMERCIAL EQUITY GROUP, LTD., an Iowa corporation ("Buyer"), and TRANS
FINANCIAL HOLDINGS, INC., a Delaware corporation ("Seller").
W I T N E S S E T H:
WHEREAS, Seller owns all of the issued and outstanding shares of capital
stock of Universal Premium Acceptance Corporation, a Missouri corporation
("UPAC" or "Subsidiary") and UPAC of California, Inc., a California corporation
("UPAC Calif." or "Subsidiary" and UPAC and UPAC Calif., collectively the
"Subsidiaries"),
WHEREAS, UPAC does not currently own, however, UPAC shall acquire the
entire issued and outstanding capital stock of American Freight Systems, Inc.
prior to Closing ("American").
WHEREAS, Seller does not currently own, however, Seller shall acquire and
transfer to UPAC through a capital contribution and a warranty deed prior to
Closing the entire interest of the improved real estate located at 8245 Nieman
Road, Lenexa, Kansas ("Real Estate"), and
WHEREAS, Buyer wishes to acquire all of the issued and outstanding shares
of capital stock of the Subsidiaries (the "Shares") and the Real Estate and
Seller is willing to sell the same to Buyer, on the terms and provisions
hereinafter set forth:
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto, intending to be legally
bound, agree as follows:
1. Sale and Purchase.
Seller agrees to sell and cause to be transferred to Buyer at the Closing,
as hereinafter described in Section 2.1, and Buyer agrees to purchase at the
Closing, the Shares.
1.1 Purchase Price. Buyer shall pay Seller at the Closing, and upon
delivery of certificates representing the Shares duly endorsed and in proper
form for transfer, a purchase price equal to Seventeen Million Three Hundred
Thousand Dollars ($17,300,000.00).
1.2 Prepayments. Seller shall pay Buyer at Closing the sum of (a), (b),
(c), (d) and (e).
(a) the amount, if any, that the monthly rental rates at Closing for
the Real Estate are less than Two Hundred Fifty Thousand Dollars
($250,000.00) on an annualized basis; plus
B-1
(b) the amount, if any, that UPAC's and UPAC Calif.'s combined
Tangible Net Assets are less than Eight Million Dollars ($8,000,000.00) at
Closing. Tangible Net Assets is defined as Net Accounts Receivable, plus
Net Fixed Assets, less Notes Payable, less Accounts Payable, less Cash
Overdrafts, less Premiums Payable, less Commissions Payable, less Other
Accrued Expenses, all as recorded on Subsidiaries' books and records at
Closing. See attached Schedule 1.2 for a computation of combined Tangible
Net Assets at September 30, 2001. The amount of Tangible Net Assets at
Closing shall be determined using the same accounting methods, policies,
practices, principles and procedures, with consistent classifications,
judgments and valuation and estimation methods, as used by the
Subsidiaries' management in the preparation of the September 30, 2001
computation of Tangible Net Assets as reflected in Schedule 1.2. The
parties agree for convenience purposes only that the Tangible Net Assets
shall be preliminarily calculated using the financial statements as of the
end of the month prior to Closing, however, ultimately the financial
figures at Closing shall be controlling. Any capital contribution made to
UPAC and specifically relating to UPAC's acquisition of the Real Estate
shall not be used in the determination of the combined Tangible Net Asset
computation; plus
(c) the amount, if any, of the outstanding balance at Closing of
Subsidiaries' or APR's line of credit with DG Bank due to the draw in the
amount of Three Million Five Hundred Thousand Dollars ($3,500,000.00) on
August 27, 2001, which has not been repaid by Seller; plus
(d) forty percent (40%) of the amount, if any, that the Federal Net
Operating Loss carryforward that the Buyer may use as allowed under the
Internal Revenue Code rules and regulations, due to purchase of
Subsidiaries' stock is less than Three Million Nine Hundred Sixty Thousand
Dollars ($3,960,000.00) as reflected in Seller's 2001 Federal Corporate Tax
Return; plus
(e) any amount, not to exceed $500,000, that Buyer accepts and assumes
at Closing with respect to a liability of Seller to Kurt Huffman.
The sum of subsections (a) through (e) shall be treated as a prepayment
towards the Purchase Price at Closing.
2. Closing and Deliveries.
2.1 Closing. The Closing shall be at the offices of Hixson & Slater, 1360
121st Street, Suite A, Clive, Iowa 50325 at __10:00______ a.m., Central Time, on
such date as is specified by Buyer not less than 5 nor more than 30 days after
satisfying the last condition to the parties obligations hereunder, or on such
other date or at such other place or time as is agreed upon in writing by the
parties.
2.2 Deliveries. At the Closing, (a) Seller shall deliver to Buyer
certificates representing ownership of the Shares, duly endorsed and in proper
form for transfer, free and clear of all encumbrances; (b) Buyer shall deliver
to Seller the purchase price, less prepayments, by wire transfer; and (c) the
parties shall deliver such other documents as are required pursuant to this
Agreement to be then executed and delivered.
B-2
3. Representation and Warranties of Seller. Seller represents and warrants to
Buyer as follows:
3.1 Organization, Powers and Qualifications. Each Subsidiary and APR
(hereinafter defined) is duly organized, validly existing and in good standing
under the laws of its state of incorporation, has all requisite corporate power
and authority to own its properties and assets and carry on its business as now
conducted, and is qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which such qualification is necessary
because of the nature or extent of its operations or property owned, leased or
operated, unless the failure to so qualify would not have a material adverse
impact on its ability to own its assets and conduct its operations, all of which
jurisdictions are listed on Schedule 3.1. Neither Subsidiary owns any interest,
directly or indirectly, in any corporation, partnership, joint venture, limited
liability company, proprietorship, association, trust, or other business or
entity, except that UPAC owns, and at the Closing will own, all of the issued
and outstanding shares of capital stock of APR Funding Corporation, a Delaware
corporation ("APR") and American.
3.2 Capital Stock. (a) UPAC has authorized capital stock consisting of 750
shares of common stock, $100.00 par value, of which 400 shares are issued and
outstanding, non-assessable, and were not issued in violation of preemptive or
other statutory or contractual rights; (b) UPAC Calif. has authorized capital
stock consisting of 10,000 shares of common stock, $1.00 par value, of which
1,000 shares are issued and outstanding, non-assessable, and were not issued in
violation of preemptive or other statutory or contractual rights; (c) APR has
authorized capital stock consisting of 1,000 shares of common stock, $1.00 par
value, of which 1,000 shares are issued and outstanding, non-assessable, and
were not issued in violation of preemptive or other statutory or contractual
rights; (d) and American has authorized capital stock consisting of _50,000____
shares of common stock, _$100____ par value, of which _43,658____ shares are
issued and outstanding, non-assessable, and were not issued in violation of
preemptive or other statutory or contractual rights.
3.3 Stock Options, Warrants, Etc. Except as otherwise reflected in Schedule
3.3, Neither the Subsidiaries nor APR has outstanding any options, warrants,
calls, convertible securities, rights, agreements, or obligations to purchase,
redeem, issue, sell, distribute, dividend, or otherwise acquire or dispose of
any shares of its stock, and Seller has no contractual right or obligation to
sell, acquire or otherwise trade in any of the Shares.
3.4 Articles of Incorporation, By-Laws, Minute Books and Stock Books. The
Articles of Incorporation and all amendments thereto and the by-laws, as
amended, of the Subsidiaries, American and APR have been made available to Buyer
for its inspection and are true, correct and complete, and such Articles and
by-laws shall be the Articles and by-laws in effect at the Closing. The minute
books of the Subsidiaries, American and APR have been made available to Buyer
for its inspection and contain accurate minutes of all meetings and accurate
consents in lieu of meetings of the Board of Directors (and any committee
thereof) and of the stockholders of each thereof, and accurately reflect all
transactions referred to in such minutes and consents in lieu of meetings during
the periods reflected therein. Except as reflected in such minute books, there
are no minutes of meetings or consents in lieu of meetings of the Board of
Directors (or any committee thereof) or of the stockholders, except for minutes
or consents which may be missing but which would evidence actions that have been
consented to by the stockholders and directors and which reflect transactions
that are not material to the Subsidiaries.
B-3
The stock ledgers of the Subsidiaries, American and APR have been made available
to Buyer for its inspection and contain accurate records of all issuances and
transfers of record of the capital stock of such companies.
3.5 Authority, No Violation, Etc. Except for approval by the stockholders
of Seller of the transactions contemplated hereby, the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary action on the part of Seller,
and this Agreement is the valid and binding obligation of Seller, enforceable in
accordance with its terms (except as may be limited by general principles of
equity as to the enforcement of remedies or applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting creditors'
rights generally, now or hereafter in effect). Except as provided in Schedule
3.5, neither the execution and delivery by Seller of this Agreement nor the
consummation by it of the transactions contemplated hereby will cause a default
(or give rise to any right of termination, cancellation or acceleration) under
(a) any of the terms, conditions or provisions of any agreement, instrument or
obligation to which either it or either of the Subsidiaries or APR is a party,
or by which any of them or any of their respective properties or assets may be
bound, except for such conflict, breach or default as to which requisite waivers
or consents shall have been obtained prior to the Closing (all of which are
identified in Schedule 3.5); or (b) any statute, rule or regulation or any
judgment, order, writ, injunction or decree of any court, arbitrator, mediator,
administrative agency or governmental body.
3.6 Books and Records. The books and records of each Subsidiary and APR
have been kept and maintained in sufficient detail to permit the preparation of
periodic financial statements in accordance with generally accepted accounting
principles consistently applied.
3.7 Compliance with Laws, Regulations, and Codes. The Subsidiaries and APR
hold and are in compliance, in all material respects, with all permits,
certificates, licenses, and approvals required under all laws, rules, codes, and
regulations legally to conduct their business in the manner in which it is being
conducted. The Subsidiaries and APR have complied, in all materials respects,
with all statutes, rules, codes, regulations, and orders to which they are
subject, including without limitation those relating to environmental
protection, occupational safety and health, safety, and equal employment
practices. The property of the Subsidiaries and APR, including the Real Estate,
has not been engaged in the generation of or disposal of any waste or substance
which would be considered hazardous, toxic or polluting under any rules,
regulations, or laws to which Subsidiaries and APR are or have been subject.
Subsidiaries and APR have not been engaged in the disposal of any petroleum,
petroleum produce, crude oil, natural gas, or synthetic gas in a manner contrary
to any rules, regulations, or laws to which Subsidiaries and APR are or have
been subject. To Seller's knowledge or to the extent Seller should know, no
property, including the Real Estate which Subsidiaries and APR own or occupy or
have owned or occupied in the past has been used for the disposal of or had
spilled upon it any waste or substance which would be considered hazardous,
toxic, or polluting under any rules, regulations, or laws to which such property
is or has been subject nor has any property including the Real Estate which
Subsidiaries and APR own or occupy or any property which Subsidiaries and APR
have owned or occupied in the past been used for the disposal of or have spilled
upon it any petroleum, crude oil, natural gas, or synthetic gas in a manner
contrary to any rules, regulations, or laws to which such property is or has
been subject. No property, including the
B-4
Real Estate which Subsidiaries and APR own or occupy or have owned or occupied
in the past contains any underground storage tanks.
3.8 Financial Statements. Seller has delivered to Buyer true and complete
copies of the audited balance sheets and income statements of the Subsidiaries
as of and for the periods ended December 31, 1999 and December 31, 2000, the
unaudited balance sheets and income statements of the Subsidiaries as of and for
the nine months ended September 30, 2001. Such audited financial statements,
including the related notes, have been prepared in accordance with generally
accepted accounting principles consistently applied (except as described in the
associated notes) and fairly present the financial condition, results of
operations, and cash flows of the Subsidiaries and APR at the dates and for the
years indicated. With respect to the unaudited interim financial statement for
the nine-months ended September 30, 2001, such financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the financial condition and results of
operations at the date and for the period indicated in such financial
statements, subject to disclosure which would be contained in footnotes thereto.
3.9 Liabilities and Obligations. Except as described in Schedule 3.9,
neither the Subsidiaries nor APR has any liability or obligation in excess of
$10,000.00 (direct or indirect, contingent or fixed, matured or unmatured) of
any nature, whether arising out of contract, tort, statute or otherwise, except
liabilities and obligations in the amounts and categories reflected, reserved
against or given effect to in the September 30, 2001 unaudited interim financial
statements referred to in Section 3.8, and liabilities subsequently incurred in
the ordinary course of business consistent with past practice.
3.10 Absence of Adverse Changes or Events. Except as disclosed in Schedule
3.10, since December 31, 2000, the Subsidiaries and APR have been operated in
all material respects in the ordinary course of their businesses consistent with
past practice in prior periods and have not changed or altered their past
practices with respect to recording income and expenses.
3.11 Tax Reports. Except as disclosed in Schedule 3.11, (a) all federal,
state and local tax returns and reports originally due or required to be filed
on or before Closing by or for the Seller, Subsidiaries, APR and any affiliated
group member of any of the aforementioned companies (the "Tax Returns") have
been filed with, and the taxes thereon shown to be owing paid to, the
appropriate governmental agencies in all jurisdictions in which such Tax Returns
and reports are required to be filed and taxes paid, and all such Tax Returns
and reports correctly reflect the taxes of Seller, Subsidiaries, APR and any
affiliated group member of any of the aforementioned companies for the periods
covered thereby; (b) no notice of assessment or proposed assessment by the
Internal Revenue Service or any other taxing authority in connection with any
Tax Returns has been received; (c) there are no pending tax examinations of or
tax claims asserted against the Seller, Subsidiaries, APR or any affiliated
group member of any of the aforementioned companies or the properties or
operations of any thereof; (d) Seller, Subsidiaries, APR and any affiliated
group member of any of the aforementioned companies have not waived any statute
of limitations or agreed to any extensions of time with respect to any Tax
Returns; (e) Subsidiaries and APR are not liable to any affiliated group member
for any tax liability and that all tax payments due to Subsidiaries and APR from
any affiliated group member have been paid; (f) Subsidiaries and APR have
accurately recorded and reserved all tax liabilities for all tax periods ending
on or before Closing; (g) proper amounts have been withheld by
B-5
Subsidiaries and APR in full and complete compliance with income and withholding
taxes of applicable federal, state and local and foreign law and such
withholdings have been timely paid to the respective government authority; and
(h) Subsidiaries and APR have made all required estimated tax payments
sufficient to avoid underpayment penalties for all tax periods ending on or
before the Closing.
3.12 Dividends and Stock Purchases. Since December 31, 2000, neither
Subsidiaries, American nor APR has declared, set aside or made payment of any
dividend or other distribution in respect of any shares of its capital stock, or
repurchased, redeemed or otherwise acquired any shares of its capital stock.
3.13 Title to Assets. Except as disclosed in Schedule 3.13, each of the
Subsidiaries and APR has good and marketable title to all of its respective
properties and assets material to the operation of its business and reflected in
the September 30, 2001 unaudited interim financial statements and those acquired
by it thereafter, except properties and assets sold or otherwise disposed of in
the ordinary course of business consistent with past practice in prior periods,
free and clear of all mortgages, liens, pledges, charges or encumbrances or
other third party interests of any nature whatsoever, except (a) as reflected or
reserved for in such unaudited interim financial statements, and (b) the lien of
current taxes not yet due and payable, which taxes have been accurately reserved
on Subsidiaries' and APR's unaudited financial statements (collectively with the
items disclosed on Schedule 3.13 the "Permitted Liens"). At Closing, UPAC will
have good and merchantable title to the Real Estate free and clear of all
mortgages, liens, pledges, charges, encumbrances or security interests, except
easements, covenants and restrictions of record.
3.14 Licenses, Permits, Etc. Each of the Subsidiaries and APR has
maintained all licenses and permits (all of which are listed on Schedule 3.14)
necessary for the operation of its business as now conducted, except where the
failure to maintain such a license or permit would not have a material adverse
effect on its business or financial condition.
3.15 Contracts.
(a) All written contracts, agreements, leases, mortgages or
commitments, excluding (i) premium finance agreements and (ii) such as
involve payments of less than $10,000 on an annualized basis or such as are
terminable without penalty on 30 days or less written notice, to which
either of the Subsidiaries and APR is a party or may be bound or to which
its assets are subject are listed on Schedule 3.15 ("Contracts"). All
Contracts are valid, binding on and enforceable against the parties to them
(except as may be limited under bankruptcy, insolvency or similar laws
affecting creditors rights or general principles of equity), and in full
force and effect on the date hereof, and neither the Subsidiaries nor APR
has violated any provision of, or committed or failed to perform any act
which with notice, lapse of time or both would constitute a material
default under the provisions of any Contract. Copies of all Contracts
disclosed on Schedule 3.15 have been made available to Buyer for
inspection. Schedule 3.15 also separately identifies all Contracts
otherwise required to be listed thereon which require the consent or
approval of third parties to the execution and delivery of this Agreement
or to the consummation and performance of the transactions contemplated
hereby.
B-6
(b) Except as set forth in Schedule 3.15, all premium finance
agreements to which either of the Subsidiaries or APR is a party, and which
have balances due as of the date hereof or are entered into between the
date hereof and the Closing ("Current Premium Finance Agreements") are or
will be valid and binding upon and enforceable against the parties to them
(except as may be limited under bankruptcy, insolvency or similar laws
affecting creditors rights or general principles of equity), in full force
and effect, and in compliance with all applicable laws and regulations.
3.16 Collateral. With respect to each Current Premium Finance
Agreements, a Subsidiary has been validly authorized to cancel and recover
the unearned premium on one or more insurance policies.
3.17 Litigation. Except as disclosed in Schedule 3.17, (a) no claim,
action, suit, arbitration, investigation or other proceeding, whether civil
or criminal in nature, is pending, or to Seller's knowledge, threatened
against either Subsidiary, American or APR or any of the properties of any
thereof, or with respect to the transactions contemplated by this
Agreement, before any court, governmental agency, authority or commission,
arbitrator or mediator; and (b) there are no judgments, consent decrees,
injunctions, or any other judicial or administrative or other mandates
outstanding against and which might be expected to adversely affect any of
such companies or its assets, liabilities, income, financial condition,
results of operations or rights to conduct its business as presently
conducted.
3.18 Insurance. Schedule 3.18 lists all policies of insurance held by
or maintained on behalf of the Subsidiaries and APR. Copies of all such
insurance policies disclosed on Section 3.18 have been made available or
will be made available to Buyer for inspection. All such policies of
insurance are in full force and effect and will remain in full force and
effect through Closing. No notices of cancellation or non-renewal have been
received and all premiums to date have been paid in full. Seller has
furnished to Buyer a list of all unresolved claim notices which have been
given pursuant to such policies.
3.19 Overtime, Back Wages, Vacation, Discrimination, and Occupational
Safety Claims. Except as disclosed in Schedule 3.19 or as fully reserved in
the September 30, 2001 unaudited interim financial statements, there are no
outstanding or, to the best of Seller's knowledge, threatened claims
against either Subsidiary, American or APR (whether under federal or state
law, under any employment agreement or otherwise) asserted by any applicant
for employment, or present or former employee, on account of or for (a)
overtime pay, other than overtime pay for work done in the current payroll
period; (b) wages or salary for any persons other than the current payroll
period; (c) any amount of vacation pay or pay in lieu of vacation time off;
or (d) any material violation of any other term or condition of employment
or of any statute, ordinance or regulation relating to discrimination,
occupational safety, leave, condition of premises, disability or employment
practices.
3.20 Contracts for Personal Service. Except as set forth in Schedule
3.20, neither Subsidiary nor APR is a party to or bound by any contract,
agreement or undertaking with any person for or related to personal
services rendered or to be rendered by any person, none of such companies
has a policy that requires payment of severance pay, and the consummation
of the transactions contemplated by the parties hereto will not give rise
to or create a right to the payment of severance pay to any person.
B-7
3.21 Employee Welfare and Pension Benefit Plans.
(a) Plans. Attached hereto as Schedule 3.21 is a true and complete
list of all plans, funds and programs that are or within the three year
period preceding the date hereof have been maintained by either Subsidiary,
American or APR, or for which any of them contributes or is required to
contribute, which constitute "employee welfare benefit plans" or "employee
pension benefit plans" within the meaning of Section 3(1) and (2) of the
Employee Retirement Income Security Act ("ERISA"). Such plans, funds and
programs are hereinafter collectively referred to as the "Plans."
(b) Compliance with Internal Revenue Code and ERISA. With respect to
all such Plans, the company maintaining the same is now in material
compliance with, and has materially complied in the past, both as to form
and operation, with all applicable provisions of ERISA and of the Internal
Revenue Code, as amended (the "Code"), including sections of the Code
relating to coverage, where required in order to be tax qualified. All
necessary governmental approvals for such Plans have been obtained, or
applied for, and a favorable determination as to the qualification under
the Code of each employee pension benefit plan and each material amendment
thereto has been made by the Internal Revenue Service or a request for such
a determination has been filed with the Internal Revenue Service within the
remedial amendment period provided by Codess. 401(b) and regulatory
guidance thereunder.
(c) Administration. Each such Plan has been administered to date and
will be through Closing in material compliance with the requirements of the
Code and of ERISA, and all reports required by any governmental agency with
respect thereto have been timely filed.
(d) Claims. There is no litigation and there are no proceedings before
the U.S. Department of Labor, the Internal Revenue Service or any other
commission or administrative or regulatory authority pending against any
fiduciary of any such Plan relating to claims for benefits thereunder or
relating in any way to the maintenance or operation of such Plans; and, to
the knowledge of Seller, no such litigation or proceeding has been
threatened. There are no audits now being conducted of any such Plan by the
Department of Labor or Internal Revenue Service, and, to the knowledge of
Seller, none has been noticed.
(e) Prohibited Transactions. No fiduciary under any such Plan has
engaged in (A) any transactions in violation of Section 406 of ERISA for
which no exemption exists under Section 408 of ERISA, or (B) any prohibited
transactions, as that term is defined in Section 4975(c) of the Code, for
which no exemption exists under Section 4975(d) of the Code.
(f) Plan Documents. Seller has delivered to Buyer, with respect to
each of the Plans, correct and complete copies of (A) all current Plan
documents and amendments, trust agreements and insurance contracts, (B) the
most recent IRS determination letter, (C) the Annual Report (Form 5500
Series) and accompanying schedules, for each of the last three years as
filed, (D) the current summary plan description and summaries of material
modifications relating to each Plan, and (E) the most recent financial
statements.
B-8
(g) No Multi-Employer Plans and No Plans For Retirees. Except as set
forth in Schedule 3.21, neither Subsidiary, American nor APR is now or in
the preceding six (6) years has been obligated to contribute to a
multi-employer pension plan as defined in Section 37(A) of ERISA, and has
not incurred any liability on account of a "partial withdrawal" or a
"complete withdrawal" (within the meaning of Sections 4203 and 4205,
respectively, of ERISA) with respect to any multi-employer plan, and no
Plan provides medical or death benefits (whether or not insured) with
respect to current or former employees of any thereof beyond their
retirement or other termination of service (other than (A) coverage
mandated by law, or (B) death benefits under any Plan intended to qualify
under Section 401(a) of the Code).
(h) Contribution Paid. All accrued obligations, whether arising by
operation of law, by contract or by past custom, for payments to trusts or
other funds or to any governmental body, with respect to any Plan, have
been paid when due, or adequate assurance therefor have been provided on
the September 30, 2001 unaudited interim financial statements.
3.22 Commission Fees. In connection with the transactions contemplated by
this Agreement, no broker, finder or similar agent has been employed by or on
behalf of Seller, the Subsidiaries, American or APR, and no person with which
any of them has had dealings or communications of any kind is entitled to a
commission or other compensation for which either Subsidiary, American or APR
may be liable.
3.23 Disclosure. No representation or warranty herein, including the
Schedules hereto, nor any information contained in the financial statements
referenced in Section 3.8 hereof, or any certificate, statement, or other
document delivered by Seller hereunder, contains any untrue statement of
material fact or omits to state a material fact necessary in order to make the
statements contained therein or herein, in light of the circumstances under
which they were made, not misleading.
3.24 Trademarks and Similar Rights. Each of the Subsidiaries and APR owns
or is licensed or otherwise has the right to use all patents, trademarks,
service marks, trade names, copyrights, inventions, trade secrets, proprietary
processes and other intellectual property rights used by it in the ordinary
course of its business, including but not limited to, those listed on Schedule
3.24. No person or party has asserted or threatened to assert, any claim that
any of such intellectual property rights infringes any rights owned or held by
any other person, and there is no pending, or, to Seller's knowledge, threatened
claim or litigation contesting the right to use such.
3.25 Environmental. To Seller's knowledge, or to the extent Seller should
have known neither Subsidiary or APR has ever (a) owned any interest in real
property, or been the operator of any site containing, or transported any
hazardous materials in violation of any environmental law or regulation, or (b)
as an occupant or tenant of real property, handled or used any hazardous
material and no leak, spill, release, deposit, leach, migration, discharge,
emission or disposal of any hazardous materials has occurred on any real
property so occupied or leased in violation of any environmental law or
regulation.
B-9
3.26 Real Estate Leases. Seller shall not, nor shall it allow the
Subsidiaries or the current owner of the Real Estate, to enter into any lease
for any space at the Real Estate, for a period of less than five (5) years and a
gross rental rate of less than fourteen dollars ($14.00) per square foot,
without the Buyer's written approval.
3.27 Inter-Company Accounts. Schedule 3.27 lists all accounts,
arrangements, agreements and understandings between Seller or any of its
affiliates, on the one hand, and Subsidiaries, American or APR, on the other
hand. Except as set forth on Schedule 3.27 all inter-company accounts,
arrangements, agreements and understandings have been settled and recorded in
the ordinary course of business.
3.28 Reimbursement. If at Closing the amount due under Section 1.2 (a) -
(e) is mistakenly determined not to be due or is undeterminable, Seller shall
immediately pay the amounts listed in Section 1.2 (a) - (e) to Buyer if within
ten (10) days of receipt by Buyer of Seller's 2001 Federal Corporate Income Tax
Return such amounts are determined to be due. Seller shall provide a copy of
Seller's 2001 Federal Corporate Income Tax Return within fifteen (15) days of
filing.
3.29 Real Estate.
(a) Schedule 3.29 contains an accurate legal description of the Real
Estate, a copy of all leases relating to such Real Estate and a description
of all title insurance policies (if any); all structures on such property
and the equipment therein are in good operating condition, subject to
ordinary wear, tear, and obsolescence; and the construction, use, and
operation of the Real Estate conforms to all applicable safety,
environmental, zoning and other laws, ordinances, regulations, permits,
licenses and certificates and the present use of such Real Estate does not
violate any zoning ordinance (or if there exists any such violation, the
present use is a valid non-conforming use) or restrictive covenant and if
the Buyer continues to use such Real Estate in the same manner as it is
presently being used doing so will not violate any existing zoning
ordinance or restrictive covenant. The Real Estate does not violate any
building code, safety code, or dwelling code with respect to any building,
equipment, or other improvement located thereon. No condemnation, eminent
domain, litigation, or other proceeding is pending or threatened with
respect to such Real Estate. There is no unpaid charge, cost or expense for
improvements on or to the Real Estate that might give rise to a mechanic's,
materialman's, laborer's, artisan's, or other statutory lien. There is
access to such Real Estate from an existing public street, and there is
access from such Real Estate to utility services. As of the date of
execution of this Agreement, Seller has no knowledge or notice of any
existing facts or conditions that will result in the termination of the
present access from such Real Estate to utility services or from such Real
Estate to an existing public street and Seller has no notice or knowledge
of proposed, planned or commenced public improvements or other work that
may result in the loss of such access or utility services to such Real
Estate. The Real Estate is not located in a flood plain. There are no known
planned or formally commenced public improvements that may result in
special assessments with respect to such Real Estate.
(b) All leases of the Real Estate have been delivered to Buyer and
such leases are true and accurate and no amendment, other than those
delivered to Buyer, exist with
B-10
respect to such leases. All such leases are in full force and effect and
are not under any event of default. No rental fees have been paid in
advance, other than the current month, and there are no offsets or credits
against any rental fees.
3.30 Acquisition and Transfer of Real Estate. Seller shall acquire the
entire interest in the Real Estate and prior to Closing shall make a capital
contribution utilizing a warranty deed of the Real Estate, along with the
assignment of all leases concerning the Real Estate, to UPAC free and clear of
all mortgages, liens, pledges, charges, encumbrances or security interests,
except easements, covenants and restrictions of record.
3.31 Acquisition of American. UPAC shall acquire the entire issued and
outstanding capital stock of American prior to Closing free and clear of all
encumbrances.
3.32 Stockholder Approval. Seller shall use its best efforts, except as set
forth in Section 9(B), to obtain the approval of this Agreement and the
transactions contemplated hereby of the holders of a majority of the issued and
outstanding capital stock of Seller ("Stockholder Approval") as soon as legally
possible. This Agreement shall not be treated as a definitive written agreement
for purposes of the Note or Security Agreement until Stockholder Approval has
been obtained.
Seller shall draft and deliver for printing a proxy statement, which
includes a directors' recommendation for approval of this Purchase Agreement
within 2 business days of Seller's execution of this Agreement or within 2
business days of Seller obtaining approval to move forward from the Securities
and Exchange Commission, whichever is later. In addition, Seller shall mail or
deliver such proxy statement to its shareholders within 7 business days of
Seller's execution of this Agreement or within 7 business days of Seller
obtaining approval to move forward from the Securities and Exchange Commission,
whichever is later.
3.33 Assignment of Insurance Claims. Seller shall have assigned to UPAC the
Oxford Indemnification claim set out in Schedule 3.10 and such claim shall be
included in the purchase contemplated under this Agreement.
4. Representations and Warranties of Buyer. Buyer represents and warrants
to Seller as follows:
4.1 Organization, Powers and Qualifications. Buyer is duly organized,
validly existing and in good standing under the laws of the State of its
incorporation, has all requisite corporate power and authority to own its
properties and assets and carry on its business as now conducted.
4.2 Authority, No Violation, Etc. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on behalf of
Buyer, and this Agreement constitutes the valid and binding obligation of Buyer,
enforceable in accordance with its terms (except as may be limited by general
principles of equity to the enforcement of remedies or applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting creditors'
rights generally now or hereafter in effect). Neither the execution and delivery
by Buyer of this Agreement nor the consummation by it of the transactions
contemplated hereby (1) will violate,
B-11
cause a default (or give rise to any right of termination, cancellation or
acceleration) under or require any consent, approval, notice or filing pursuant
to (a) any of the terms, conditions or provisions of any agreement, instrument
or obligation to which Buyer is a party, or by which it or any of its properties
or assets may be bound, (b) the Certificate of Incorporation or Bylaws of Buyer,
or (c) any statute, rule or regulation or any judgment, order, writ, injunction
or decree of any court, arbitrator, mediator, administrative agency or
governmental body, in each case applicable to either Buyer or any of its
properties or assets, or (2) requires or is subject to the consent or approval
of, or notice to, any third party, including governmental bodies and agencies.
4.3 Commission Fees. In connection with this Agreement and the transactions
contemplated hereby, no broker, finder or similar agent has been employed by or
on behalf of Buyer, and no person with which Buyer has had any dealings or
communications of any kind is entitled to any brokerage commission, finder's fee
or any similar compensation for which Seller, either Subsidiary, American or APR
would be liable.
4.4 Disclosure. No representation or warranty herein, including the
schedules hereto prepared by Buyer, nor any information contained in any
certificate, statement, or other document delivered by Buyer hereunder, contains
any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements contained therein or herein, in light
of the circumstances under which they were made, not misleading.
4.5 Accreditation, Due Diligence and Sophistication Matters.
(a) Buyer has been or will be provided an opportunity to ask questions
of, and Buyer has received or will receive answers thereto from Seller and
its representatives regarding the terms and conditions of this Agreement
and other matters pertaining to this transaction. Buyer is investigating
and may become familiar with the affairs and financial condition of the
Subsidiaries, American and APR and has been or will be given access to and
has or will acquire information, including the Schedules to this Agreement
and all other information and documents as requested by Buyer, including
but not limited to financial information, corporate records, tax returns,
contracts, forms, leases and premium finance agreements and related
documents, about Subsidiaries.
(b) Buyer and its principals have such knowledge and experience in
financial affairs that it is capable of evaluating the merits and risks of
this transaction, and its financial situation is such that it can afford to
bear the economic risk of holding the Shares for an indefinite period of
time.
(c) Buyer is acquiring the Shares pursuant to this Agreement for its
own account and not with a view to or for sale in connection with any
distribution of all or any part of the Shares. Buyer acknowledges Seller's
understanding that the sale of the Shares hereunder is intended to be
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act").
(d) Buyer is an "Accredited Investor" within the definitions set forth
in Securities Act Rule 501(a).
B-12
5. Conduct of Business. Seller covenants that, from and after the date hereof
through the Closing, it will cause each Subsidiary and APR to conduct its
business as follows:
5.1 Business. Each Subsidiary and APR will conduct and operate its business
substantially in the ordinary course consistent with past practice so as to
protect and maintain such business and the goodwill it now enjoys; and will
preserve intact its present business organization, keep available the services
of its present officers and employees, and make good faith efforts to preserve
its relationships with customers and others having business dealings with them.
5.2 Adverse Changes. Neither Subsidiary, American nor APR will take or omit
to take any action which would cause any adverse change to occur in any material
respect in its business, assets, liabilities, income, financial conditions, or
results of operations, or waive any statute of limitations so as to expand any
tax or other liability.
5.3 Maintenance of Properties, Permits, Licenses, Etc. Each Subsidiary,
American and APR will maintain its properties, assets, licenses and permits,
used or useful in its business, in present or better repair, order, and
condition, except for reasonable wear and use and damage by fire and unavoidable
casualty (subject, however, to the provisions of Section 5.12).
5.4 Maintain Corporate Existence. Each Subsidiary, American and APR will
maintain its corporate existence in good standing in its state of incorporation
and its due qualifications in good standing in all jurisdictions in which it is
qualified to do business.
5.5 Capital Stock. Neither Subsidiary, American nor APR will make any
change in its authorized, issued or outstanding capital stock or other
securities or grant any options or other right to acquire, whether directly or
contingently, any of its capital stock or other securities.
5.6 Dividends. Neither Subsidiary will declare, set aside, or pay any
dividend or make any redemption, repurchase or other distribution in respect of
its capital stock and other securities.
5.7 Employment; Compensation; Benefits. Except as disclosed in Schedule 5.7
or as consented to in writing by Buyer, neither Subsidiary, American nor APR
will enter into any employment contract, increase the rate of compensation
payable or to become payable by it to any officer or any other employee, or
accrue or pay to any of its officers or employees any bonus, profit-sharing,
retirement pay, insurance, death benefit, fringe benefit or other compensation,
except that which shall have accrued in the ordinary course in connection with
increases in compensation of non-officer employees or the operation of the
existing employee benefit plans disclosed in Schedule 3.21, none of which shall
be terminated or canceled except as contemplated by this Agreement or as
approved by Buyer in writing.
5.8 Liabilities and Obligations. Neither Subsidiary, American nor APR will
incur or otherwise become liable for any liabilities or obligations (direct or
indirect, contingent or fixed, matured or unmatured) whether arising out of
contract, tort, statute or otherwise, including federal or state income tax
liabilities, except (a) liabilities and obligations which are in the ordinary
course of business consistent with past practice in prior periods and (b)
liabilities and obligations fully covered by insurance other than any retained
amounts. Neither Subsidiary,
B-13
American nor APR shall increase their liabilities under any line of credit or
financing arrangement for an amount other than funding premium finance
contracts, except accrued interest paid in accordance with the terms of such
arrangements.
5.9 Capital Expenditures. Neither Subsidiary, American nor APR will,
without the prior written approval of Buyer, enter into or make commitments of a
capital expenditure nature in excess of $25,000 in the aggregate.
5.10 Sale of Assets. Neither Subsidiary, American nor APR will sell or
dispose of any of its assets other than in the ordinary course consistent with
past practice in prior periods.
5.11 Leases; Contracts. Neither Subsidiary, American nor APR will enter
into any lease (except as permitted in Section 3.26) or do or permit any act or
omission to act by it which act or omission will cause a breach of or default by
it in any Contract.
5.12 Insurance. Subsidiaries, APR and Seller will maintain in full force
and effect all policies of insurance listed in Schedule 3.18. If any of the
assets or properties owned or used by Subsidiaries or APR are damaged or
destroyed by fire or other casualty, whether insured or uninsured, then, subject
to the rights, if any, of the lessors or mortgagees thereof, such Subsidiary or
APR will promptly proceed with the repair, restoration or replacement thereof
unless Buyer shall otherwise timely direct in writing.
5.13 Books and Records. Each Subsidiary, American and APR will maintain its
books and records in the manner in which they are presently maintained.
5.14 Compliance with the Laws and Regulations. Each Subsidiary, American
and APR will operate its business in compliance in all material respects with
all laws, rules and regulations applicable to it and to the conduct of its
business.
5.15 Encumbrances. Neither Subsidiary, American nor APR will mortgage,
pledge or otherwise subject to any lien, security interest, encumbrance or
charge of any nature any of its property or assets, or become committed so to
do, or permit or suffer any of such property or assets to become subject to any
mortgage, pledge, lien, security interest, encumbrance or charge of any nature,
except for liens for current taxes not yet due and payable, and pursuant to
existing financing with respect to premium finance agreements entered into
between the date hereof and the Closing.
5.16 Amendment to Articles of Incorporation and By-Laws. Neither
Subsidiary, American nor APR will amend its Articles of Incorporation or
By-Laws.
6. Covenants of Buyer and Seller. Buyer and Seller covenant and agree to
and with each other as follows:
6.1 Update of Information. Between the date hereof and the Closing, Seller
will promptly disclose to Buyer in writing, and Buyer will promptly disclose to
Seller in writing, information of which they have knowledge (i) concerning any
event that would render any of their respective representations or warranties
untrue if made as of the date of such event, (ii) which renders any information
set forth in the Schedules to be no longer correct in all material
B-14
respects or (iii) which is known to arise after the date hereof and which would
have been required to be included in the Schedules if such information had
existed on the date hereof.
6.2 Access to Business and Records. Between the date hereof and the
Closing, Buyer and its officers, employees, attorneys and accountants shall
during normal business hours, and on reasonable notice, have full reasonable
access to and the right to inspect and copy the books, records, contracts,
properties, and assets of the Subsidiaries, American and APR and to consult with
their officers, full-time employees, attorneys, accountants and agents;
provided, however, that such review of documents shall not disrupt normal
business operations.
6.3 Efforts to Consummate. Subject to the terms and provisions of this
Agreement, each of the parties shall use its best efforts to take or cause to be
taken all action and to do or cause to be done all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated hereby, including, without limitation, the
obtaining of all consents, authorizations, orders and approvals of any third
party, whether private or governmental, required or appropriate in connection
with such party's performance of such transactions, and each of the parties
hereto shall cooperate with the other in all of the foregoing.
6.4 Confidentiality. Buyer will keep secret and confidential all trade
secrets and confidential information heretofore or hereafter obtained by it
concerning Seller, the Subsidiaries, American and APR, and any affiliates of any
thereof, and further agrees that unless this Agreement is fully consummated, it
will at no time use for any purpose whatsoever or disclose to any person, firm
or corporation any such information.
6.5 Public Announcement. Prior to Closing, unless required by law, no party
hereto shall make any public announcement regarding the transaction contemplated
hereby without prior notice to, and the reasonable approval of, the other party
hereto. Buyer and Seller acknowledge that a press release will be required upon
executing this Agreement and a filing of a proxy statement with the Securities
Exchange Commission.
6.6 Income Tax Matters.
(a) Federal and State Income Tax Returns. Seller will, at its expense,
prepare and file all federal and state income tax returns required to be
filed by or on behalf of the Subsidiaries, American and APR, for all tax
periods (or portions thereof) ending on or prior to the Closing. Any taxes
(including interest and penalties) owing under, or adjustments to or
refunds of the taxes paid or determined under, such income tax returns for
tax periods ending on or prior to the Closing shall be the sole
responsibility of Seller, and shall be payable to Seller in the case of
refunds. Any taxes on the income of the Subsidiaries, American and APR
(including interest and penalties) owing for periods commencing on or after
the Closing shall be the sole responsibility of Buyer.
6.7 Audits. Seller shall have sole responsibility for and control over the
conduct and/or payment of any resolution of any tax audit or examination, or any
other tax-related proceeding, pertaining to Subsidiaries, American or APR for
any tax period (or portion thereof) ending on or prior to the Closing, including
the preparation and filing or execution of any tax agreement or amended tax
return for such tax period (or portion thereof); however, Seller shall
B-15
not resolve any such audit, examination or proceeding in such a manner as to
reduce the Federal Net Operating Loss carryforward that the Buyer may use as
allowed under the Internal Revenue Code rules and regulations due to purchase of
Subsidiaries' stock to less than Three Million Nine Hundred Sixty Thousand
Dollars ($3,960,000.00) as reflected in Seller's 2001 Federal Corporate Tax
Return or otherwise affect the tax liability of the Buyer for taxable periods
after Closing without the prior written consent of Buyer, which shall not be
unreasonably withheld. In the event of any amended tax return, tax audit,
examination or proceeding with respect to a tax period (or portion thereof)
ending on or prior to the Closing, Buyer shall cause Subsidiaries, American and
APR to cooperate with Seller and shall provide Seller with any documents or
other information reasonably requested by it in connection therewith.
6.8 Access to Records Post Closing. Buyer shall provide all reasonably
necessary access and provide copies of business records or documents of
Subsidiaries, American or APR to Seller, at the cost and expense of Seller, for
any reasonably necessary business or regulatory need post closing.
6.9 IRC ss. 338(h)(10) Election. If Buyer determines that, in its sole
discretion, it would be beneficial for it to treat the sale pursuant to this
Agreement as a purchase of assets and making the corresponding tax election,
then Seller agrees to comply and it is the parties' intent that the purchase
pursuant to this Agreement be treated as a purchase and sale of the assets of
the Subsidiaries, American and APR for federal income tax purposes, and the
parties shall, in cooperation with each other, prepare a form of election under
IRC Section 338(h)(10) to treat it for federal income tax purposes as if all the
assets of the Subsidiaries, American and APR have been sold to Buyer. Seller and
Buyer will comply with the IRC Section 338(h)(10) reporting requirements and
will take all such other actions as are reasonably necessary to effect such
election. For purposes of the IRC Section 338(h)(10) election, the parties agree
that the Purchase Price shall be allocated among the assets of the Subsidiaries,
American and APR in substantially the manner as set forth in Schedule 6.9.
7. Conditions to Obligations of Buyer to Consummate Acquisition. The obligations
of Buyer to consummate the transactions provided for in this Agreement shall be
subject to satisfaction, on or before the Closing, of the following conditions:
7.1 Representations and Warranties True at Closing. All representations and
warranties of Seller shall be true on and as of the Closing as though such
representations and warranties were made at and as of such date, except as
otherwise expressly stated herein.
7.2 Opinion of Counsel. Buyer shall have received an opinion of counsel for
Seller, reasonably satisfactory to Buyer and its Counsel. In addition, Buyer
shall have received an opinion regarding the Real Estate from Seller's counsel
reasonably satisfactory to Buyer.
7.3 Resignations. Seller shall have delivered signed resignations of the
officers and directors of each Subsidiary and APR, as specifically requested in
writing by Buyer prior to closing. The effectiveness of such resignations shall
be subject to the acceptance of Buyer which, in its sole discretion, shall
determine whether to accept any such resignations.
7.4 Third Party Approvals. Buyer shall have received evidence that
approvals have been received from all third parties whose approval or consent is
required to consummate the
B-16
transactions contemplated by this Agreement. Such approvals shall include an
approval by DG Bank without adjustment to any of the terms or conditions of the
current financing.
7.5 Performance of Covenants. Seller shall have materially performed each
and every obligation to be performed by it hereunder at or before the Closing.
7.6 Deliveries. All deliveries required to be made under this Agreement to
Buyer on or before the Closing shall have been received.
7.7 No Action. No action, suit or proceeding shall have been commenced, and
no investigation by any governmental or regulatory authority shall have been
commenced, seeking to restrain, prevent or change the transactions contemplated
hereby or seeking judgments against Buyer, either Subsidiary, American or APR in
respect to the transactions contemplated hereby.
7.8 Release of Credit Liability. Buyer shall have received evidence of the
full release of all prospective liability and agreements with Subsidiaries',
American and APR's lenders or creditors as set forth in Schedule 7.8.
7.9 Inter-Company Accounts. All inter-company accounts, arrangements,
agreements and understandings between Seller or any of its affiliates, on the
one hand, and either Subsidiary, American or APR, on the other hand, shall be
settled as provided in Schedule 7.9 hereto.
7.10 Information Disclosed to PFS. Within 48 hours of execution of this
Agreement, Seller shall retrieve from Premium Finance Specialists and PFS
Holding Company (collectively "PFS") any and all information disclosed to PFS
within the last 60 days and relating, in any way, to the Subsidiaries, APR
Funding Corporation, American or the Real Estate. In addition, Seller shall
provide to Buyer, prior to closing, written assurance from PFS to Seller that
all such information has been returned to Buyer and that no information has been
retained or copied in any format.
7.11 Confidentiality Agreement of PFS. Seller shall assign to Buyer, at
time of closing, Seller's rights to enforce the terms of the Confidentiality
Agreement entered into between Seller and PFS and related to PFS's due diligence
investigation of the Subsidiaries and APR Funding Corporation.
8. Conditions to Obligation of Seller to Consummate Acquisition. The obligation
of Seller to consummate this transaction shall be subject to satisfaction, on or
prior to the Closing, of the following conditions:
8.1 Representations and Warranties True at Closing. The representations and
warranties of Buyer shall be true on and as of the Closing, as though such
representations and warranties were made at and as of such date, except as is
otherwise expressly contemplated herein.
8.2 Opinion of Counsel. Seller shall have received an opinion of counsel
for Buyer, reasonably satisfactory to Seller and its counsel.
8.3 Performance of Covenants. Buyer shall have materially performed each
and every obligation to be performed by it hereunder at or before the Closing.
B-17
8.4 Release of Credit Liability. Seller shall have obtained documents
necessary to evidence a full release of all prospective liability and agreements
with Subsidiaries', American's and APR's lenders and creditors as set forth in
Schedule 8.4.
8.5 Third Party Approvals. Seller shall have received evidence that
approvals have been received from all third parties whose approval or consent is
required to consummate the transactions contemplated by this Agreement.
8.6 Deliveries. All deliveries required to be made under this Agreement to
Seller on or before the Closing shall have been received.
8.7 No Action. No action, suit or proceeding shall have been commenced, and
no investigation by any governmental or regulatory authority shall have been
commenced, seeking to restrain, prevent or change the transactions contemplated
hereby or seeking judgments against Seller or its officers and directors in
respect to the transactions contemplated hereby.
8.8 Inter-Company Accounts. All inter-company accounts between Seller or
any of its affiliates and either Subsidiary, American or APR shall be settled to
the satisfaction of Seller.
8.9 Stockholder Approval. This Agreement and the transactions contemplated
hereby shall have received Stockholder Approval.
In the event Seller does not consummate this transaction because of failing
to obtain Stockholder Approval of this Agreement, Seller shall, promptly after
consummating a sale to a third party of all or substantially all of the property
and assets to be sold hereunder, or within 60 days of Shareholder approval of
such sale which ever is earlier, pay Buyer the termination fee provided in the
Note of August 24, 2001, plus $300,000. Any fee paid under this provision shall
be a credit against any fee due under Section 9.
9. Acquisition Proposals. From and after the date hereof, the Seller will not,
and will not authorize or permit any of its officers, directors, employees or
agents (its "Representatives"), directly or indirectly, to solicit, initiate or
knowingly encourage the making of any proposal which constitutes or may
reasonably be expected to lead to an Acquisition Proposal (as defined below)
from any person, or engage in any discussion or negotiations relating thereto or
accept any Acquisition Proposal; provided, however, that notwithstanding any
other provision hereof: (a) the Seller may at any time prior to the receipt of
Stockholder Approval, engage in discussions or negotiations with a third party
who (without any solicitation, initial or encouragement) seeks to initiate such
discussions or negotiations and may furnish such third party information
concerning the Seller, the Subsidiaries, American and APR and the business,
properties and assets thereof, if, and only to the extent that (A) the third
party has first made an Acquisition Proposal that is more favorable to the
Seller and its stockholders than the transactions contemplated by this Agreement
and has demonstrated that financing for the Acquisition Proposal is reasonably
likely to be obtained, and (B) the Seller shall conclude in good faith, after
considering applicable provisions of state law, on the basis of oral or written
advice of outside counsel (who may be the Seller's regularly engaged counsel)
that such action is necessary for the Seller to act in a manner consistent with
its fiduciary duties under applicable law. In such event, Seller may withdraw or
modify its recommendation to its stockholders that this Agreement, and the
transactions contemplated hereby, be approved, and may terminate this Agreement
and such
B-18
actions shall not constitute a breach of this Agreement by the Seller. Seller
will not enter into any sale of stock of any Subsidiaries with any third party
without complying with the right of first refusal provisions of the Secured
Promissory Note dated August 24, 2001 of Seller to Buyer, to the extent
applicable to such sale. As used herein, "Acquisition Proposal" means any
proposal or offer to acquire, directly or indirectly, in one transaction or a
series of related transactions, the outstanding Shares and the Real Estate or
all of the material assets of Subsidiaries, American and APR, including the Real
Estate (whether by purchase, merger, consolidation, share exchange, business
combination or other similar transaction).
Seller Agrees, after expiration of the time provided in Section 10(c)
hereof without exercise by Buyer of its rights thereunder, or earlier waiver of
Buyer's said rights, to immediately terminate its Purchase Agreement of October
22, 2001, with PFS Holding Company.
If this Agreement is terminated by Seller for any reason, except for breach
by the Buyer, Seller shall promptly after consummating a sale to a third party
of all or substantially all of the Shares, property and assets to be sold
hereunder, or within (60) days of stockholder approval of the third party
agreement, which ever is earlier, pay to Buyer the termination fee provided in
the Note of August 24, 2001, plus $300,000. Any fee paid under this provision
shall be a credit against any fee due under Section 8.9.
10. Termination. On or prior to Closing or as set forth in (c):
(a) Seller, by written notice to Buyer, may terminate this Agreement
in the event that any of the conditions precedent contained in Section 8
hereof to the performance of Seller's obligations which are to be performed
or fulfilled at or prior to such date shall not have been fulfilled prior
to and cannot be fulfilled concurrent with the Closing and shall not have
been waived, which termination shall not prejudice any claim for damages or
other relief which Seller may have at law or in equity against Buyer; and
(b) Buyer, by written notice to Seller, may terminate this Agreement
in the event that any of the conditions precedent contained in Section 7
hereof to the performance of Buyer's obligations which are to be performed
or fulfilled at or prior to such date shall not have been fulfilled prior
to and cannot be fulfilled concurrent with the Closing and shall not have
been waived, which termination shall not prejudice any claim for damages or
other relief which Buyer may have at law or in equity against Seller.
(c) Buyer shall have the right, in its sole discretion, to terminate
this Agreement, without any liability, within five (5) days after the date
of this Agreement.
(d) Either party may terminate this Agreement if without fault of such
party the transactions contemplated herein do not close on or before June
1, 2002.
(e) If this Agreement is terminated or becomes null and void for any
reason, such termination shall not affect the Note or Security Agreement
and shall not affect a party's right to pursue all legal remedies with
respect to any breach by the other party of any covenant contained herein.
B-19
11. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of such counterparts together
shall be deemed to be one and the same instrument. It shall not be necessary in
making proof of this Agreement or any counterpart hereof to produce or account
for any of the other counterparts.
12. Contents of Agreement, Parties in Interest, Assignment, Etc. This Agreement
and the Schedules which are attached hereto and are incorporated herein,
together with the Note dated August 24, 2001, the Security Agreement dated
August 24, 2001 and the Confidentiality Agreement signed by Dave Kutscher on
February 23, 2001, collectively, set forth the entire understanding of the
parties with respect to the subject matter hereof. Any previous agreements or
understandings between the parties regarding the subject matter hereof are
merged into and superseded by those documents. This Agreement may not be
assigned without the written consent of the parties; however, Buyer may assign
its rights under this Agreement or any portion thereof to any affiliate or
wholly-owned subsidiary of Buyer without the prior written consent of the
Seller, provided that Buyer remains liable for the performance of Buyer's
obligations hereunder. All representations, warranties, covenants, terms and
conditions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and permitted assigns of the
parties hereto. Nothing herein expressed or implied is intended or shall be
construed to confer upon or to give any person, other than the parties and their
respective successors and permitted assigns, any rights or remedies under or by
reason of this Agreement.
13. Indemnification.
13.1 General Indemnification. Subject to the terms and conditions
hereinafter set forth, Buyer shall be indemnified by Seller from and against any
and all damages, losses, liabilities and expenses resulting from (a) any
inaccuracy in or breach or non-fulfillment of any representation, warranty,
obligation, covenant, or agreement made or undertaken in or under this Agreement
by Seller; (b) any third party claims arising from or as the result of any
inaccuracy in or breach or non-fulfillment of any of the foregoing; and (c) all
costs and expenses (including, without limitation, reasonable attorneys' fees)
incident to items (a) or (b) of this sentence. Subject to the terms and
conditions hereinafter set forth, Seller shall be indemnified by Buyer from and
against any and all damages, losses, liabilities and expenses resulting from (a)
any inaccuracy in or breach or non-fulfillment of any representation, warranty,
obligation, covenant or agreement made or undertaken in or under this Agreement
by Buyer; (b) any third party claims arising from or as the result of any
inaccuracy in or breach or non-fulfillment of any of the foregoing; (c) all
costs and expenses (including, without limitation, reasonable attorneys' fees)
incident to items (a), or (b) of this sentence.
13.2 Claims Procedure. Claims for indemnification hereunder shall be made
as follows:
(a) Third Party Claims. In the event that any claim or demand for
which any party hereto would be entitled to indemnification under Section
13.1 is asserted or sought to be collected by a third party, the party
seeking indemnity shall give a Claim Notice (as described in Section 13.3
hereof) to the party or parties from whom indemnity is sought. The party
from whom indemnity is sought shall have thirty (30) days from the date of
delivery of the Claim Notice (the "Notice Period") to notify the party
seeking indemnity
B-20
whether or not the right to indemnity for such claim is disputed and, if
disputed, the reasons therefor.
(1) If the right to indemnity is not disputed by the party from
whom indemnity is sought, such party shall assume the control and
defense and/or settlement of such claim or demand, and the amount of
any settlement or judgment and the costs and expenses of such defense
shall be paid by such party. If the party seeking indemnity shall
desire to participate in any such defense, such party may do so at its
sole cost and expense, in which event no settlement of any claim or
demand which would adversely affect the rights of the party seeking
indemnity may be made without the written consent of such party, which
consent may not be unreasonably withheld. If, however, the party
seeking indemnification refuses to consent to a firm, bona fide
settlement offer not involving injunctive relief against it that the
party from whom indemnification is sought wishes to accept, the party
to be indemnified may continue to pursue such matter, free of any
participation by the party making the indemnification, at the sole
expense of the party seeking indemnification. In such event, the
obligations of the party from whom indemnification is sought to the
party seeking indemnification shall be equal to the amount of such
offer of settlement that was refused. The party seeking indemnity
shall be kept fully informed of the status of any such claim or demand
at all stages thereof, regardless of whether or not it participates in
any such defense.
(2) If the right to indemnity is disputed by the party from whom
indemnity is sought or if such party shall fail to respond within the
Notice Period, the party seeking indemnity shall have the right to
control the defense and/or settlement of such claim or demand, and the
amount of any settlement or judgment may be the subject of a claim for
indemnification under Section 13.2 (b) hereof. Nothing herein
contained shall prohibit or limit the right of the party seeking
indemnity hereunder to pursue such legal remedies as may be available
to it to enforce such right of indemnity prior to or after the
resolution of the third party's claim or demand.
(3) The party seeking indemnity shall make available to the party
from whom indemnity is sought and their attorneys and accountants all
books and records of the party seeking indemnity relating to any such
claim or demand and the parties agree to render each other such
assistance as they may reasonably require in order to ensure the
proper and adequate defense of any such claim or demand.
(b) Non-Third Party and Other Claims. In the event of a claim or
demand for which any party hereto would be entitled to indemnification
under this Section 13 which does not involve a claim or demand being
asserted or sought to be collected by a third party, the party seeking
indemnity shall give a Claim Notice, or in the case of claims or demands
which have proceeded in the manner described in Section 13.2 (a)(2), a
second Claim Notice, with respect to such claim or demand to the party from
whom indemnity is sought. Unless disputed by the party from whom indemnity
is sought by written notice within thirty (30) days of receipt of the Claim
Notice to the party seeking indemnity
B-21
stating the reasons therefor, each claim under this Section shall be paid
within forty-five (45) days after the date of receipt of the Claim Notice
therefor. If any claim under this Section shall not be paid within such
forty-five (45) day period, or if the party from whom indemnity is sought
disputes such claim by written notice within such thirty (30) day period,
stating the reasons therefor, the party seeking indemnity shall have the
right to commence legal proceedings for the enforcement of its rights
hereunder, and shall be entitled to recover interest thereon at the rate of
ten percent (10%) per year. Interest shall be calculated from 45 days after
the party providing indemnification received the Claim Notice.
13.3 Timing and Content of Claim Notice. Each Claim Notice shall be given
by the party seeking indemnity as promptly as practicable after such party
becomes aware of the claim or demand and the facts indicating that a claim for
indemnification in respect of the same may be warranted. Each Claim Notice shall
specify the nature of the claim or demand, the applicable provision(s) of this
Agreement or other instrument under which the claim for indemnity arises and the
amount or the estimated amount thereof.
13.4 Expiration of Indemnity Claims; Exclusivity of Remedy. All claims
described in Section 13.1 made against either party must be asserted in writing
by the other party not later than ten (10) days of receipt by Buyer of Seller's
2001 Federal Corporate Income Tax Return, as provided for in section 3.28. This
Section 13 is intended by the parties to provide an exclusive post-Closing
remedy for any misrepresentation, breach of warranty, covenant, or agreement
made or undertaken in or under this Agreement regardless of whether such claim
is stated in contract, tort, as a violation of or pursuant to any federal or
state statute, rule or regulation or in equity, except for claims based on (a)
any intentional and material misrepresentation or breach of warranty by a party
or (b) a willful and material breach by a party of any covenant contained
herein.
14. Notices. Any notices or other communications required or permitted hereunder
shall be deemed to have been given three business days after sent by certified
or registered mail, postage prepaid, addressed (or one business day after being
faxed or sent by one-day express mail) as follows:
If to Seller, to: Trans Financial Holdings, Inc.
Attention: Bill Cox
8245 Nieman Road, Suite 100
Lenexa, KS 66214
Facsimile: (913) 859-0011
With a copy to: Kent E. Whittaker, Esq.
Morrison & Hecker L.L.P.
2600 Grand Avenue
Kansas City, MO 64108-4606
Facsimile: 816-474-4208
B-22
And if to Buyer: Commercial Equity Group, Ltd.
Attention: David Kutscher
1454 30th, Suite 203
West Des Moines, Iowa 50266
With a copy to: J. Russell Hixson, Esq.
Hixson & Slater Law Firm, P.C.
1360 121st, Suite A
Clive, Iowa 50325
or to such other persons and addresses as have been furnished by either party to
the other in writing. No notice, waiver, consent or approval required or
permitted hereunder shall be deemed effective unless given in writing.
15. Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Iowa without reference or regard to the
conflicts of laws and rules of said state. Seller submits, consents and agrees
to the jurisdiction of the Iowa District Court for Polk County where any action
at law or equity regarding this Agreement shall be brought by either party.
16. Headings. The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
17. Expenses. Each of the parties to this Agreement shall pay all of its
expenses incurred in connection with this Agreement and the transactions
contemplated hereby, whether or not such transactions are consummated, including
without limitation the expenses of lawyers, accountants, investment bankers,
appraisers, and other advisors.
18. Attorneys' Fees. If any legal action, arbitration proceeding or similar
proceeding is brought for the enforcement of interpretation of this Agreement or
any of its provisions, the successful or prevailing party or parties shall be
entitled to recover reasonable attorneys' fees in addition to any other relief
which may be granted.
19. Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by the Parties
hereto. No waiver by any Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior to subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
20. Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
21. Construction. The Parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arising, this
B-23
Agreement shall be construed as if drafted jointly by the Parties and no
presumption or burden of proof shall arise favoring or disfavoring any Party by
virtue of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. The word "Including" shall mean including
without limitation.
IN WITNESS WHEREOF, this Agreement has been executed on the day and year
first above written.
TRANS FINANCIAL HOLDINGS, INC.
ATTEST: By:
-------------------------------------------------
Title:
----------------------------------------------
- -----------------------
Secretary
COMMERCIAL EQUITY GROUP, LTD.
ATTEST: By:
-------------------------------------------------
Title:
----------------------------------------------
- ------------------------
Secretary
B-24
APPENDIX C
TransFinancial Holdings, Inc.
Audit Committee Charter
Organization
- ------------
The Committee shall consist of at least three Directors including a Chairperson.
The Committee shall include only independent Directors as defined by the
relevant listing authority. Each member of the Committee shall be financially
literate or must become financially literate within a reasonable period of time
after his or her appointment to the Committee, and at least one member of the
Committee must have accounting or related financial management expertise as the
foregoing qualifications are interpreted by the Board of Directors ("Board") in
its business judgment.
Statement of Policy
- -------------------
The Committee shall, through regular or special meetings with management and the
Company's independent auditor, provide oversight on matters relating to
accounting, financial reporting, internal control, auditing, and regulatory
compliance activities and other matters as the Board or the Committee
Chairperson deems appropriate.
Responsibilities
- ----------------
The Committee shall recommend to the Board the appointment of the Company's
independent auditor and shall review the activities and independence of the
independent auditor. This includes communicating to the independent auditor that
he or she is ultimately accountable to the Board and the Committee. The
Committee and the Board have the ultimate authority and responsibility to
select, evaluate and, where appropriate, replace the independent auditor. The
Committee shall: (1) ensure that the independent auditor provides annually to
the Committee a formal written statement delineating all relationships between
the independent auditor and the Company, (2) actively engage in a dialogue with
the independent auditor with respect to any disclosed relationships or services
that may impact the objectivity and independence of the independent auditor, and
(3) recommend that the Board take appropriate action in response to the
independent auditor's report to satisfy itself of the independent auditor's
independence.
The Committee shall have separate direct lines of communication between itself
and the independent auditor, and, with regard to litigation and legal and
regulatory compliance, the General Counsel.
The Committee shall review:
1. Annual audit plans of the independent auditor;
2. The results of the independent auditor's activities including
major conclusions, findings and recommendations, and related
management responses;
3. The Company's accounting and financial reporting practices,
annual report to shareholders and significant SEC filings;
C-1
4. Material litigation involving the Company, and litigation
involving officers and directors;
5. Accounting, legal, tax and other developments of major
significance to the Company;
6. The continued adequacy of this Audit Committee Charter on an
annual basis;
7. Such other matters as the Board or the Committee considers
appropriate.
With regard to the SEC Form 10-K, prior to its filing, the Committee, in
addition to its assessment of the independent auditor's independence, shall
review and discuss the audited financial statements with management, and discuss
with the independent auditors the matters required to be discussed by relevant
auditing standards, including the quality, not just the acceptability, of the
accounting principles and underlying estimates used in the audited financial
statements. The Committee shall report to the Board and to the shareholders
whether, based on such reviews and discussions, it recommends to the Board that
the most recent year's audited financial statements be included in the Company's
SEC Form 10-K to be filed with the SEC.
With regard to the SEC Form 10-Q, the Chairperson and/or his or her Committee
designee(s) shall review the document with management and the independent
auditor prior to its filing.
The Committee shall receive periodic reports from management, the General
Counsel and the independent auditor on matters relating to accounting, financial
reporting, internal control, auditing, litigation and compliance with legal
business policies and regulatory requirements.
The Committee shall meet privately (without members of management present) and
separately with the independent auditor at least once each year and, when
requested, with the Company's General Counsel.
The Committee may cause an investigation to be made into any matter within the
scope of its responsibility. The Committee may engage independent resources to
assist in its investigation as it deems necessary.
The Committee will typically meet at least two times each year. The Committee
Chairperson shall make regular reports to the Board of the Committee's
activities.
C-2
TRANSFINANCIAL HOLDINGS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
JANUARY 22, 2001
The undersigned hereby appoints William D. Cox and Kurt W. Huffman, and
each of them, as proxies for the undersigned at the Annual Meeting of
Stockholders of TransFinancial Holdings, Inc. (the "Company") at the offices of
Morrison & Hecker, L.L.P., 2600 Grand Avenue, 12th Floor, Kansas City, Missouri
74108 on Tuesday, January 22, 2001, at 9:00 A.M., Central Time, and at any
adjournment, to vote the shares of stock the undersigned would be entitled to
vote, if personally present, upon the proposals, and any other matter brought
before the meeting, all as set forth in the December __, 2001, Proxy Statement.
The Board of Directors recommends voting for Proposals 1, 2, 3, 4 and 5.
1. Authority granted to or withheld from proxies to vote for William
D. Cox, Harold C. Hill, Jr., Roy R. Laborde and Clark D. Stewart as directors
of the Company (or a substitute nominee or nominees designated by the Board
of Directors if any of them become unavailable).
[ ] FOR all nominees (unless exceptions are marked).
[ ] WITHHOLD AUTHORITY as to Mr. Cox.
[ ] WITHHOLD AUTHORITY as to Mr. Hill.
[ ] WITHHOLD AUTHORITY as to Mr. Laborde.
[ ] WITHHOLD AUTHORITY as to Mr. Stewart.
[ ] WITHHOLD AUTHORITY (for all nominees).
2. Approval and adoption of the Plan of Complete Liquidation of
TransFinancial Holdings, Inc., attached as Appendix A to the Proxy Statement
(Proposal No. 2).
[ ] FOR approval.
[ ] AGAINST approval.
[ ] WITHHOLD AUTHORITY.
3. Approval of the UPAC Sale pursuant to the Purchase Agreement
attached as Appendix B to the Proxy Statement (Proposal No. 3).
[ ] FOR approval.
[ ] AGAINST approval.
[ ] WITHHOLD AUTHORITY.
4. Ratification of the selection of Weaver & Martin as the Company's
independent accountants for 2001 (Proposal No. 4).
[ ] FOR approval.
[ ] AGAINST approval.
[ ] WITHHOLD AUTHORITY.
5. Approval of one or more adjournments of the Annual Meeting from time to
time to await additional votes on Proposal 2, Proposal 3 and/or Proposal 4.
[ ] FOR approval.
[ ] AGAINST approval.
[ ] WITHHOLD AUTHORITY.
5. THIS PROXY CONFERS DISCRETIONARY AUTHORITY TO VOTE UPON CERTAIN
MATTERS, AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT.
(continued and to be signed and dated on the reverse side)
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER. IF NO DIRECTION IS GIVEN, SUCH SHARES WILL BE VOTED FOR PROPOSALS
1, 2, 3, AND 4 AND IN THE DISCRETION OF THE PROXY HOLDERS WITH RESPECT TO
PROPOSAL 5.
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor,
administrator, trustee, or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated:
(Signature)
(Signature if held jointly)
PLEASE MARK, SIGN AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE. THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS.