0001014108-01-500061.txt : 20011009 0001014108-01-500061.hdr.sgml : 20011009 ACCESSION NUMBER: 0001014108-01-500061 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010921 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-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-12070 FILM NUMBER: 1742085 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: AMERICAN CARRIERS INC DATE OF NAME CHANGE: 19910812 FORMER COMPANY: FORMER CONFORMED NAME: ANUHCO INC DATE OF NAME CHANGE: 19920703 10-K/A 1 tf-form10ka.txt FORM 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Year Ended December 31, 2000 Commission File Number - 1-12070 TRANSFINANCIAL HOLDINGS, INC. State of Incorporation - Delaware IRS Employer Identification No. - 46-0278762 8245 Nieman Road, Suite 100, Lenexa, Kansas 66214 Telephone Number - (913) 859-0055 Securities Registered Pursuant to Section 12(b) of the Act Name of Each Exchange Title of Each Class on Which Registered ------------------------------------ ------------------- TransFinancial Holdings, Inc. Common Stock, American Stock Exchange par value $0.01 per share, 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 __ No X. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Common Stock held by non-affiliates of TransFinancial Holdings, Inc. as of March 30, 2001, was $2,130,889 based on the last sale price on the American Stock Exchange prior to that date. The number of outstanding shares of the registrant's common stock as of March 30, 2001 was 3,278,291 shares. 1 Forward-Looking Statements The Company believes certain statements contained in this Annual Report on Form 10-K that are not statements of historical fact may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. 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. These statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements" for additional information and factors to be considered concerning forward-looking statements. 2 Part II Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of TransFinancial Holdings, Inc.: We have audited the accompanying consolidated balance sheet of TransFinancial Holdings, Inc. as of December 31, 2000 and 1999 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TransFinancial Holdings, Inc. as of December 31, 2000 and 1999 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, has experienced significantly reduced cash flows from operating activities and has violated covenants of financing agreements that raise substantial doubt in its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. WEAVER & MARTIN, LLC Kansas City, Missouri September 19, 2001 3 TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31 ---------------------- 2000 1999 --------- --------- (In Thousands) ASSETS Current Assets Cash and cash equivalents.......................... $ 258 $ 1,076 Finance accounts receivable, less allowance for credit losses of $1,490 and $870 (Note 4) 80,945 15,305 Discontinued Operations, net (Note 2).............. -- 17,888 Other current assets............................... 753 964 --------- --------- Total current assets............................ 81,956 35,233 --------- --------- Operating Property, at Cost Land............................................... 339 322 Structures and improvements........................ 1,474 1,429 Other operating property........................... 1,083 1,101 --------- --------- 2,896 2,852 Less accumulated depreciation...................... (1,069) (847) --------- --------- Net operating property.......................... 1,827 2,005 --------- --------- Intangibles, net of accumulated amortization.......... 8,946 9,005 Other Assets.......................................... 108 910 --------- --------- $ 92,837 $ 47,153 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Cash overdrafts.................................... $ 1,161 $ 1,049 Accounts payable................................... 2,309 2,477 Revolving bank loan (Note 4)....................... 66,250 -- Accrued payroll and fringes........................ 66 326 Other accrued expenses............................. 1,674 2,905 Discontinued Operations, net (Note 2).............. 3,500 -- --------- --------- Total current liabilities....................... 74,960 6,757 --------- --------- Deferred Income Taxes (Note 6)........................ -- -- Contingencies and Commitments (Note 7)................ -- -- Shareholders' Equity (Notes 5 and 8) Preferred stock $0.01 par value, authorized 1,000,000 shares, none outstanding... -- -- Common stock $0.01 par value, authorized 13,000,000 shares, issued 7,623,852 and 7,597,931 shares................................ 76 76 Paid-in capital.................................... 6,254 6,104 Retained earnings.................................. 46,614 69,283 Treasury stock, 4,345,561 shares, at cost.......... (35,067) (35,067) --------- --------- Total shareholders' equity...................... 17,877 40,396 --------- --------- $ 92,837 $ 47,153 ========= ========= The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 4 TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31 ---------------------------------- 2000 1999 1998 --------- --------- --------- (In Thousands, Except Per Share Amounts) Interest and Servicing Revenue............ $ 9,742 $ 9,431 $ 8,128 Fee Revenue............................... 2,801 2,689 2,030 Other..................................... 178 219 218 --------- --------- --------- Total operating revenue............. 12,721 12,339 10,376 --------- --------- --------- Operating Expenses Salaries, wages and employee benefits.. 3,042 3,121 3,267 Interest and securitization costs (Note 4) 5,439 3,897 3,275 Operating supplies and expenses........ 3,136 3,153 4,529 Provision for credit losses............ 1,366 1,193 827 Insurance and claims................... 178 175 148 Depreciation and amortization.......... 816 893 2,238 --------- --------- --------- Total operating expenses............ 13,977 12,432 14,284 --------- --------- --------- Operating Income (Loss)................... (1,256) (93) (3,908) --------- --------- --------- Nonoperating Income (Expense) Interest income........................ 8 81 430 Interest expense....................... (123) (3) (11) Other, net............................. 651 31 (1) --------- --------- --------- Total nonoperating income (expense). 536 109 418 --------- --------- --------- Income (Loss) Before Income Taxes......... (720) 16 (3,490) Income Tax Provision (Benefit) (Note 6)... (51) 433 (1,183) ---------- --------- --------- Income (Loss) from Continuing Operations.. (669) (417) (2,307) ---------- ---------- --------- Discontinued Operations (Note 2).......... (12,900) (7,667) 624 Income Tax Provision (Benefit) (Note 4)... -- -- 344 --------- --------- --------- Income (Loss) from Discontinued Operations (Note 2) (12,900) (7,667) 280 Loss on Closing of Discontinued Operations................................ (9,100) -- -- Net Income (Loss)......................... $ (22,669) $ (8,084) $ (2,027) ========= ========= ========= Basic and Diluted Earnings (Loss) Per Share of Continuing Operations................... $ (0.20) $ (0.12) $ (0.43) ========= ========= ========= Basic and Diluted Earnings (Loss) Per Share of Discontinued Operations................. $ (6.71) $ (2.25) $ 0.04 ========= ========= ========= Basic and Diluted Earnings (Loss) Per Share $ (6.91) $ (2.37) $ (0.39) ========= ========= ========= Basic Average Shares Outstanding.......... 3,278 3,415 5,249 ========= ========= ========= Diluted Average Share Outstanding......... 3,506 3,425 5,263 ========= ========= ========= The accompanying notes to consolidated financial statements are an integral part of these statements. 5 TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31 ----------------------------------- 2000 1999 1998 --------- -------- ---------- (In Thousands) Cash Flows From Operating Activities- Net income (loss)...................... $ (22,669) $ (8,084) $ (2,027) Adjustments to reconcile net income (loss) to net cash generated by operating activities- Depreciation and amortization....... 816 893 2,238 Debt cost amortization.............. 365 133 64 Provision for credit losses......... 1,366 1,193 827 Deferred tax provision.............. 0 681 (2,644) Other............................... Net increase (decrease) from change in working capital items affecting operating activities- Accounts Receivable.............. (3,132) (6,219) (1,447) Accounts Payable................. (168) 883 (196) Other............................ (1,148) (198) 809 Loss from and on discontinued operations....................... 22,000 7,667 (280) ---------- ---------- ---------- (2,570) (3,051) (2,656) ---------- ---------- ---------- Cash Flows From Investing Activities- Cash from (to) discontinued operations. (613) 1,542 20,622 Purchase of operating property......... (93) (731) (4,270) Net sales/ repurchase of accounts receivables, net....................... (63,875) 2,305 5,058 Purchase of finance subsidiary, net of cash acquired.......................... 0 0 (4,178) Purchase of short-term investments..... 0 0 (2,998) Maturities of short-term investments... 0 0 6,541 Other.................................. (37) (646) (190) ---------- ---------- ---------- (64,618) 2,470 20,585 ---------- ---------- ---------- Cash Flows From Financing Activities- Line of credit borrowings (repayments), net.................................... 66,250 0 0 Cash overdrafts........................ 112 1,049 (13) Payments to acquire treasury stock..... 0 (2,603) (19,303) Payment for fractional shares from reverse stock split............................ 0 (11) (96) Other.................................. 8 9 (82) ---------- ---------- ---------- 66,370 (1,556) (19,494) ---------- ---------- ---------- Net Decrease in Cash and Cash Equivalents. (818) (2,137) (1,565) Cash and Cash Equivalents: Beginning of period.................... 1,076 3,213 4,778 ---------- ---------- ---------- End of period.......................... $ 258 $ 1,076 $ 3,213 ========== ========== ========== 6 TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Supplemental Schedule of Noncash Investing Activities: In 1998, the Company acquired all of the capital stock of Oxford for approximately $4,178,000. In conjunction with the acquisition, liabilities were assumed as follows: 1998 Fair value of assets acquired............................ $22,338 Cash paid for capital stock and acquisition expenses..... (4,178) Intangibles.............................................. 1,876 ------- Liabilities assumed...................................... $20,036 ======= The accompanying notes to consolidated financial statements are an integral part of these statements. 7
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Total Share- Common Paid-In Retained Treasury holders' Stock Capital Earnings Stock Equity ----- ------- -------- ----- ------ (In Thousands) 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........................ -- -- (8,084) -- (8,084) Issuance of shares under Incentive Stock Plan......... -- 14 -- (5) 9 Purchase of 683,241 shares of common stock.............. -- -- -- (2,603) (2,603) -------- -------- --------- ---------- --------- Balance at December 31, 1999.... 76 6,104 69,283 (35,067) 40,396 -------- -------- --------- ---------- --------- Net income...................... -- -- (22,669) -- (22,669) Issuance of shares under Deferred Compensation Arrangements.... -- 143 -- -- 143 Issuance of shares under Incentive Stock Plan......... -- 7 -- -- 7 -------- -------- --------- ---------- --------- Balance at December 31, 2000.... $ 76 $ 6,254 $ 46,614 $ (35,067) $ 17,877 ======== ======== ========= ========== =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 8 TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 and 1999 1. Summary of Significant Accounting Policies Principles of Consolidation - The consolidated financial statements include TransFinancial Holdings, Inc. and its subsidiary companies ("the Company" or "TransFinancial"). TransFinancial's principal operations include TFH Logistics & Transportation Services, Inc. ("TFH L&T") and its subsidiaries, Crouse Cartage Company ("Crouse") and Specialized Transport, Inc. ("Specialized"), Universal Premium Acceptance Corporation and its affiliates, Agency Premium Resource, Inc. ("APR"), Oxford Premium Finance, Inc. ("Oxford") and UPAC of California, Inc. (together "UPAC"), and Presis, L.L.C. ("Presis"). The operating results of Oxford are included from May 29, 1998, the date of its acquisition. All significant intercompany accounts and transactions have been eliminated in consolidation. Going Concern - The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has experienced operating losses in 2000, 1999 and 1998 and significantly reduced cash flows from operating activities. In addition, the Company violated certain covenants in its financing agreements in 2000. The Company discontinued its transportation operations during 2000 (See Note 2). These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is ultimately dependent on its ability to successfully liquidate the transportation operations outside bankruptcy. Management believes that it will be successful in that liquidation process.* The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accounting for the Impairment of Long-Lived Assets - The Company periodically reviews its long-lived assets and associated intangible assets and has identified no events or changes in circumstances which indicate that the carrying amount of these assets may not be recoverable, except as described below. When potential impairments are indicated, impairment losses, if any, are measured by the excess of carrying values over fair values. An evaluation of certain equipment and intangible assets of the Company's industrial technology operation resulted in the determination that these assets were impaired. The impaired assets were written down by $525,000 effective September 30, 1998. Fair value was based on estimated discounted future cash flows to be generated by these assets and management's estimate of the value realizable from sale of the assets. This writedown is included in "Depreciation and Amortization" in the Consolidated Statements of Income. This writedown is included in "Other" in the Consolidated Statements of Income. Recognition of Revenue - Finance charges on premium finance receivables are recognized when earned under applicable state regulations using methods that approximate the interest method. Recognition of earned finance charges on delinquent accounts is suspended when it is determined that collectibility of principal and interest is not probable. Interest on delinquent accounts is recognized when collected. Gains on sale of receivables under the securitization agreement are recorded when the receivables are sold (See Note 4). Late fees and other ancillary fees are recognized when chargeable. Accounts are generally charged off when deemed uncollectible. Recoveries of charged off accounts are recognized when collected. The Company and UPAC had entered into a securitization agreement with a financial institution whereby undivided interests in a designated pool of accounts receivable can be transferred on an ongoing basis. Under the securitization agreement UPAC recognized gains on sales of receivables. These gains are shown as service revenue on the accompanying income statement. Effective May 26, 2000, the securitization agreement was assigned to and assumed by a new financial institution. UPAC and APR Funding amended the securitization agreement that resulted in a discontinuation of the prior gain on sale treatment of receivables. This change in accounting treatment had no effect on the total earnings recognized over the term of each finance contract or the cash flow received by UPAC on each contract. The timing of earnings recognition was altered by the accounting change. The non-cash effect on operating revenue and operating income from the change in gain on sale treatment of receivables was a negative charge to earnings of $768,000. Segment Information - The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information." The adoption of this statement did not require significant changes in the way the Company's segments were disclosed. TransFinancial operates in two industry segments, 9 financial services and industrial technology. The Company discontinued its transportation operations during 2000. TransFinancial operates as an insurance premium finance company through UPAC. The Company provides short-term secured financing for commercial and personal insurance premiums through insurance agencies throughout the United States. Approximately 50% of the insurance premiums financed by UPAC are placed through insurance agencies in California, Illinois, Florida, Texas and Minnesota. Presis is a startup company that is developing an industrial technology for dry particle processing. Information regarding the Company's industry segments for the years ended December 31, 2000, 1999, and 1998 is as follows (in thousands):
Operating Depreciation Operating Income and Capital Total Revenues (Loss) Amortization Additions Assets ----------- -------- --------------- ---------- ----------- Financial Services 2000 12,686 (90) 708 31 91,023 1999 12,227 1,341 740 100 26,597 1998 10,247 (653) 1,172 197 25,558 Industrial Technology 2000 0 (38) 15 0 58 1999 0 (212) 90 21 81 1998 0 (1,469) 610 104 185 Total Segments 2000 12,686 (128) 723 31 91,081 1999 12,227 1,129 830 121 26,678 1998 10,247 (2,122) 1,782 301 25,743 Corporate and Other 2000 35 (1,128) 93 62 1,756 1999 112 (1,222) 63 609 20,475 1998 129 (1,786) 456 3,969 31,013 Total from Continuing Operations 2000 12,721 (1,256) 816 93 92,837 1999 12,339 (93) 893 731 47,153 1998 10,376 (3,908) 2,238 4,270 56,756 Transportation (Discontinued Operations) 2000 111,445 (22,000) 3,105 3,434 8,268 1999 149,125 (7,667) 4,265 5,209 29,740 1998 144,592 624 4,048 4,832 21,706 Consolidated Continuing Operations 2000 124,166 (23,256) 3,921 3,527 101,105 and Discontinued 1999 161,464 (7,760) 5,158 5,939 76,893 Operations 1998 154,976 (3,284) 6,286 9,102 78,462
Depreciation - Depreciation is computed using the straight-line method and the following useful lives: Structures and Improvements............ 19 - 39 years Other Operating Property............... 2 - 10 years 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 increased amortization expense in 1998 by $333,000 and decreased net income by approximately $200,000, or $0.04 per share. 10 Allowance for Credit Losses - The allowances for credit losses is maintained at an amount considered adequate to provide for potential losses. The amount of allowance for credit losses is based on periodic (not less than quarterly) evaluations of the portfolios based on historical loss experience, detail account-by-account agings of the portfolios and management's evaluation of specific accounts. The following is an analysis of changes in the allowance for credit losses on finance accounts receivable: 2000 1999 ------ ------ Balance, beginning of year................ $ 870 $ 566 Provision for credit losses............... 1,367 1,193 Reclass provision - gain on sale accounting change......................... 567 - Charge-offs, net of recoveries of $550 and $443, respectively............... (1,314) (889) ------ ------ Balance, at the end of year............... $1,490 $ 870 ====== ====== Income Taxes - The Company accounts for income taxes in accordance with the liability method. Deferred income taxes are determined based upon the difference between the book and the tax basis of the Company's assets and liabilities. Deferred taxes are provided at the enacted tax rates expected to be in effect when these differences reverse. Cash Equivalents - The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The Company maintains cash and cash equivalents with various major financial institutions. At times such amounts may exceed the F.D.I.C. limits. The Company believes that no significant concentration of credit risk exists with respect to cash and cash equivalents. Disclosures about Fair Value of Financial Instruments - The following methods and assumptions are used to estimate the fair value of each class of financial instruments: a. Cash Equivalents - The carrying amount approximates fair value because of the short maturity of these instruments. b. Finance Accounts Receivable - The carrying amount approximates fair value because of the short maturity of these instruments. c. Long-Term Debt - The carrying amount approximates fair value as the debt bears interest at a variable market rate. Pervasiveness of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Intangible Assets and Accumulated Amortization - Intangible assets, consisting primarily of goodwill and intangibles recorded in connection with the acquisition of insurance premium finance companies, totaled $11,499,000 at December 31, 2000. These intangible assets are generally being amortized on the straight-line basis over 15 - 25 years. The accumulated amortization of intangible assets as of December 31, 2000 was $2,553,000. Reclassifications - Certain amounts in the accompanying consolidated balance sheet for the prior period have been reclassified to conform with the current period's presentations. 11 2. Discontinued Operations On September 16, 2000, the Company ceased operations of Crouse, its less-than-truckload motor carrier subsidiary, as a result of its continuing operating losses. The Company continued to operate Specialized Transport, Inc. ("Specialized"), its truckload motor carrier subsidiary until December 16, 2000. Prior to Crouse's closure, approximately 33% of Specialized's revenues were received from Crouse for providing linehaul transportation between terminals. Specialized was in the process of securing additional freight to replace revenues previously received from Crouse when its insurance coverages were revoked and it was forced the close its operation. The Company is conducting orderly liquidations of the Crouse and Specialized assets for distribution to its secured and unsecured creditors. An independent "Advisory Committee" of unsecured creditors has been formed for each of Crouse and Specialized to provide advice and oversight to management during this liquidation process. The Company has closed on the bulk sale of all of Crouse's tractors, trailers, other equipment and real property. The Company expects to collect a substantial portion of Crouse's remaining receivables and liquidate the assets of Specialized over the next six months.* The Company is in the process of verifying unsecured claims. The proceeds of asset liquidations are anticipated to allow the full payment of the secured claims and a partial distribution to priority creditors and, in the case of Specialized, to the general unsecured creditors on their claims.* A summary of the net liabilities of discontinued operations as of December 31, 2000, follows (in thousands): Assets ------ Cash......................................... $ - Freight accounts receivable, net............. 3,532 Operating property, at estimated net realizable value......................... 3,617 Deposits, prepayments and other.............. 1,127 ------- Total assets................................. 8,276 ------- Liabilities ----------- Secured notes and other...................... 3,141 Post-cessation administrative costs.......... 1,052 Priority wages, taxes and other.............. 1,934 Unsecured liabilities........................ 5,649 ------- Total liabilities............................ 11,776 ------- Net deficit.................................. $(3,500) ======= After distribution of all of the proceeds to creditors, TFH expects to incur approximately $3.5 million of residual liabilities for certain claims included in the net deficit above.* This estimate of residual liabilities considers the reduction of the transportation operations general unsecured liabilities of Crouse and Specialized by $18.5 million.* Such forgiveness relates to debts specific to these corpoations and without recourse to TFH L&T, and various settlements with other creditors.* In connection with the closure of the transportation businesses the Company has recorded an estimated "Loss on Discontinued Operations" of $9.1 million, or approximately $2.78 per share. The loss includes adjustments of asset and liability carrying values to liquidation values, accruals of liabilities for multi-employer pension withdrawal and WARN Act liabilities and estimated post-cessation administrative costs to conduct the liquidation. Management believes that it will be successful in conducting an orderly liquidation of the assets and disposition of claims of Crouse and Specialized.* 12 3. Employee Benefit Plans UPAC Plans Effective June 1, 1995, the Company established a 401(k) Savings Plan and a Money Purchase Pension Plan, both of which are defined contribution plans. Employees of UPAC and TransFinancial are eligible to participate in the plans after they attain age 21 and complete one year of employment. Participants in the 401(k) Savings Plan may defer up to 13% of annual compensation. The Company matches 50% of the first 10% deferred by each employee. Company contributions vest after five years. Company matching contributions in 2000, 1999, and 1998 were $52,000, $70,000 and $63,000. Under the Money Purchase Pension Plan, the Company contributes 7% of each eligible employee's annual compensation plus 5.7% of any compensation in excess of the Social Security wage base. Company contributions in 2000, 1999 and 1998 were $128,000, $137,000 and $108,000. Non-Union Pension Plan TFH L&T has a defined contribution pension plan ("the Non-Union Plan") providing for a mandatory Company contribution of 5% of annual earned compensation of the non-union employees. Additional discretionary contributions may be made depending upon the profitability of TFH L&T. Any discretionary funds contributed to the Non-Union Plan were invested 100% in TransFinancial Common Stock. TFH L&T has taken action to terminate the Non-Union Plan effective March 31, 2001. 401(k) Plan Effective January 1, 1990, TFH L&T established a salary deferral program under Section 401(k) of the Internal Revenue Code. To date, participant contributions to the 401(k) plan have not been matched with Company contributions. All employees of TFH L&T are eligible to participate in the 401(k) plan after they attain age 21 and complete one year of qualifying employment. TFH L&T has taken action to terminate this plan effective March 31, 2001. Stock Option Plans A Long-Term Incentive Plan adopted in 1998 ("1998 Plan") provides that options for shares of TransFinancial Common Stock be granted to directors, and that options and other shares may be granted to officers and other employees. All such option grants are at or above fair market value at the date of grant. Options granted generally become exercisable ratably over two to five years and remain exercisable for ten years from the date of grant. Initially, 600,000 shares were reserved for issuance pursuant to the 1998 Plan. As of December 31, 2000, 236,900 shares were available for grant pursuant to the 1998 Plan. An Incentive Stock Plan was adopted in 1992 ("1992 Plan") which provides that options for shares of TransFinancial Common Stock shall be granted to directors, and may be granted to officers and key employees at fair market value of the stock at the time such options are granted. Initially, 500,000 shares of TransFinancial common stock were reserved for issuance pursuant to the 1992 Plan. As of December 31, 2000, options for 47,230 shares were available for grant pursuant to the 1992 Plan. These options generally become exercisable ratably over two to five years and remain exercisable for ten years from the date of grant. In each of 1995 and 1996 the Company granted non-qualified options to acquire 10,000 shares of common stock to an officer of UPAC pursuant to an employment agreement. These options become exercisable in 1998 and 1999 and expire in 2005 and 2006. The Company follows Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of each of the Company's stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. 13 SFAS No. 123 "Accounting for Stock-Based Compensation," requires the use of option valuation models to estimate the fair value of stock options granted and recognize that estimated fair value as compensation expense. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its stock options under the fair value method of SFAS No.123. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2000, 1999 and 1998: risk-free interest rates of 6.2%, 5.2% and 5.5%; expected life of options of 4.4 years, 4.3 years and 4.4 years; and a volatility factor of the expected market price of the Company's common stock of .54 in 2000, .36 in 1999 and .20 in 1998. The preceding assumptions used as inputs to the option valuation model are highly subjective in nature. Changes in the subjective input assumptions can materially affect the fair value estimates; thus, in management's opinion, the estimated fair values presented do not necessarily represent a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. The Company's unaudited pro forma information follows (in thousands, except for per share amounts): 2000 1999 1998 ------ ------ ------- Pro forma net income (loss).............. $(22,846) $(8,275) $(2,234) Pro forma basic earnings (loss) per share $ (6.96) $ (2.43) $ (0.43) The following table is a summary of data regarding stock options granted during the three years ended December 31, 1999:
2000 1999 1998 ------------------ -------------------- -------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------- ----- ------- ----- ------- ----- Options outstanding at beginning of year........ 408,050 $7.33 353,150 $8.17 350,650 $7.47 Granted..................... 345,750 $1.48 99,500 $4.26 131,050 $9.03 Forfeited................... (71,200) $5.61 (42,600) $7.35 (44,580) $9.13 Exercised................... (1,300) $4.41 (2,000) $2.41 (83,970) $6.07 ------- ------ ------- Options outstanding at end of year.................. 681,300 $4.31 408,050 $7.33 353,150 $8.17 ======= ======= ======= Options exercisable at end of year.................. 188,630 $7.63 160,520 $7.93 114,180 $7.49 ======= ======= ======= Estimated weighted average fair value per share of options granted during the year.................. $1.48 $ 1.33 $2.12
The per share exercise prices of options outstanding as of December 31, 2000, ranged from $.81 to $9.79 per share. The weighted average remaining contractual life of those options was 7.9 years. 14 The following table summarizes information concerning outstanding and exercisable options as of December 31, 2000. Weighted Average Weighted Weighted Number of Remaining Average Number of Average Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Prices Options Life Price Options Price --------------- ----------- ---------- ----- ----------- ----- $0.00-$2.50 341,900 9.3 $1.51 2,150 $2.41 $2.50-$5.50 97,000 7.5 $4.35 32,000 $4.54 $5.50-$8.00 111,500 5.7 $7.66 77,220 $7.69 $8.00-$10.00 130,900 6.4 $8.71 77,260 $8.99 ------- ------- 681,300 188,630 ======= ======= 4. Financing Agreements Securitization of Receivables/Loan Agreements In December 1996, UPAC and TransFinancial entered into a securitization agreement whereby undivided interests in a designated pool of finance accounts receivable can be sold on an ongoing basis. Effective May 26, 2000, the securitization agreement was assigned to and assumed by a new financial institution. UPAC and APR Funding amended the securitization agreement with the new financial institution increasing the maximum allowable amount of receivables to be sold under the new agreement to $80 million, extending the term of the agreement by five years with annual liquidity renewals and amending certain covenants. On August 31, 2000, UPAC and APR Funding Corporation executed a Loan and Security Agreement with the same financial institution under essentially the same terms as the securitization agreement. UPAC and APR Funding borrow under a revolving loan arrangement with maturities from 1 to 270 days. The loan bears interest at commercial paper rates plus bank program fees. Among other things, the terms of the agreement require UPAC to maintain a minimum tangible net worth of $10.0 million, contain restrictions on the payment of dividends by UPAC to TransFinancial without prior consent of the financial institution and require the Combined Group to report any material adverse changes in its financial condition. The terms of the loan agreement require UPAC to maintain a reserve at specified levels that serves as collateral. 5. Common Stock and Earnings Per Share Stock Repurchases In February 1999, the Board of Directors authorized the repurchase of 1,030,000 shares of the Company's common stock. During 1999, a total of 683,241 share were repurchased at a cost of approximately $2.6 million. In June 1998, TJS Partners, LP ("TJS"), a shareholder of the Company, announced its intent to acquire an additional 23% of the Company's outstanding common stock held by one family (the "Crouse family"), obtain control of the Company's board of directors and study possible actions such as the liquidation or sale of part or all of the Company's businesses or assets. The board of directors determined that the hostile takeover attempt was not in the best interest of the Company and its shareholders and agreed to repurchase the shares held by TJS and the Crouse family. The failed attempt at a hostile takeover of the Company, together with other events, led the Company to record charges for management and personnel restructuring, asset and liability valuation adjustments, and transaction costs and other expenses related to the takeover attempt. Pursuant to a definitive stock purchase agreement resolving the hostile takeover attempt, the Company repurchased 2,115,422 shares of its common stock held by the Crouse family, including 881,550 shares registered in the name of TJS Partners, LP, all at a price of $9.125 per share, effective August 14, 1998. In addition, the Company paid and expensed $350,000 of legal and other costs incurred by the Crouse family in connection with the takeover attempt. The Company funded the payment out of available cash and short-term investments, the proceeds from the sale and leaseback of approximately $4.2 million of revenue equipment and the proceeds from the $10.0 million secured loan from one of the Company's existing bank lenders. 15 Earnings Per Share Because of the Company's simple capital structure, income (loss) available to common shareholders is the same for the basic and diluted earnings per share computations. Such amounts were $(22,669,000), $(8,084,000) and $(2,027,000) for 2000, 1999 and 1998. Following is a reconciliation of basic weighted average common shares outstanding, weighted average common shares outstanding adjusted for the dilutive effects of outstanding stock options, and basic and diluted earnings per share for each of the periods presented (in thousands, except per share amounts).
2000 1999 1998 ----------------- -------------- ---------------- Per Share Per Share Per Share Shares Amounts Shares Amounts Shares Amounts Basic earnings (loss) per share................ 3,278 $(6.91) 3,415 $ (2.37) 5,249 $(0.39) ====== ======= ======= Plus incremental shares from assumed conversion of stock options............ 0 10 14 ----- ----- ------ Diluted earnings (loss) per share................ 3,278 $(6.91) 3,425 $ (2.37) 5,263 $(0.39) ===== ====== ===== ======= ====== =======
Options to purchase 188,630 shares of common stock at an average exercise price of $ $7.63 per share were outstanding at December 31, 2000, but were not included in the computation of diluted earnings per share because the options' average exercise price was greater than the average market price of the common shares. These options remain outstanding and expire through 2008. 6. Income Taxes Deferred tax assets (liabilities) are comprised of the following at December 31 (in thousands): 2000 1999 -------- -------- Deferred Tax Assets: Employee benefits.................... $ 835 $ 521 Claims accruals and other............ 2,553 1,706 Allowance for credit losses.......... 809 571 Net operating loss carryforwards..... 9,130 4,225 Alternative minimum tax and other credits........................... 754 754 -------- -------- Total gross deferred tax assets......... 14,081 7,777 Less valuation allowance................ (12,331) (3,197) -------- -------- Net deferred tax assets................. 1,750 4,580 -------- -------- Deferred Tax Liabilities: Financial services revenue........... - (314) Operating property, principally due to differences in depreciation (1,424) (4,038) Amortization of intangibles.......... (326) (228) -------- -------- Total gross deferred tax liabilities.... (1,750) (4,580) -------- -------- Net deferred tax........................ $ - $ - ======== ======== 16 In 2000 and 1999, the Company assessed the likelihood that all or a portion of its deferred tax assets would not be realized. Such assessment included consideration of positive and negative factors, including the Company's current financial position and results of operations, projected future taxable income and available tax planning strategies. As a result of such assessment, it was determined that it was more likely than not that the net deferred tax assets will not be realized. Therefore, the Company recorded a valuation allowance of $9,134,000 and $3,197,000 in its deferred income tax provision in 2000 and 1999, respectively. At December 31, 2000, the Company had approximately $22.8 million of net operating loss carryforwards that were available for Federal income tax purposes and expire in 2018 through 2020. At December 31, 2000, the Company had $709,000 of alternative minimum tax and other credit carryforwards available which do not expire. As noted above, the carryforwards of net operating losses and alternative minimum tax credits may not be realized. The Internal Revenue Service ("IRS") has examined the Company's 1994 through 1996 tax returns. In April 1998, the Company and the IRS settled all issues for tax years 1994 through 1996 within the tax reserves that the Company made provision for in 1997. The following is a reconciliation of the Federal statutory income tax rate to the effective income tax provision (benefit) rate: 2000 1999 1998 ----- ----- ----- Federal statutory income tax rate. (35.0)% (35.0)% (35.0)% State income tax rate, net........ (4.6) (4.7) (3.8) Amortization of non-deductible acquisition intangibles........ 0.4 1.3 3.0 Non-deductible meals and entertainment.................. - 1.1 3.2 Change in valuation allowance..... 40.3 41.8 - Other............................. (1.3) 1.2 3.5 ----- ----- ----- Effective income tax rate......... (0.2)% 5.7% (29.1)% ===== ===== ===== The components of the income tax provision (benefit) consisted of the following (in thousands): 2000 1999 1998 ------- -------- ------- Current: Federal................................ $ (61) $ (198) $ 1,444 State.................................. 10 (50) 361 ------- --------- ------- Total............................... (51) (248) 1,805 -------- --------- ------- Deferred: Federal................................ (7,308) (2,013) (2,115) State.................................. (1,827) (503) (529) Change in valuation allowance.......... 9,135 3,197 - ------- -------- ------- Total............................... - 681 (2,644) ------- -------- ------- Total income tax provision (benefit)...... $ (51) $ 433 $ (839) ======== ======== ======= 17 7. Contingencies and Commitments The Company is party to certain claims and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such claims and litigation will not materially affect the Company's results of operations, cash flows or financial position.* Crouse was named as a defendant in two lawsuits arising out of a motor vehicle accident. The first suit was instituted on June 16, 1999 in the United States District Court in the Eastern District of Michigan (Northern Division) by Kimberly Idalski, Personal Representative of the Estate of Lori Cothran, deceased against Crouse. The second suit was instituted on August 17, 1999 in the United States District Court in the Eastern District of Michigan (Northern Division) by Jeanne Cothran, as Legal Guardian, on behalf of Kaleb Cothran, an infant child against Crouse. The suits alleged that Crouse negligently caused the death of Lori Cothran in a motor vehicle accident involving a Crouse driver. These suits were settled within Crouse's insurance coverage. The Company and its 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 of the Company. The suit alleges that the directors of the Company failed to seek bidders for the Company's subsidiary, Crouse, failed to seek bidders for its subsidiary, UPAC, failed to actively solicit offers for the Company, 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 class action complaint on August 9, 2000, seeking damages in excess of $4.50 per share for alleged breaches of fiduciary duties. A motion to dismiss and an amended complaint have been filed and the Company believes this suit will not have a material adverse effect on the financial condition, liquidity or results of operations of the Company.* 8. Shareholder Rights Plan On February 18, 1999, the Board of Directors authorized the amendment of the previously adopted Shareholder Rights Plan by which the Board of Directors declared a dividend distribution of one Preferred Stock Purchase Right for each outstanding share of TransFinancial Common Stock. Under the Shareholder Rights Plan, Rights were issued on July 27, 1998 to shareholders of record as of that date and will expire in ten years, unless earlier redeemed or exchanged by the Company. The distribution of Rights was not taxable to the Company or its shareholders. The Rights become exercisable only if a person or entity is an "Acquiring Person" (as defined in the Plan) or announces a tender offer, the consummation of which would result in any person or group becoming an "Acquiring Person." Each Right initially entitles the holder to purchase one one-hundredth of a newly issued share of Series A Preferred Stock of the Company at an exercise price of $50.00. If, however, a person or group becomes an "Acquiring Person", each Right will entitle its holder, other than an Acquiring Person and its affiliates, to purchase, at the Right's then current exercise price, a number of shares of the Company's common stock having a market value of twice the Right's exercise price. In addition, if after a person or group becomes an Acquiring Person, the Company is acquired in a merger or other business combination transaction, or sells 50% or more of its assets or earning power, each Right will entitle its holder, other than an Acquiring Person and its affiliates, to purchase, at the Right's then current exercise price, a number of shares of the acquiring company's common stock having a market value at the time of twice the Right's exercise price. Under the Shareholder Rights Plan, an "Acquiring Person" is any person or entity which, together with any affiliates or associates, beneficially owns 15% or more of the shares of Common Stock of the Company then outstanding. The Shareholder Rights Plan contains a number of exclusions from the definition of Acquiring Person. The Shareholders Rights Plan will not apply to a Qualifying Offer, which is a cash tender offer to all shareholders satisfying certain conditions set forth in the Plan. The Company's Board of Directors may redeem the Rights at any time prior to a person or entity becoming an Acquiring Person. 18 TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL INFORMATION December 31, 2000 and 1999 Summary of Quarterly Financial Information (Unaudited): TransFinancial's quarterly operating results from Crouse, as well as those of the motor carrier industry in general, fluctuate with the seasonal changes in tonnage levels and with changes in weather related operating conditions. Inclement weather conditions during the winter months may adversely affect freight shipments and increase operating costs. The following table sets forth selected unaudited financial information for each quarter of 2000 and 1999 (in thousands, except per share amounts).
2000 First Second Third Fourth Total ----------- ---------- --------- -------- --------- Revenue.................................... $ 3,039 $ 2,780 $ 3,323 $ 3,579 $ 12,721 Operating Income (Loss).................... (20) (1,132) (80) (24) (1,256) Nonoperating Income (Expense).............. (228) 151 (38) 651 536 Net Income (Loss).......................... (3,598) (3,427) (10,551) (5,093) (22,669) Basic and Diluted Earnings (Loss) per Share (1.10) (1.05) (3.22) (1.55) (6.91) 1999 First Second Third Fourth Total ----------- ---------- --------- -------- --------- Revenue.................................... $ 2,882 $ 3,125 $ 3,209 $ 3,123 $ 12,339 Operating Income (Loss).................... 13 173 143 (422) (93) Nonoperating Income (Expense).............. 38 7 41 23 109 Net Income (Loss).......................... (172) (321) (1,035) (6,556) (8,084) Basic and Diluted Earnings (Loss) per Share (0.04) (0.09) (.32) (2.00) (2.37)
9. Subsequent Events On September 14, 2001, the Board of Directors unanimously approved a plan of liquidation for the Company. Under the plan of liquidation, the Company will sell all of its assets, and after paying off its debts and setting aside required reserves, will distribute the remaining proceeds as one or more "liquidating dividends" within the next several months. The preliminary estimates of the total distribution under the plan range from $1.50 to $2.00 per share. In conjunction with the plan, a definitive agreement was executed on September 18, 2001 for the sale of the financial services businesses and certain related assets for $14 million, subject to certain adjustments and due diligence. These proposals are subject to approval by a majority of TransFinancial's outstanding shares at a meeting to be held after preparation and mailing of proxy material. The Board of Directors will recommend approval of each of these proposals to the shareholders. 19 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)1. Financial Statements -------------------- Included in Item 8, Part II of this Report - Consolidated Balance Sheets at December 31, 2000 and 1999 Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements Supplemental Financial Information (Unaudited) - Summary of Quarterly Financial Information for 2000 and 1999 (a)2. Financial Statement Schedules ----------------------------- Included in Item 14, Part IV of this Report - Financial Statement Schedules for the three years ended December 31, 2000: Schedule II - Valuation and Qualifying Accounts Other financial statement schedules are omitted either because of the absence of the conditions under which they are required or because the required information is contained in the consolidated financial statements or notes thereto. 20 (a)3. Exhibits -------- The following exhibits have been filed as part of this report in response to Item 14(c) of Form 10-K. Exhibit No. Exhibit Description ----------- ------------------- 10(bb) Agreement between the registrant and Mr. Tim O'Neil. 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date: September 20, 2001 By /s/William D. Cox ---------------------------------------- William D. Cox Chairman of the Board, President, and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ William D. Cox President, Chief Executive Officer ------------------------------ (Principal Financial Officer) William D. Cox /s/ Clark D. Stewart /s/ Harold C. Hill ------------------------------ ----------------------- Clark D. Stewart, Director Harold C. Hill, Jr., Director /s/ Roy R. Laborde ------------------------------ Roy R. Laborde, Vice Chairman of the Board of Directors September 20, 2001 Date of all signatures 22
EX-10 3 tf-ex10_347681.txt AGREEMENT BETWEEN REGISTRANT AND MR. TIM O'NEIL AGREEMENT This Agreement is made and entered into as of this 21st day of June, 2001 by and between TransFinancial Holdings, Inc. a Delaware Corporation ("TFH"), and Timothy P. O'Neil of Johnson County, Kansas ("O'Neil). RECITALS The parties hereto entered into an Employment Agreement effective as of July 2, 1998, and here wish to record their Agreement concerning the performance and discharge, by each of them of their duties and obligations thereunder. Now therefore, in consideration of the foregoing and the mutual promises hereinafter set forth, the parties agree as follows: AGREEMENTS The terms of the Employment Agreement and the rights and obligations of the parties thereunder, shall remain in effect and unchanged until the execution of an agreement between TFH and Central States Southeast and Southwest Areas Health and Welfare and Pension Funds resolving and settling satisfactorily to the TFH directors all claims of such funds as a result of the withdrawal therefrom of the transportation subsidiaries of TFH, which latter date is hereby referred to as the "Effective Date". On the Effective Date, O'Neil shall resign as a officer and director of TFH and TFH shall pay to him the sum of $475,000.00 less required withholding. At or promptly after the Effective Date, O'Neil shall purchase from TFH the automobile presently provided by it for his use for the price of $16,300.00 and TFH shall thereupon transfer to him such automobile and any and all interest that it has in the split dollar life insurance policy maintained on the life of O'Neil, including the right to reimbursement for premiums paid thereon. As of the Effective Date, all options to purchase stock of TFH heretofore granted to O'Neil, shall become fully vested and shall be exercisable by O'Neil at anytime within two years thereafter, subject to earlier liquidation of TFH or the occurrence of any other act terminating its corporate existence. From and after the Effective Date, and through December 31, 2001, O'Neil agrees to provide to TFH such consulting services as it shall reasonably request at the rate of $100.00 per hour, provided, however, that no charge shall be made by O'Neil for the first 200 hours less that number of hours devoted by him to TFH Logistics & Transportation Services, Inc. pursuant to an Agreement of even date herewith. In his role as consultant to TFH, O'Neil shall be an independent contractor and not an (employee or) agent of TFH, and shall not be entitled to further participate in any benefit programs maintained or adopted by it, other than as allowed under COBRA. In connection with performance of such consulting services, O'Neil shall be entitled to reimbursement of all reasonable expenses by him. Such reimbursement and consulting compensation shall be paid to O'Neil by TFH within ten days after the end of each month during which the same were rendered or incurred. As of the Effective Date, O'Neil shall release TFH of and from all rights and claims by him pursuant to the earlier mentioned Employment Agreement, but acknowledges that certain provisions thereof, including paragraphs 6 and 7 thereof, shall remain in effect and binding upon him. TFH acknowledges and agrees that, as of the Effective Date, O'Neil will have rendered in excess of 1,000 hours of service since January 1, 2001, and that, for purposes of benefit plans maintained by it or its affiliates, and in which O'Neil has participated, he shall, absent his earlier death, be deemed an employee as of December 31, 2001. This Agreement shall be construed and interpreted in accordance with, and governed by the laws of the State of Kansas, and shall be binding upon and inure to the benefit of TFH and O'Neil, and their respective heirs, personal and legal representatives, successors and assigns, provided, however, that O'Neil may not assign or delegate any of his obligations hereunder. This Agreement contains the entire understanding of TFH and O'Neil with respect to the subject matter hereof, and no representations, promises, Agreements, understandings, or assurances written or oral not herein contained shall be of any force or effect. No change or modification hereof, or of any term or provision hereof, shall be valid or binding unless the same is in writing and signed by the party intended to be bound. No waiver of any provision of this Agreement shall be valid unless it is in writing and signed by the party against whom such waiver is sought to be enforced, and no valid waiver of any provision of this Agreement shall be deemed a waiver of any other provision hereof, or a waiver of such provision at any other time. If any party to this Agreement files suit or takes legal action to enforce or avoid its provisions, the losing party shall pay the prevailing party's reasonable attorney's fees and expenses. IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed as of the date herein first above written. /s/ Timothy P. O'Neil -------------------------------------------- Timothy P. O'Neil TransFinancial Holdings, Inc. By: /s/ William D. Cox --------------------------------------- 2