-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F4/MnZhmn+KhoL2Pldcr+1TQUvZ+UnSe98Xf77VRBXfO+1cPdK+H3Df4sMdoFQnk 7P76LKG/e8bs8Iljx+sN/Q== 0000719271-99-000012.txt : 19990517 0000719271-99-000012.hdr.sgml : 19990517 ACCESSION NUMBER: 0000719271-99-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSFINANCIAL HOLDINGS INC CENTRAL INDEX KEY: 0000719271 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 460278762 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12070 FILM NUMBER: 99624154 BUSINESS ADDRESS: STREET 1: 8245 NIEMAN ROAD, STE 100 STREET 2: SUITE 100 CITY: LENEXA STATE: KS ZIP: 66214 BUSINESS PHONE: 9138590055 MAIL ADDRESS: STREET 1: 8245 NIEMAN ROAD STREET 2: SUITE 100 CITY: LENEXA STATE: KS ZIP: 66214 FORMER COMPANY: FORMER CONFORMED NAME: ANUHCO INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN CARRIERS INC DATE OF NAME CHANGE: 19910812 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 0-12321 TRANSFINANCIAL HOLDINGS, INC. (Exact name of Registrant as specified in its charter) Delaware 46-0278762 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 8245 Nieman Road, Suite 100 Lenexa, Kansas 66214 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (913) 859-0055 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ( X ) No ( ) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at May 14, 1999 Common stock, $0.01 par value 3,251,195 Shares PART I. FINANCIAL INFORMATION Item 1. Financial Statements TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, (In thousands, except per share amounts) (Unaudited)
1999 1998 Operating Revenues.......................................................... $ 39,857 $ 37,003 Operating Expenses.......................................................... 39,854 36,703 Operating Income............................................................ 3 300 Nonoperating Income Interest income.......................................................... 20 67 Interest expense......................................................... (256) (51) Other.................................................................... 25 35 Total nonoperating income............................................ (211) 51 Income (Loss) Before Income Taxes........................................... (208) 351 Income Tax Provision (Benefit).............................................. (36) 190 Net Income (Loss)........................................................... $ (172) $ 161 Basic and Diluted Earnings (Loss) Per Share................................. $ (0.04) $ 0.03 Basic Average Shares Outstanding............................................ 3,837 6,053 Diluted Average Shares Outstanding.......................................... 3,839 6,124 The accompanying notes to consolidated financial statements are an integral part of these statements.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
MARCH 31, DECEMBER 31, 1999 1998 ASSETS (Unaudited) Current Assets: Cash and cash equivalents................................................ $ 1,604 $ 3,256 Freight accounts receivable, less allowance for credit losses of $421 and $387................................... 13,931 13,351 Finance accounts receivable, less allowance for credit losses of $561 and $566................................... 13,924 12,584 Current deferred income taxes............................................ 2,713 2,548 Other current assets..................................................... 3,707 2,401 Total current assets................................................. 35,879 34,140 Operating Property, at Cost: Revenue equipment........................................................ 31,901 31,969 Land..................................................................... 3,681 3,681 Structures and improvements.............................................. 11,153 11,130 Other operating property................................................. 11,017 10,500 57,752 57,280 Less accumulated depreciation........................................ (25,092) (24,122) Net operating property........................................... 32,660 33,158 Intangibles, net of accumulated amortization................................ 9,621 9,777 Other Assets................................................................ 713 688 $ 78,873 $ 77,763 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Cash overdrafts.......................................................... $ -- $ 1,976 Accounts payable......................................................... 3,524 3,093 Current maturities of long-term debt..................................... 600 300 Accrued payroll and fringes.............................................. 7,042 6,068 Other accrued expenses................................................... 2,813 3,685 Total current liabilities............................................ 13,979 15,122 Deferred Income Taxes....................................................... 1,979 1,867 Long-Term Debt (Note 4)..................................................... 14,400 9,700 Shareholders' Equity (Note 5) Preferred stock with $0.01 par value, authorized 1,000,000 shares, none outstanding..................................................... -- -- Common stock with $0.01 par value, authorized 13,000,000 shares, issued 7,593,592 shares.............................................. 76 76 Paid-in capital.......................................................... 6,090 6,090 Retained earnings........................................................ 77,195 77,367 Treasury stock, 4,291,961 and 3,661,220 shares, at cost.................. (34,846) (32,459) Total shareholders' equity........................................... 48,515 51,074 $ 78,873 $ 77,763 The accompanying notes to consolidated financial statements are an integral part of these statements.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, (In thousands) (Unaudited)
1999 1998 Cash Flows From Operating Activities Net income (loss)................................................... $ (172) $ 161 Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities Depreciation and amortization..................................... 1,285 1,292 Provision for credit losses....................................... 256 210 Deferred income tax benefit....................................... (53) (1,468) Other............................................................. (23) (15) Net increase (decrease) from change in other working capital items affecting operating activities........... (1,409) 756 (116) 936 Cash Flows From Investing Activities Purchase of operating property, net................................. (623) (3,875) Origination of finance accounts receivable.......................... (48,388) (32,295) Sale of finance accounts receivable................................. 36,682 20,085 Collection of owned finance accounts receivable..................... 10,171 10,473 Maturities of short-term investments................................ -- 3,018 Other............................................................... (10) (379) (2,168) (2,973) Cash Flows From Financing Activities Cash overdrafts..................................................... (1,976) 1,682 Borrowings on Long-Term Note Payable................................ 5,000 -- Payments to acquire treasury stock.................................. (2,387) -- Borrowing (repayments) on line of credit agreements, net............ -- (1,101) Other............................................................... (5) (31) 632 550 Net Decrease in Cash and Cash Equivalents............................. (1,652) (1,487) Cash and Cash Equivalents at beginning of period...................... 3,256 4,778 Cash and Cash Equivalents at end of period............................ $ 1,604 $ 3,291 Cash Paid During the Period for Interest............................................................ $ 253 $ 48 Income Tax.......................................................... $ 28 $ -- The accompanying notes to consolidated financial statements are an integral part of these statements.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (In thousands)
Total Share Common Paid-In Retained Treasury holders' Stock Capital Earnings Stock Equity Balance at December 31, 1997.................. $ 75 $ 5,581 $ 79,394 $(12,565) $ 72,485 Net loss...................................... -- -- (2,027) -- (2,027) Issuance of shares under Incentive Stock Plan. 1 509 -- (591) (81) Purchase of 2,115,422 shares of common stock.. -- -- -- (19,303) (19,303) Balance at December 31, 1998.................. 76 6,090 77,367 (32,459) 51,074 Net loss...................................... -- -- (172) -- (172) Purchase of 630,741 shares of common stock.... -- -- -- (2,387) (2,387) Balance at March 31, 1999 (unaudited)......... $ 76 $ 6,090 $ 77,195 $(34,846) $ 48,515 The accompanying notes to consolidated financial statements are an integral part of these statements.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. PRINCIPLES OF CONSOLIDATION AND SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include TransFinancial Holdings, Inc. ("TransFinancial") and all of its subsidiary companies (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. The condensed financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and have not been examined or reviewed by independent public accountants. The year end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments necessary to fairly present the results of operations have been made. Pursuant to SEC rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these statements unless significant changes have taken place since the end of the most recent fiscal year. TransFinancial believes that the disclosures contained herein, when read in conjunction with the financial statements and notes included in TransFinancial's Annual Report on Form 10-K, filed with the SEC on March 15, 1999, are adequate to make the information presented not misleading. It is suggested, therefore, that these statements be read in conjunction with the statements and notes included in the aforementioned report on Form 10-K. As of July 1, 1998, the Company prospectively decreased the estimated remaining useful life of certain purchased software to reflect the Company's plan to substantially revise and replace the software. This change decreased amortization expense in the first quarter of 1999 by $50,000 and decreased net loss by approximately $30,000 or $0.01 per share. This change will decrease amortization expense and increase operating income by approximately $150,000 for the remainder of 1999 from amounts which would have been recorded had the change not been made. 2. SEGMENT REPORTING The Company operates in three business segments: transportation, financial services, and industrial technology. Other items are shown in the table below for purposes of reconciling to consolidated amounts.
Operating First Operating Income Total Quarter Revenues (Loss) Assets (unaudited, in thousands) Transportation 1999 $ 37,857 $ (10) $ 48,208 1998 35,547 829 51,304 Financial Services 1999 1,969 290 24,964 1998 1,420 (55) 24,114 Industrial Technology 1999 -- (43) 141 1998 -- (193) 691 Total Segments 1999 39,826 237 73,313 1998 36,967 581 76,109 General Corporate and Other 1999 31 (234) 5,560 1998 36 (281) 15,514 Consolidated 1999 39,857 3 78,873 1998 37,003 300 91,623
3. ACQUISITION OF PREMIUM FINANCE SUBSIDIARY On May 29, 1998, TransFinancial Holdings, Inc. ("TransFinancial" or "the Company") through Universal Premium Acceptance Corporation ("UPAC"), its insurance premium finance subsidiary, completed the acquisition of all of the issued and outstanding stock of Oxford Premium Finance, Inc. ("Oxford") for approximately $4.2 million. Oxford offers short-term collateralized financing of commercial insurance premiums through approved insurance agencies in 17 states throughout the United States. At May 29, 1998, Oxford had outstanding net finance receivables of approximately $22.5 million. This transaction was accounted for as a purchase. UPAC sold an additional $4.2 million of its receivables under its receivable securitization agreement to obtain funds to consummate the purchase. Concurrently with the closing of the acquisition, UPAC amended its receivables securitization agreement to increase the maximum allowable amount of receivables to be sold under the agreement and to permit the sale of Oxford's receivables under the agreement. Effective on May 29, 1998, Oxford sold approximately $19 million of its receivables under the securitization agreement using the proceeds to repay the balance outstanding under its prior financing arrangement. The terms of the acquisition and the purchase price resulted from negotiations between UPAC and Oxford Bank & Trust Company, the former sole shareholder of Oxford. In connection with the purchase of Oxford, based on a preliminary allocation of the purchase price, TransFinancial recorded goodwill of $1.9 million, which will be amortized on the straight-line basis over 15 years. The operating results of Oxford are included in the consolidated operating results of TransFinancial after May 29, 1998. The following reflects the consolidated operating results of TransFinancial for the first quarter ended March 31, 1998, assuming the acquisition occurred as of the beginning of the period: PRO FORMA OPERATING RESULTS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) First Quarter 1998 Operating Revenues............... $37,277 Net Income....................... $ 185 Basic and Diluted Earnings Per Share$ 0.03 The pro forma results of operations are not necessarily indicative of the actual results that would have been obtained had the acquisitions been made at the beginning of the respective periods, or of results which may occur in the future. 4. FINANCING AGREEMENTS SECURITIZATION OF RECEIVABLES TransFinancial, UPAC and APR Funding Corporation (a wholly-owned subsidiary) have entered into an extendible three year securitization agreement whereby undivided interests in a designated pool of accounts receivable can be sold on an ongoing basis. Effective September 11, 1998, the securitization agreement was amended to modify the definition of eligible receivables under the securitization agreement and to increase the maximum allowable amount of receivables to be sold under the agreement to $85.0 million. The purchaser permits principal collections to be reinvested in new financing agreements. The Company had securitized receivables of $61.3 million and $34.1 million at March 31, 1999 and 1998. The cash flows from the sale of receivables are reported as investing activities in the accompanying consolidated statement of cash flows. The securitized receivables are reflected as sold in the accompanying balance sheet. The terms of the agreement require UPAC to maintain a minimum tangible net worth of $5.0 million and contain restrictions on the payment of dividends by UPAC to TransFinancial without prior consent of the financial institution. The terms of the agreement also require the Company to maintain a minimum consolidated tangible net worth of $40 million. The Company was in compliance with all such provisions at March 31, 1999, except for the consolidated tangible net worth covenant. The Company has received a waiver of this default through June 30, 1999 while the Company negotiates an amendment to this covenant as well as certain other provisions of the agreement. The terms of the securitization agreement also require that UPAC maintain a default reserve at specified levels which serves as collateral. At March 31, 1999, approximately $7.0 million of owned finance receivables served as collateral under the default reserve provision. SECURED LOAN AGREEMENTS In January 1998, Crouse entered into a three-year Secured Loan Agreement with a commercial bank which provides for a $4.5 million working capital line of credit loan ("Working Capital Line"). The following table summarizes activity under the Working Capital Line in the first quarter ended March 31, 1999 and 1998 (in thousands, except percentages): First Quarter 1999 1998 Balance outstanding at end of period.................. $ -- $ 1,851 Average amount outstanding ........................... 603 1,977 Maximum month end balance outstanding................. 2,414 1,977 Interest rate at end of period........................ 7.5% 8.5% Weighted average interest rate........................ 7.5% 8.5% In September 1998, the Company entered into a two-year secured loan agreement with a commercial bank which enabled the Company to borrow $10.0 million (the "Loan"), secured by freight accounts receivable and a second lien on revenue equipment. In March 1999, the Loan was amended and restated to increase the borrowing to $15 million. The Loan bears interest at 25 basis points under the bank's prime rate, 7.50% at March 31, 1999. The terms of the Loan provide for monthly payments of interest only through September 30, 1999, with monthly principal payments thereafter of $100,000 plus interest through maturity on September 30, 2000. The terms of the Loan require the Company to maintain a minimum tangible net worth of $35 million, a ratio of current assets to current liabilities of 1.25 to 1.00, a ratio of total liabilities to tangible net worth of 1.0 to 1.0, and contain restrictions on the payment of dividends without prior consent of the Lender. The Company was in compliance with all such provisions at March 31, 1999. The proceeds of the Loan were used to repurchase shares of the Company's common stock (See Note 5 of Notes to Consolidated Financial Statements). 7. STOCK REPURCHASE In the first quarter of 1999, the Board of Directors authorized the repurchase of 1,030,000 shares of the Company's common stock. Through March 31, 1999, a total of 630,741 shares had been repurchased at a cost of approximately $2.4 million. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS First quarter ended March 31, 1999 compared to the first quarter ended March 31, 1998. TransFinancial operates primarily in three distinct segments; transportation, through its subsidiary, Crouse; financial services, through its subsidiary, UPAC; and industrial technology, through its subsidiary, Presis. TRANSPORTATION Operating Revenue - The changes in transportation operating revenue are summarized in the following table (in thousands): Qtr. 1 1999 vs. Qtr. 1 1998 Increase (decrease) from: Increase in LTL tonnage........................ $1,529 Increase in LTL revenue per hundredweight..... 873 Decrease in truckload revenues................. (92) Net increase............................... $2,310 Less-than-truckload ("LTL") operating revenues rose by 7.7% for the first quarter of 1999, as compared to the same period in 1998. Crouse achieved an increase of 4.9% in LTL tons of the first quarter of 1999, compared to 1998. Crouse's LTL revenue yield improved 2.7% due to general rate increases effective November 1998 and the Company's focus on yield improvement. The severe winter weather experienced in the Company's operating territory significantly affected the Company's operations in the first quarter of 1999 by limiting the Company's revenue growth relative to increased operating expenses. Truckload operating revenues were 2.2% lower in the first quarter of 1999, on approximately 0.9% fewer shipments. The decline in truckload operating revenues was due primarily to the temporary closing of a meat processing plant operated by one of the Company's customers and general softness in pork prices which has reduced the volume of meat transported by truck. Operating Expenses - A comparative summary of transportation operating expenses as a percent of transportation operating revenue follows:
Percent of Operating Revenue First Quarter 1999 1998 Salaries, wages and employee benefits.................... 60.0% 58.7% Operating supplies and expenses.......................... 12.0% 11.7% Operating taxes and licenses............................. 2.4% 2.4% Insurance and claims..................................... 2.0% 2.0% Depreciation............................................. 2.8% 2.9% Purchased transportation and rents....................... 20.8% 20.0% Total operating expenses............................. 100.0% 97.7%
Crouse's operating expenses as a percentage of operating revenue, or operating ratio, was 100.0% for the first quarter March 31, 1999, which was higher than the same period of 1998. The increase in salaries, wages and employee benefits as a percent of operating revenue in the first quarter of 1999 as compared to the first quarter of 1998 was due to two factors. First, the Company was required to make payments for retroactive pay increases totaling approximately $180,000 in connection with the resolution of certain local union contracts which expired March 31, 1998. Additionally, the adverse impacts of the severe winter weather and the closing of a customer's meat processing plant on first quarter revenues contributed to certain inefficiencies in the utilization of productive labor relative to revenues. Purchased transportation and rents expense as a percent of operating revenue increased from the first quarter of 1998 due to the addition of certain tractors and trailers pursuant to long-term operating leases in 1998. FINANCIAL SERVICES For the first quarter of 1999, UPAC reported operating income, of $290,000 on net financial services revenue of $2.0 million, as compared to an operating loss of $55,000 on net financial services revenue of $1.4 million, for the comparable period of 1998. The increase in net financial services revenue and operating income was the result of increased average total receivables outstanding offset, in part by an increase in the percentage of finance contracts originated which were sold under the securitization agreement and a lower average yield on finance contracts. The growth in average total receivables outstanding was due to the acquisition on May 29, 1998 of Oxford Premium Finance, Inc., an insurance premium finance business serving the Chicago area and the industrial Midwest, and the addition of marketing representatives in other key markets. A decrease in consulting fees in the first quarter of 1999 resulting from the expiration, effective December 31, 1998, of a consulting agreement with the former owner of UPAC also contributed to the increase in operating income. INDUSTRIAL TECHNOLOGY In the first quarter of 1999, Presis, incurred operating expenses of $43,000, primarily in salaries, wages and employee benefits as compared to operating expenses of $193,000 for the first quarter of 1998. Since the fourth quarter of 1998, Presis has limited expenditures to essential activities related to continued research and testing of its technology. The Company expects this operation to incur operating losses in the remainder of 1999, at or below expenditure levels of $100,000 per quarter as it continues to pursue the research, testing and commercialization of its technology.* OTHER As a result of the Company's use of funds for the stock repurchases, interest earnings on invested funds were substantially lower in the first quarter of 1999 than in the same period of 1998. Interest expense increased in the current quarter of 1999 due to borrowings on long-term debt incurred to repurchase stock. TransFinancial's effective income tax provision (benefit) rates for the first quarter of 1999 and 1998 were (17%) and 54%. The effective income tax rate for 1999 was a lower percentage due to the impact of non-deductible amortization of intangibles and meals and entertainment expenses, which reduce the tax benefit of pre-tax losses in 1999, as compared to the impact of these items on pre-tax income in 1998. OUTLOOK The following statements are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as such involve risks and uncertainties which are detailed below under the caption "Forward-Looking Statements". The Company utilizes a three-year strategic planning process with the goal of maximizing shareholder value through profitable growth of its business segments. In the transportation segment the plan calls for the Company to continue to provide and improve upon its already superior service to its customers in its primary operating territory, while increasing the density of its operations in the eastern portion of its service area. The Company also intends to continue to focus on improving the efficiency and effectiveness of its operations. The Financial services segment will focus on targeting its marketing efforts to improve its contribution to the Company's return on equity. Additionally, the Company intends to focus on utilizing technology to improve its operating efficiency. The industrial technology operation will focus on continued research, testing and commercialization of its technology. The Company expects this operation to incur operating losses in the remainder of 1999 at or below expenditure levels of $100,000 per quarter. FORWARD-LOOKING STATEMENTS Certain statements contained in this Quarterly Report on Form 10-Q which are not statements of historical fact constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, the statements specifically identified as forward-looking statements in this Form 10-Q. These statements can often be identified by the use in such statements of forward-looking terminology, such as "believes," "expects," "may," "will," "should," "could," "intends," "plans," "estimates," or "anticipates," or the negative thereof, or comparable terminology. Certain of the forward-looking statements contained herein are marked by an asterisk ("*") or otherwise specifically identified herein. In addition, certain statements in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases, and in oral statements made by or with the approval of an authorized executive officer of the Company which are not statements of historical fact constitute forward- looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to (i) projections of revenues, income or loss, earnings or loss per share, capital expenditures, the payment or non- payment of dividends, capital structure and other financial items, (ii) statements of plans and objectives of the Company or its management or Board of Directors, including plans or objectives relating to the products or services of the Company, (iii) statements of future economic performance, and (iv) statements of assumptions underlying the statements described in (i), (ii) and (iii). These forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from those anticipated in such statements. The following discussion identifies certain important factors that could affect the Company's actual results and actions and could cause such results or actions to differ materially from any forward-looking statements made by or on behalf of the Company that relate to such results or actions. Other factors, which are not identified herein, could also have such an effect. TRANSPORTATION Certain specific factors which may affect the Company's transportation operation include: competition from other regional and national carriers for freight in the Company's primary operating territory; price pressure; changes in fuel prices; labor matters, including changes in labor costs, and other labor contract issues resulting from the negotiation of new contracts to replace current contracts, covering certain terminal employees which expired March 31, 1998; and environmental matters. FINANCIAL SERVICES Certain specific factors which may affect the Company's financial services operation include: the performance of financial markets and interest rates; the performance of the insurance industry; competition from other premium finance companies and insurance carriers for finance business in the Company's key operating states; adverse changes in statutory interest rates or other regulations in states in which the Company operates; greater than expected credit losses; the acquisition and integration of additional premium finance operations or receivables portfolios; and the inability to obtain continued financing at a competitive cost of funds. INDUSTRIAL TECHNOLOGY Presis is a start-up business formed to develop an industrial technology for dry particle processing. This technology is subject to risks and uncertainties in addition to those generally applicable to the Company's operations described herein. These additional risks and uncertainties include the efficacy and commercial viability of the technology, the ability of the venture to market the technology, the acceptance of such technology in the marketplace, the general tendency of large corporations to be slow to change from known technology, the ability to protect its proprietary information in the technology and potential future competition from third parties developing equivalent or superior technology. As a result of these and other risks and uncertainties, the future results of operations of the venture are difficult to predict, and such results may be materially better or worse than expected or projected. OTHER MATTERS With respect to statements in this Report which relate to the current intentions of the Company and its subsidiaries or of management of the Company and its subsidiaries, such statements are subject to change by management at any time without notice. With respect to statements in "Financial Condition" regarding the adequacy of the Company's capital resources, such statements are subject to a number of risks and uncertainties including, without limitation: the future economic performance of the Company (which is dependent in part upon the factors described above); the ability of the Company and its subsidiaries to comply with the covenants contained in the financing agreements; future acquisitions of other businesses not currently anticipated by management of the Company; and other material expenditures not currently anticipated by management. GENERAL FACTORS Certain general factors that could impact any or all of the Company's operations include: changes in general business and economic conditions; changes in governmental regulation; and tax changes. Expansion of these businesses into new states or markets is substantially dependent on obtaining sufficient business volumes from existing and new customers in these new markets at compensatory rates. The cautionary statements made pursuant to Section 21E of the Securities Exchange Act of 1934, as amended, are made as of the date of this Report and are subject to change. The cautionary statements set forth in this Report are not intended to cover all of the factors that may affect the Company's businesses in the future. Forward-looking information disseminated publicly by the Company following the date of this Report may be subject to additional factors hereafter published by the Company. FINANCIAL CONDITION The Company's financial condition remained strong at March 31, 1999 with more than $1.6 million in cash and investments. The Company's current ratio was 2.6 to 1.0 and its ratio of total liabilities to tangible net worth was 0.8 to 1.0. A substantial portion of the capital required for UPAC's insurance premium finance operations has been provided through the sale of undivided interests in a designated pool of receivables on an ongoing basis under receivables securitization agreements. The current securitization agreement, which matures December 31, 2001, currently provides for the sale of a maximum of $85.0 million of eligible receivables. As of March 31, 1999, $61.3 million of such receivables had been securitized. At March 31, 1999, the Company was not in compliance with a covenant under this agreement requiring the Company to maintain consolidated tangible net worth of $40 million. The Company has received a waiver of this technical default through June 30, 1999 while the Company negotiates an amendment to this covenant as well as certain other provisions of the agreement. Crouse has a three-year Secured Loan Agreement with a commercial bank which provides for a $4.5 million working capital line of credit loan, ("Working Capital Line"). As of March 31, 1999, no borrowings were outstanding under the Working Capital Line. Crouse has achieved ratification of new five year pacts with the International Brotherhood of Teamsters covering substantially all of its union employees. The new contracts, which became effective October 4, 1998, provide for all of the terms of the National Master Freight Agreement with a separate addendum for wages. Crouse will continue to maintain its past work rules, practices and flexibility within its operating structure. Crouse continues to negotiate with one union local representing seven employees. Additionally, the current collective bargaining agreement covering approximately 250 linehaul drivers will expire June 30, 1999. The Company has held preliminary negotiations with these union locals; however, no agreements have been reached. There can be, however, no assurance that Crouse's remaining union employees will ratify new contracts acceptable to both the Company and the union, or that work stoppages will not occur. If a work stoppage should occur, Crouse's customer base would be put at risk inasmuch as its competition would have a continuing operating advantage. Any of these actions could have a material adverse effect on the Company's business, financial condition, liquidity or results of operations. In September 1998, the Company entered into a two-year secured loan agreement with a commercial bank to borrow $10.0 million (the "Loan"). Freight accounts receivable and a second lien on revenue equipment are pledged as collateral for the Loan. In March 1998, the Company amended and restated this agreement increasing the borrowings to $15 million. The Loan bears interest at 25 basis points below the bank's prime rate, 7.50% at March 31, 1999. The terms of the Loan provide for monthly payments of interest only through September 30, 1999, with monthly principal payments thereafter on $100,000 plus interest through maturity on September 30, 2000. At March 31, 1999 current maturities of long- term debt were $600,000, with the remaining $14,400,000 due in 2000. In the first quarter of 1999, the Board of Directors authorized the repurchase of 1,030,000 shares of the Company's common stock. Through March 31, 1999, a total of 630,741 shares had been repurchased at a cost of $2.4 million. YEAR 2000 ISSUES The Year 2000 Issue is the result of computer programs being written using two digits to represent years rather than four digits, which include the century designation. Without corrective action, it is possible that the Company's computer programs, or its major service providers, vendors, suppliers, partners or customers that have date-sensitive software could recognize a date using "00" as the year 1900 rather than the year 2000. Additionally, certain other assets may contain embedded chips that include date functions that could be affected by the transition to the year 2000. In some systems this could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company has developed and is executing a Year 2000 Compliance Strategic Plan ("Year 2000 Plan") to enable management of TransFinancial Holdings, Inc. and each of its business operations to ensure that each of its critical business systems are "Year 2000 Compliant". The Company considers a business system to be Year 2000 Compliant if it is able to transition into the year 2000 without significant disruption to the Company's internal operations or those of its key business partners. The Year 2000 Plan encompasses the Company's information technology assets, including computer hardware and software ("IT assets") and non-information technology assets, goods and services, including assets utilizing embedded chip technology and significant customer and vendor relationships ("non-IT assets"). The Company's Year 2000 Plan includes three principal sections: (1) mainframe computer and personal computer hardware and software utilized by the Company's transportation operations ("Transportation IT assets"); (2) desktop computer applications, embedded chips, significant business partners of the transportation operations ("Transportation non-IT assets"); and (3) personal computer hardware and software, desktop computer applications, embedded chips, significant business partners of the financial services operations ("Financial Services IT and non-IT assets"). The general phases common to all sections are: (1) inventorying, assessing and assigning priorities to Year 2000 items ("Inventory Phase"); (2) taking corrective actions to modify, repair or replace items that are determined not to be Year 2000 Compliant ("Corrective Action Phase"); (3) testing material items ("Testing Phase"); and (4) developing and implementing contingency plans for each organization and location ("Contingency Planning Phase"). The Company intends to utilize primarily internal personnel and resources to execute its Year 2000 Plan but may utilize external consultants as needed in certain phases. TRANSPORTATION IT ASSETS With regard to the Transportation IT assets section, the Inventory Phase is substantially completed. The Company has identified its computer applications, programs and hardware and is in the processing of assessing the Year 2000 risk associated with each item. The Company has begun executing the Corrective Action Phase by modifying or upgrading items that are not Year 2000 compliant. This phase is expected to be complete by the end of the second quarter of 1999. The Testing Phase is ongoing as corrective actions are completed. The Testing Phase is anticipated to be complete early in the third quarter of 1999.* The Contingency Planning Phase was begun in the first quarter of 1999 and will be completed in the second quarter of 1999.* TRANSPORTATION NON-IT ASSETS With regard to the Transportation non-IT assets section, the Inventory Phase is substantially completed. The Company has identified assets that may contain embedded chip technologies and has contacted the related vendors to gain assurance of Year 2000 status on each item. The Company has also identified its significant business relationships and has contacted key vendors, suppliers and customers to attempt to reasonably determine their Year 2000 status. The Company is in the process of effecting the Corrective Action Phase, which is anticipated to be complete by the end of the second quarter of 1999. The Testing Phase is ongoing as corrective actions are completed. This phase is anticipated to be complete early in the third quarter of 1999. The Contingency Planning Phase was begun in the first quarter of 1999 and will be completed in the third quarter of 1999. FINANCIAL SERVICES IT AND NON-IT ASSETS With regard to the Financial Services IT and non-IT assets section, the Inventory Phase is completed. The Company has identified its computer applications, programs and hardware and non-IT assets and has assessed the Year 2000 risk associated with each item. The Company has also identified its significant business relationships and has contacted key vendors, suppliers and customers to attempt to reasonably determine their Year 2000 status. The Company has substantially completed the Corrective Action Phase. The Company's financial services database, operating systems and computer applications have been upgraded or modified to address the Year 2000. The Testing Phase has been ongoing as corrections were made and was substantially complete in the fourth quarter of 1998. Certain testing of bank and other interfaces was completed in the first quarter of 1999. The Contingency Planning Phase was begun in the first quarter of 1999 and will be completed in the second quarter of 1999.* COSTS It is currently estimated that the aggregate cost of the Company's Year 2000 efforts will be approximately $150,000 to $200,000, of which approximately $100,000 has been spent.* These costs are being expensed as they are incurred and are being funded out of operating cash flow. These amounts do not include approximately $100,000 of costs to be capitalized as the Company replaces certain non-IT assets, in part to address the Year 2000 issue, as part of the Company's normal capital replacement and upgrades. These amounts also do not include any internal costs associated with the development and implementation of contingency plans. RISKS The failure to correct a material Year 2000 issue could result in an interruption in, or failure of, certain normal business operations. Such failures could materially and adversely affect the Company's results of operations, liquidity and financial condition. Due to the general uncertainty inherent in the Year 2000 issue, resulting in part from the uncertainty of the Year 2000 readiness of third-party vendors, suppliers and customers, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on the Company's results of operations, liquidity and financial condition. The Company's Year 2000 Plan is designed to gather information concerning Year 2000 issues facing the Company and to address and resolve such issues to the extent reasonably possible. Even if the Company successfully implements its Year 2000 Plan, there can be no assurance that the Company's operations will not be affected by Year 2000 failures or that such failures will not have a material adverse effect on the Company's results of operations, liquidity and financial condition. PART II - OTHER INFORMATION Item 1. Legal Proceedings Reference is made to Item 3 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998. Item 2. Changes in Securities -- None Item 3. Defaults Upon Senior Securities -- None Item 4. Submission of Matters to Vote of Security Holders (a) Annual Meeting of Shareholders was held on April 27, 1999. (b) The nominees for the board of directors previously reported to the Commission in the Company's Proxy Statement were elected. (c) The matters voted upon at the Annual Meeting were as follows: (1) All seven nominees for director were elected as follows: Shares Voted Nominees For Withheld William D. Cox 2,456,756 70,990 J. Richard Devlin 2,473,829 53,917 Harold C. Hill, Jr. 2,469,665 58,081 Roy R. Laborde 2,447,965 79,781 Timothy P. O'Neil 2,451,871 75,875 Clark D. Stewart 2,473,329 54,417 David D. Taggart 2,468,875 58,871 (3) The selection of PricewaterhouseCoopers, LLP as independent public accountants was ratified with 2,370,200 shares voting for, 154,002 shares voting against, and 3,544 shares abstaining. Item 4. Submission of Matters to Vote of Security Holders - None Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1* Secured Loan Agreement by and between Bankers Trust Company of Des Moines, Iowa, TransFinancial Holdings, Inc., and Crouse Cartage Company, dated March 25, 1999. 27* Financial Data Schedule. * Filed herewith. (b) Reports on Form 8-K - (1) A Current Report on Form 8-K, dated March 4, 1999, filed March 5, 1999, to report the amendment of the Company's Rights Agreement. (2) A Current Report on Form 8-K, dated March 17, 1999, filed March 17, 1999, to report the expansion of a share repurchase program and the repurchase of stock. (SIGNATURE) Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TransFinancial Holdings, Inc. Registrant By: /s/ Timothy P. O'Neil Timothy P. O'Neil, President & Chief Executive Officer By: /s/ Mark A. Foltz Mark A. Foltz Vice President, Finance and Secretary Date: May 14, 1999 EXHIBIT INDEX Assigned Exhibit Number Description of Exhibit 10.1 Secured Loan Agreement by and between Bankers Trust Company of Des Moines, Iowa, TransFinancial Holdings, Inc., and Crouse Cartage Company, dated March 25, 1999. 27 Financial Data Schedule. EX-27 2
5 This schedule contains summary financial information extracted from TransFinancial Holdings, Inc.'s consolidated statement of income for the three months ended March 31, 1999 and consolidated balance sheet as of March 31, 1999, and is qualified in its entirety by reference to such financial statements. 0000719271 TRANSFINANCIAL HOLDINGS, INC. 1000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1604 0 28837 982 0 35879 57752 25092 78873 13979 14400 0 0 76 48439 78873 0 39857 0 39854 0 0 256 (208) (36) (172) 0 0 0 (172) (0.04) (0.04)
EX-10 3 SECURED LOAN AGREEMENT This Secured Loan Agreement is made and entered into this 25th day of March, 1999, by and between Bankers Trust Company of Des Moines, Iowa, (hereinafter referred to as the "Bank"), TransFinancial Holdings, Inc. (hereinafter referred to as "TransFinancial") and Crouse Cartage Company (hereinafter referred to as "Crouse"), (TransFinancial and Crouse hereinafter collectively referred to as the "Borrowers" and individually as a "Borrower"). WITNESSETH WHEREAS, Borrowers desire to borrow monies from Bank in the amounts described below; and WHEREAS, Bank is willing to loan monies to Borrowers subject to the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties agree as follows: 1. DEFINITIONS For purpose of this Agreement, the following terms shall have the following meanings: "AFFILIATE" shall mean: (i) any natural person who is a controlling shareholder of either Borrower, or who is an officer, director or managing agent of either Borrower; (ii) any corporation, partnership or entity that is a controlling shareholder of either Borrower; and (iii) any person who directly or indirectly controls, is controlled by or is under common control or ownership with either Borrower or any controlling shareholder of either Borrower. For this the purposes of this definition, the term "Control" shall mean the ownership of ten percent (10%) or more of the beneficial interest in the entity being referred to. "AGREEMENT" shall mean this Secured Loan Agreement, as amended or modified from time to time, together with all exhibits or schedules attached hereto or hereafter. "BANK'S PRIME RATE" shall mean the fluctuating interest rate per annum from time to time designated by Bank as its prime rate. The Bank's Prime Rate shall Page 1 not be deemed the lowest rate or most favored rate charged by Bank to its customers. Changes in the Bank's Prime Rate shall be effective without notice to Borrowers on the date of each change. "BORROWING BASE" shall mean an amount equal to eighty-five percent (85%) of Crouse's Eligible Accounts Receivable owned by Crouse as of the date of each Borrowing Base Certificate. "BORROWING BASE CERTIFICATE" shall mean a document duly certified by an authorized officer of Crouse in the form attached hereto as Exhibit A. "COLLATERAL" shall mean without limitation Crouse's assets pledged to Bank as security for the Note, now or in the future, as more particularly described in Section 4 of this Agreement. "CURRENT ASSETS" shall mean TransFinancial's current assets which shall be determined in accordance with GAAP. "CURRENT LIABILITIES" shall mean TransFinancial's current liabilities which shall be determined in accordance with GAAP. "CURRENT RATIO" shall be calculated by dividing TransFinancial's Current Assets by its Current Liabilities. "DEBT TO TANGIBLE NET WORTH RATIO" shall mean that number calculated by dividing TransFinancial's total liabilities in accordance with GAAP by its Tangible Net Worth. "DEFAULT" OR "EVENT OF DEFAULT" shall have the meaning delineated in Section 9 of this Agreement. "ELIGIBLE ACCOUNTS RECEIVABLE" shall mean those accounts receivable owing to Crouse which are free and clear of any security interest, lien or encumbrance except that granted to Bank herein, and which are not more than ninety (90) days past due from date of original invoice or with respect to which there exists no dispute with Crouse. Further, to be an Eligible Accounts Receivable, the receivable must not be subject to any dispute, counterclaim or defense asserted by the account debtor thereunder and the account debtor must not be insolvent or be the subject of any bankruptcy or reorganization proceedings or other Page 2 proceedings for relief of debtors. An account receivable shall be deemed to exist when the invoice giving rise to such account receivable is mailed or when debt to Crouse from its customers arises, whichever shall first occur. Receivables due Crouse from any Affiliate shall not be included in calculating Eligible Accounts Receivable. "GAAP" shall mean those Generally Accepted Accounting Principles and Practices that are recognized as such by the American Institute of Certified Public Accountants and by the Financial Accounting Standards Board. "HAZARDOUS SUBSTANCES." The terms "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules or regulations adopted pursuant to any of the foregoing. "INDEBTEDNESS" shall mean and include without limitation all Loans, together with all other obligations, debts and liabilities of Borrowers to Bank as well as all claims by Bank against Borrowers, whether now or hereafter existing, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated; whether Borrowers may be liable individually or jointly with others; whether Borrowers may be obligated as a guarantor, surety, or otherwise; whether recovery upon such indebtedness may be or hereafter may become barred by any statute of limitations; and whether such indebtedness may be or hereafter may become otherwise unenforceable. "LOAN" OR "LOANS" means and includes any and all extensions of credit and financial accommodations from Bank to Borrowers, whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. Page 3 "LOAN DOCUMENTS" shall mean this Agreement, the Note, the Security Agreement and any other instrument executed in connection with or evidencing the Indebtedness. "MAXIMUM CREDIT" shall mean the lesser of Fifteen Million Dollars ($15,000,000.00) or the Borrowing Base. "NOTE" shall refer to the promissory note more particularly described in Section 2 of this Agreement executed by Borrowers in favor of Bank, together with any and all extensions, modifications, substitutions or renewals thereof. "REVENUE EQUIPMENT" shall mean and include all of Crouse's (i) commercial and highway trucks, (ii) commercial and highway tractors and trailers, (iii) automobiles and (iv) pickup and delivery vehicles, all for which titles have been issued in the name of Crouse and which titles are in the possession of Bank, or in possession of another party acting as agent for Bank; and (v) all mechanical refrigeration units attached to, or held for use upon, such trucks, tractors and trailers. "SECURITY AGREEMENT" shall mean the Commercial Security Agreement executed by Crouse in favor of Bank of even date herewith granting Bank a first lien on Crouse's Eligible Accounts Receivable and a Second Lien on Crouse's Revenue Equipment. "TANGIBLE NET WORTH" shall be determined in accordance with GAAP and shall mean that number calculated by subtracting from the sum of TransFinancial's equity, all sums relating to goodwill, patents, copyrights, trademarks, licenses, franchises, or other assets normally considered an intangible asset under GAAP. 2. LOAN Subject to the terms and conditions of this Agreement and the other Loan Documents, the Bank agrees to lend to Borrowers the amount as provided in the following described Loan: Page 4 A. Loan. A term loan in the principal amount not to exceed the lesser of Fifteen Million Dollars ($15,000,000.00) or the Borrowing Base, and Borrowers shall execute and deliver to Bank a promissory note ("Note") for $15,000,000.00 dated as of the date of this Agreement. Such funds shall be used to purchase certain outstanding stock of TransFinancial. Interest and principal payments shall be payable on the dates and in the manner set forth in the Note. Interest shall accrue at a floating rate which shall at all times equal the Bank's Prime Rate, as adjusted to the date of change. In the event at any time the Borrowing Base is less than the unpaid principal balance of the Note, Borrowers will immediately pay that amount necessary to reduce the unpaid principal balance to an amount equal to the Borrowing Base. The Note shall mature and be due and payable in full on September 30, 2000. Bank's determination as to the outstanding principal balance owed by Borrowers shall be presumed to be correct and binding on all parties whomsoever and Bank's documentation to support said outstanding balance will be sufficient to establish and sustain Borrowers' obligations under the Note, unless Borrowers are able to provide documentation to the contrary satisfactory to Bank which is sufficient to rebut the aforesaid presumption. 3. ADVANCES A. Any checks or other charges presented against the regular checking account of Borrowers in excess of the balance of said regular checking account may be treated by the Bank as a request for an advance under the Note, and payment by the Bank of any check may at its option constitute a loan to the Borrowers pursuant to this Agreement of the amounts so paid. However, the amounts debited to the Note and credited to the checking account shall at no time exceed the unused portion of the Maximum Credit available under the Note. B. In the event Borrowers shall fail to provide adequate insurance, pay taxes, or pay any other charges which may affect the assets Page 5 collateralized to Bank, Bank may, at its option, without notice, but without any obligation or liability to do so, procure insurance, pay taxes or pay any other charges and add said sum to the balance of the Note. C. Although it is contemplated that at no time during the term of this Agreement shall the outstanding principal amount of the Note exceed the Maximum Credit thereunder, it is understood and agreed that the contemplated Maximum Credit may be exceeded at any time, in Bank's sole discretion, and Borrowers shall nevertheless remain liable for the repayment in full of all sums advanced by or to Borrowers by Bank, together with interest, late charges, attorneys' fees and costs, if any, as more fully set forth herein. 4. COLLATERAL A. Eligible Accounts Receivable and Revenue Equipment. As security for the Note and all advances made pursuant to this Agreement, and any renewals, modifications, substitutions or extensions thereof, Crouse herein grants to Bank a first lien on all of its Eligible Accounts Receivable and a second lien (behind the first lien previously granted by Crouse to Bank) on its Revenue Equipment, together with all proceeds therefrom. The titles to the vehicles included within the Revenue Equipment shall be physically delivered by Crouse to the Commercial Savings Bank in Carroll, Iowa as agent for Bank, or such other party as designated by Bank, and Bank (and/or its designated agent) is herein granted a power of attorney to affix Bank's lien on all such titles and file such liens of record in the event Borrowers commit an Event of Default hereunder. Bank acknowledges that Crouse will, in the ordinary course of its business, buy, sell or trade items of Revenue Equipment and thus will be allowed access to such titles. B. Bank Deposits, Bank shall at all times have a perfected first security interest in and right of setoff against any and all deposit Page 6 balances of Borrowers whether now existing or hereafter established, and may at any time, after an Event of Default hereunder, without notice, apply the same against payment of any obligations of Borrowers to Bank, whether or not due regardless of the existence or amount of any other security held by the Bank. 5. BORROWERS' REPRESENTATIONS AND WARRANTIES To induce Bank to make Loans and advances hereunder, Borrowers represent and warrant to Bank from the date of this Agreement and thereafter until all Indebtedness of the Borrowers to Bank is paid in full that: A. Borrowers' Authority. (1) Borrowers have full power, right, and authority to make and execute this Agreement, and to borrow the funds provided for in this Agreement; (2) the execution of this Agreement, the Note, the Security Agreement and all other Loan Documents will not conflict with any provision of law of Borrowers' articles of incorporation or bylaws or any other organizational requirement, or under any agreement or instrument to which Borrowers are a party or by which Borrowers or any of their property may be bound or affected; (3) the individual who, on behalf of each Borrower, executes and delivers this Agreement, Note, Security Agreement and other Loan Documents is authorized to do so and has provided to the Bank the appropriate authorization evidencing same. B. No Litigation. No material litigation or governmental proceedings are pending or threatened against Borrowers and Borrowers have no material liabilities, actual or contingent, not previously disclosed to Bank. C. Lien For Bank. The lien of the Bank on the Eligible Accounts Receivable shall be a first lien at all times during the term of this Agreement and the lien of the Bank on the Revenue Equipment shall be a second lien at all times during the term of this Agreement. Page 7 D. No Other Liens. None of Borrowers' assets are subject to any mortgage, pledge, encumbrance, or other lien, except as otherwise disclosed to the Bank in writing. E. Tax Returns. Borrowers have filed all federal and state income tax returns which are required to be filed and has paid all taxes and assessments which are due. F. Financial Statements. All financial statements previously delivered to Bank by Borrowers fairly present in all material respects and accurately represent the financial condition of Borrowers as of the respective dates thereof. G. Year 2000 Compliance. Borrowers represent and warrant that they will take all measures reasonably necessary to make their computer hardware and software compliant with the year 2000. Borrowers acknowledge that the failure to take such measures may seriously impair or damage Borrowers' businesses. H. Ownership of Collateral. Borrowers warrant that they own the entire legal and beneficial ownership in all assets set forth in their financial statements and in all Collateral Borrowers are furnishing to Bank as security for the Loans hereunder, except as otherwise disclosed to the Bank. I. No Violation of Occupational Safety and Environmental Protection. Borrowers are not in violation in any material manner of any federal, state, county or city statutes, orders, rules or regulations pertaining to occupational safety or environmental protection, nor do Borrowers presently anticipate that future expenditures needed to meet the provisions of existing federal, state, county or city statutes, orders, rules or regulations will be so burdensome as to affect or impair in a materially adverse manner Borrowers' financial conditions. Page 8 J. Indemnification and Hold Harmless Obligation. Borrowers represent and warrant that neither the Collateral given to Bank as security for the Note, nor any other assets owned by Borrowers have been, or ever will be, so long as the Note remains unpaid, used for the generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substances, provided however, it is understood that Crouse, in the ordinary course of its business, does transport items which may be deemed Hazardous Substances. The representations and warranties contained herein are based on Borrowers' due diligence in investigating the collateralized properties for Hazardous Substances. Borrowers hereby (i) releases and waives any future claims against Bank for indemnity or contribution in the event Borrowers become liable for cleanup or other costs under any such laws; (ii) agrees that Bank may recover against Borrowers to the full extent of any damages, claims or other liabilities suffered by Bank as a result of the violation of any such environmental laws, whether or not such violation occurred while the Collateral was owned by a predecessor or successor in interest to Crouse; and (iii) agrees to indemnify and hold Bank harmless against any and all claims and losses resulting from a breach of this provision of this Agreement, including reasonable attorney's fees and expenses. This obligation to indemnify and hold Bank harmless shall survive the payment of the Note. K. Address of Borrowers. The addresses appearing on the signatory page of this Agreement represent the chief executive offices of the Borrowers. L. No Material Damage To Collateral. The Collateral is not now materially damaged or injured as a result of any uninsured fire, explosion, accident, flood or other casualty. Page 9 M. Collateral Not In Flood Zone. None of the Collateral is situated in any federal or state designated flood zone. 6. AFFIRMATIVE COVENANTS From the date of this Agreement and thereafter until all Indebtedness is paid in full, Borrowers, will: A. Accounting. Maintain a modern system of accounting in accordance with GAAP. B. Financial Statements. Furnish to Bank (i) within one hundred-twenty (120) days of each fiscal year end, consolidated and unqualified financial statements of Borrowers audited by an independent certified public accountant acceptable to Bank in reasonable detail and dated as of the immediately preceding fiscal year end, and prepared in accordance with GAAP; (ii) within forty-five (45) days following the end of each calendar quarter, a consolidated unaudited financial statement of Borrowers which shall contain a balance sheet, statement of income and retained earnings, and cash flow, each as of the end of such calendar quarter; (iii) within forty-five (45) days following the end of each calendar quarter, the 10-Q Report filed by TransFinancial with the Securities and Exchange Commission; (iv) within thirty (30) days following the end of each calendar quarter, a duly completed Borrowing Base Certificate as of the end of such calendar quarter; and (v) at such times as requested by Bank, a list of Crouse's inventory and equipment, cash flow projections and such other information as the Bank may reasonably request . C. Access To Books and Collateral. At all times, keep proper books of account in a manner satisfactory to Bank, and permit the Bank and its agents access to the books, records, premises, assets and operations of the Borrowers at all reasonable times. D. Notification of Legal Proceedings. Notify the Bank promptly of any Page 10 material litigation or legal proceedings involving the Collateral. E. Insurance. Obtain such insurance or evidence of insurance as Bank may reasonably require, including but not limited to, an all-risk policy of casualty insurance, and such other hazard insurance in such amount, form and substance as Bank may require with Bank named as loss payee thereunder as it pertains to the Collateral and with standard waiver of subrogation clauses, it being understood by Bank that Crouse self- insures the first $100,000.00 of casualty damages. This insurance shall be issued by such companies as shall be approved by Bank, and the originals of such policies (together with appropriate endorsements thereto, evidence of payment of premiums thereon and written agreement by the insurers therein to give Bank 30 days prior written notice of intention to cancel) shall be promptly delivered to Bank. This insurance shall be kept in full force and effect at all times hereafter until the Note has been paid in full. F. Maintenance and Preservation of Collateral. At all times maintain, preserve and protect the Collateral and keep the same in good repair, working order and condition. G. Payment of Obligations. Except as otherwise disclosed to and approved by the Bank, Borrowers will at times during the term hereof pay all obligations relating to the Collateral as they come due in the ordinary course of business. H. Collected Funds. At all times maintain in Borrowers' accounts at the Bank collected funds sufficient to pay all items presented for payment from such accounts and sufficient to pay service charges imposed by the Bank. Borrowers agree to pay to Bank interest on any overdraft or deficit balance in any such account at the rate set forth in the Note. I. Submission of Environmental Reports. Promptly upon receipt thereof, Page 11 Borrowers shall submit to Bank copies of any reports, inspections or examinations conducted by the Iowa Department of Natural Resources or the Federal Environmental Protection Agency, or any similar agency, with respect to the assets of Borrowers. J. Operating Accounts at Bank. Crouse shall maintain its primary cash concentration accounts with Bank. K. Tangible Net Worth. TransFinancial shall maintain at all times a Tangible Net Worth of no less than $35,000,000.00. L. Debt To Tangible Net Worth Ratio. TransFinancial shall maintain at all times a Debt to Tangible Net Worth Ratio no greater than 1.00:1.00. M. Current Ratio. TransFinancial shall maintain at all times a Current Ratio of not less than 1.25:1.00. N. New Entities. Borrowers shall not make any material sales or transfers of their assets to any new or existing entities without prior written approval from the Bank. O. ERISA Compliance. Borrowers shall meet their minimum funding requirements under the Employee Retirement Income Security Act of 1974 (ERISA), as amended, with respect to any employee benefit plan or other class of benefit plan, which the Pension Benefit Guaranty Corporation, established under ERISA (PBGC) has elected to insure, in either case, whether now in existence or hereafter instituted by Borrowers. 7. NEGATIVE COVENANTS From the date of this Agreement and thereafter until all Indebtedness is paid in full, Borrowers will not, without the prior written consent of the Bank: A. Grant Liens. Pledge, mortgage, lease or otherwise encumber, or permit any lien to exist on the Collateral, except as may exist and be Page 12 reflected on the financial statements provided at the time of this Agreement. B. Sell Assets Out of Ordinary Course. Sell, lease or otherwise dispose of any part of Borrowers' real or personal property other than in the ordinary course of Borrowers' business. C. Dividends. Declare and/or distribute in cash or other assets any dividends on Crouse's outstanding stock, or redeem any of Crouse's outstanding stock, without Bank's prior approval. D. Sale, Change In Control, Merger, Etc. Suffer or permit majority control of Borrowers to be sold, assigned or otherwise transferred, or allow a material change in the executive officers of Borrowers, or merge or consolidate with any entity or enterprise. E. No Other Guaranties. Grant guarantees to any other financial institutions or entities without the Bank's prior approval, which shall not be unreasonably withheld, except that those guarantees which TransFinancial is required to make on behalf of its subsidiary, Universal Premium Acceptance Corporation, to Bank Boston, and except for any other guarantees which collectively do not exceed $1,000,000.00, shall not require the Bank's prior approval. 8. CONDITIONS OF BANK'S OBLIGATIONS Bank's obligations to perform hereunder shall be subject to satisfaction of the following conditions on or before closing: A. No Breach of Covenants. Borrowers shall have substantially performed all agreements required to be performed, and shall not be in any material breach of any covenant, agreement, representation or warranty made herein or in any other Loan Document. Page 13 B. No Default. No Event of Default and no event or condition which, with notice or the lapse of time, or both, would constitute an Event of Default, shall exist. C. No Material Change in Financial Condition. Borrowers shall not have incurred any material liabilities, direct or contingent, other than in the ordinary course of business, since the date of the last financial statement given to Bank by Borrowers. D. Insurance. Crouse shall have obtained hazard or fire and extended coverage insurance (and flood insurance if the Collateral is located in a flood zone) on the Collateral, issued by a company or companies approved by Bank and in amounts acceptable to Bank which policy or policies shall name Bank as loss payee as it pertains to the Collateral under a standard loss payee clause, and Bank shall also have been provided with such additional policies of insurance as Bank may reasonably require insuring against such risks and in such amounts as are customarily carried by like businesses operating in the same vicinity. E. Reimbursement of Bank's Expense. The payment by Borrowers of all out- of-pocket expenses incurred by Bank and any participants in making and administering this Loan, including, without limitation, all costs of appraisals, attorneys' fees and expenses, filings and recordings. F. Authorized Action. Receipt by Bank of a duly executed certificate from Borrowers authorizing the borrowings and the execution of the various Loan Documents contemplated by this Agreement. G. Legal Opinion. Receipt by Bank of an opinion from Borrowers' legal counsel to the effect that (i) Borrowers each are corporations duly organized, validly existing and in good standing under the laws of the state of their incorporation and to the best of such counsel's Page 14 knowledge and belief, are duly qualified and in good standing as a foreign corporation authorized to do business in Iowa (if not incorporated in Iowa) and in each state where, because of the nature of its activities or properties, such qualification is required; (ii) Borrowers have full power to execute and deliver the Note and other Loan Documents, and to perform their obligations under this Agreement and such Loan Documents; (iii) such actions have been duly authorized by all necessary corporate action, and are not in conflict with any provision of the law or of the articles of incorporation or bylaws of Borrowers, nor in conflict with any agreement binding upon Borrowers of which such counsel has knowledge; and (iv) this Agreement and the other Loan Documents are the legal and binding obligations of Borrowers, enforceable in accordance with their terms. H. Loan Documents. Receipt by Bank of the Note, Security Agreement and other Loan Documents duly executed by an authorized officer of Borrowers. I. Borrowing Base Certificate. Crouse shall have delivered to Bank a duly completed Borrowing Base Certificate. 9. EVENTS OF DEFAULT If any of the following events occur, the Bank may, at its option, without notice or demand, except as otherwise specifically provided, declare the entire Indebtedness of Borrowers to Bank immediately due and payable. A. Late Payment. Any payment of principal or interest due under the terms of any Note is not made on the due date and such default continues unremedied for five (5) days after written notice thereof shall have been given to Borrowers by Bank. B. Misrepresentation. Any representation or warranty made by Borrowers in this Agreement shall prove to be materially incorrect or untrue, or any statement, report or writing furnished by Borrowers to the Bank is Page 15 untrue in any material aspect. C. Breach of Covenants. Borrowers materially fail to perform or observe any term, covenant or condition of this Agreement and such failure is not remedied or corrected within ten (10) days after written notice thereof shall have been given to Borrowers by Bank. D. Breach Under Other Loan Documents. Any breach of any provisions contained in the Note or any other Loan Documents and such breach is not remedied within ten (10) days after written notice thereof shall have been sent to Borrowers by Bank. E. Bankruptcy, Etc. If either Borrower becomes insolvent or bankrupt or makes an assignment for the benefit of creditors, or is petitioned into bankruptcy, either voluntarily or involuntarily. F. Adverse Impairment in Collateral. Bank's interest in the Collateral is adversely impaired in any manner, and Crouse is unable to remedy, to the Bank's satisfaction, such adverse impairment within 30 days after written notice from the Bank. 10. REMEDIES Upon the occurrence of a Default (it being understood that a Default under any Note shall constitute a Default under all Notes), the Bank may, after expiration of any notice period referenced above (it being understood that in regard to the Events of Default described in Paragraphs 9 (C), 9 (D) or 9 (F), if any such default cannot reasonably be cured within such grace period, as solely determined by Bank, the period of time within which to cure such default shall be extended for such reasonable time as is necessary to cure such default, as long as Borrowers promptly, diligently and continuously act to cure such default), (it being further understood that Borrowers shall not be entitled to any grace period or notice prior to acceleration if the Bank reasonably and in good faith believes that the granting of such grace period or notice would jeopardize Bank's lien position) declare the unpaid principal balance and Page 16 interest on the Note(s) immediately due and payable, together with any other debt owed by Borrowers to Bank, and all such principal, interest and other debt shall thereupon be immediately due and payable in full. The Bank shall thereupon have all remedies set forth herein and in the Note and any other Loan Documents, and all remedies otherwise available to a secured creditor under the Uniform Commercial Code of Iowa. 11. MISCELLANEOUS A. The Bank As Attorney-In-Fact. In the event of a Default, Borrowers hereby appoint Bank to be Borrowers' attorney-in-fact, without requiring the Bank to act as such, for the purpose of carrying out the provisions hereof and taking any action and executing any document or instrument which the Bank may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, Bank shall, as attorney-in-fact of Crouse, have the right to receive, collect and endorse all vehicle titles, checks, drafts or other remittance made payable to Course, or Crouse's order, representing any payment on account of any of the Collateral and to give full discharge therefor. B. Waiver Not Binding. Any waiver of any default by Bank is not a waiver of any subsequent default. Further, no delay on the part of the Bank in the exercise of any power or right shall constitute a waiver thereof, nor shall any single or partial exercise of any power or right preclude other or further exercise thereof. C. Notice. Any notice hereunder to Borrowers shall be in writing, and shall be deemed to be given on the date delivered, personally, or on the date when mailed by ordinary mail, postage prepaid, or by facsimile and addressed to the Borrowers as appearing on the signature page of this Agreement, or at such other address as the Borrowers may, by written notice received by the Bank, designate as the Borrowers' Page 17 addresses for purposes of notice hereunder. D. Governing Law. This Agreement, the Note, the Security Agreement and all other Loan Documents shall be covered in all respects by the laws of the State of Iowa. A determination that any provision of this Agreement is unenforceable or invalid shall not affect the validity or enforceability of any other provision. E. Enforcement in Iowa. Borrowers acknowledges that this Agreement is being entered into by the Bank in partial consideration of Bank's right to enforce in Iowa the terms and provisions of this Agreement and the Loan Documents. Borrowers consents to jurisdiction in Iowa and construction of this Agreement under the laws of the State of Iowa. Borrowers waives any right to commence any action against the Bank except in Iowa. F. Term of Agreement. The term of this Agreement shall coincide with the terms of the Note executed by Borrowers in favor of the Bank, as modified, extended, substituted, renewed or until all Indebtedness is paid in full and any commitment to extend credit has terminated. G. Incorporation of Commitment Letter. The terms and conditions of the Commitment Letter are incorporated herein. If any inconsistency exists between the Commitment Letter and this Agreement, this Agreement shall control. H. Assignment. This Agreement shall not be assigned by Borrowers without the written consent of the Bank. I. Participation. The Bank may enter into participation agreements with other financial institutions with regard to any Indebtedness of Borrowers, provided, however, Bank shall remain the lead bank in any such participations. J. Successors and Assigns. This Agreement shall be binding upon Page 18 Borrowers' successors and assigns. K. Additional Documents. Borrowers agrees to execute and cause to be executed such additional documents as the Bank may require in order to effectuate the terms of this Agreement. All documents shall be on the Bank's standard forms for the same or forms otherwise acceptable to Bank. L. Conflict in Documents. In the event of a conflict between the terms and conditions of this Agreement and those of any other documents pertaining to Borrowers' Indebtedness to Bank, the terms of this Agreement shall be controlling. M. Survival of Representations and Warranties. All representations, warranties, covenants, and agreements of Borrowers herein shall survive the execution and delivery of this Agreement and shall be deemed continuing until the Indebtedness is paid in full to the Bank and any commitment to extend credit has terminated. N. Release of Bank. Borrowers hereby release and forever discharge Bank and any participants, their officers, directors, employees, shareholders, agents and representatives from all claims or causes of actions of every kind or character, known or unknown, without limit, which Borrowers allegedly may have as of the date of this Agreement. O. Collection Costs. If Bank hires an attorney to assist in collecting any amount due or enforcing any right or remedy under this Agreement, the Note, the Security Agreement or any other Loan Document, Borrowers agree to pay the reasonable attorney fees and expenses incurred by Bank. Page 19 IMPORTANT - READ BEFORE SIGNING, THE TERMS OF THIS AGREEMENT SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT. Borrowers warrant that they have received a copy of this Agreement and further state that they understand fully the terms and conditions described herein. BANKERS TRUST COMPANY Steven D. Simon, Vice President P.O. Box 897 665 Locust Street Des Moines, Iowa 50304-9987 "BANK" TRANSFINANCIAL HOLDINGS, INC. Timothy P. O'Neil, Chief Executive Officer "TRANSFINANCIAL" CROUSE CARTAGE COMPANY By: Mark A. Foltz, Secretary "CROUSE" "BORROWERS" Page 20 Page 21 -----END PRIVACY-ENHANCED MESSAGE-----