-----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, E+aPOD6Y2XL0Gz3mznMRWj8aCLtxqY9UjvzeDdf3vP59lSxChMN9Kxk1uwno344+ RbQxRreZt+iRpIk4HqICiA== 0000950149-96-000812.txt : 19960702 0000950149-96-000812.hdr.sgml : 19960702 ACCESSION NUMBER: 0000950149-96-000812 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960701 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSCISCO INDUSTRIES INC CENTRAL INDEX KEY: 0000786053 STANDARD INDUSTRIAL CLASSIFICATION: TRANSPORTATION SERVICES [4700] IRS NUMBER: 942989345 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09051 FILM NUMBER: 96588955 BUSINESS ADDRESS: STREET 1: 601 CALIFORNIA ST STE 1301 CITY: SAN FRANCISCO STATE: CA ZIP: 94108 BUSINESS PHONE: 4154779700 MAIL ADDRESS: STREET 1: 601 CALIFORNIA STREET SUITE 1301 STREET 2: 601 CALIFORNIA STREET SUITE 1301 CITY: SAN FRANCISCO STATE: CA ZIP: 94108 FORMER COMPANY: FORMER CONFORMED NAME: PLM COMPANIES INC DATE OF NAME CHANGE: 19880222 10-K 1 FORM 10-K 1 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 fiscal year ended MARCH 31, 1996 Commission file number 1-9051 [LOGO] TRANSCISCO INDUSTRIES, INC. --------------------------- (Exact name of registrant as specified in its charter) Delaware 94-2989345 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or Organization) Identification No.) 601 California Street, San Francisco, CA 94108 - ---------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's Telephone Number: (415) 477-9700 -------------- Securities registered pursuant to Section 12(b) of the Act: Title of Each Class: Name of Each Exchange on which registered: Common Stock American Stock Exchange ------------ ----------------------- Securities registered pursuant to Section 12(g) of the Act: None ---- Indicate by check mark whether the registrant has (1) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section229.405 of this chapter) is not contained herein, and will not be contained, to the best of the 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. / / Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No --- --- Aggregate market value of voting stock held by non-affiliates of the registrant, based on the closing price reported by the American Stock Exchange Composite Tape on June 24, 1996: $32,276,386 Number of common shares, $.01 par value, outstanding at June 24, 1996: 6,064,004, including 794,390 Treasury Shares. Documents incorporated by reference: None 2 PART I ITEM 1. BUSINESS. OVERVIEW. Transcisco Industries, Inc. ("the Registrant" or "the Company") was incorporated in California in 1972 under the name PLM Group. It was reincorporated in Delaware in 1985 as PLM Companies, Inc. In 1988, its name was changed to Transcisco Industries, Inc. The Company is an international rail services firm whose primary lines of business include: (1) nationwide railcar maintenance through Transcisco Rail Services; (2) specialty railcar leasing, management, maintenance and intermediary services through Transcisco Leasing Company; and, (3) Russian rail transportation services through Transcisco Trading Company. TRANSCISCO RAIL SERVICES COMPANY. Transcisco Rail Services Company ("TRS") operates 10 railcar repair and maintenance facilities from Georgia to Montana and is one of the largest independent railcar maintenance organizations in the United States, with more than 15,000 privately owned railcars under maintenance contracts. TRS's full-service network of six major maintenance facilities are located at: Alliance, Nebraska; Miles City, Montana; Waycross, Georgia; Sioux City, Iowa; Bill, Wyoming; and Rock Springs, Wyoming. In addition, TRS operates four "mobile" or "mini" shops, which perform repairs and maintenance, generally at customers' plant sites. TRS's marketing offices are in Chicago and its administrative offices are in San Francisco. TRANSCISCO LEASING COMPANY. Transcisco Leasing Company ("TLC"), formed in August 1990, acts as an intermediary in the railcar leasing, management and maintenance market, drawing on Transcisco's established leadership position in coal and other railcar leasing and maintenance. TLC arranges large railcar transactions and manages groups of railcars on a full-service basis, including fleet administration, lease financing, marketing and maintenance. TLC's primary revenue base consists of maintenance fees earned under long term railcar maintenance agreements with major railroads and utilities. TLC's objective is to expand the railcar fleet under its management through further development of select railcar market niches. In seeking this objective, TLC will continue its efforts to offer innovative products and services to fulfill customer needs. At March 31, 1996, TLC had 11,283 railcars covered by contracts for maintenance, management and leasing services. The term of TLC's contracts range from 1 to 20 years. TRANSCISCO TRADING COMPANY. Transcisco Trading Company ("TTC") was formed in 1989 to help organize and serve as a shareholder in SFAT (formerly "SovFinAmTrans"), Russia's leading private rail transportation firm. Initially Russia's first railcar leasing company, SFAT has become a full service transportation management company which owns and manages more than 5,500 railroad tankcars used to export petroleum and petrochemicals. SFAT's shareholders include the Russian Ministry of Rails (47.1%), the former Russian Ministry of Petrochemicals (29.4%), and TTC (23.5%). In May 1996, SFAT entered into a $42 million financing agreement with the European Bank for Reconstruction and Development ("EBRD"). Under the terms of the financing, EBRD will invest $12 million in cash in return for a 10% equity stake in SFAT. In addition, EBRD has arranged for a syndicate of international financial institutions to purchase $30 million of senior debt in SFAT. As of May 31, 1996, the debt and equity funding was not complete. Closing of the financing will occur upon completion of necessary government approvals, which is expected to occur by early Fall. Upon closing of the equity funding, Transcisco's 2 3 ownership interest will drop to approximately 21%. The proceeds of the $42 million financing will be used by SFAT to fund the construction of 1,500 new tank cars. All of the new cars will be equipped with Transcisco's proprietary Uni-Temp heating system, a patented technology which significantly expedites the unloading of liquid commodities, hence increasing the utilization rate of the tank cars. The Uni-Temp system is already in use on 1,500 of SFAT's 5,500 tank car fleet. TTC earns Uni-Temp license and servicing fees from SFAT at the rate of approximately $1.5 million per year. Since its creation in 1989, SFAT's profits have increased each year. For SFAT's fiscal year ended December 1995, the company reported revenues of approximately $82 million and net income of approximately $26.6 million. SFAT's customer base includes major Russian oil refineries and petrochemical companies, as well as western petroleum and petrochemical trading companies. SFAT's full service transportation services include freight forwarding, computerized tracking, railcar maintenance, assembly and inland waterway movement. In addition, SFAT manages the billing and collection of certain railroad freight tariffs for the Russian Ministry of Railways. SFAT has operations in Finland, Estonia, Russia, Cyprus and Gibraltar. MARKETING, CUSTOMERS AND COMPETITION. TRS performs maintenance on all types of railcars. The majority of this business is with long-standing customers, primarily Fortune 500 companies. Competition within the railcar maintenance industry varies by region and by type of railcar. About 250 repair and maintenance facilities are owned by about 130 companies. Location, price, quality, turnaround time, and service levels are primary competitive factors. TRS believes it is one of the largest independent companies offering maintenance, repair, and cleaning services for privately-owned railcars. TLC's services include fleet administration, railcar marketing, lease financing, and maintenance. TLC sells primarily to utilities, major railroads, other shippers, and financial institutions. Currently, TLC has management contracts and leases with approximately 20 companies, covering approximately 11,000 railcars. Although various other companies offer elements of TLC's line of services, the Company believes TLC's combination of services and expertise is unique within the railroad industry. Fleet management expertise, equipment knowledge, market intelligence and price are important factors in the development and continuing profitability of TLC's business. TTC believes that its proprietary Uni-Temp railcar heating technology has substantial operating advantages over competing alternatives. Among its principal applications is in tankcars hauling petroleum and petrochemicals in Russia. SFAT utilizes the technology to enable customers faster delivery of petroleum products. EMPLOYEES. At March 31, 1996, the Company had 323 full-time and part-time employees. None of the employees are subject to collective bargaining arrangements. The Company believes employee relations are good, and it has never experienced a work stoppage. RECENT DEVELOPMENTS. On June 17, 1996, the Company entered into an Agreement and Plan of Merger (the "Agreement") with Trinity Industries, Inc. ("Trinity"). Under terms of the Agreement, and subject to certain approvals, a wholly-owned subsidiary of Trinity will merge with Transcisco through the exchange of shares of common stock of Trinity for 100 percent of the issued and outstanding shares of common stock of Transcisco. The Agreement provides that each share of Transcisco's outstanding common stock will be exchanged on a tax free basis for .1884 of a share of Trinity's common stock. Based on the June 14, 1996 closing price of $35 per share of Trinity's stock, the transaction would have a value of approximately $47.6 million. The stock exchange ratio is fixed. The consummation of the proposed merger is subject, among other conditions, to registration with the Securities and Exchange Commission of the stock of Trinity to be issued in the transaction, approval of the definitive agreement by the shareholders of Transcisco, expiration of the waiting period prescribed under the Hart-Scott-Rodino Antitrust Improvements Act, and all necessary regulatory approvals. 3 4 ITEM 2. PROPERTY. The Company's executive offices are located in a 7,000 square foot leased premises at 601 California Street in San Francisco, California. The Company operates railcar repair facilities throughout the United States as described in Item 1, and believes its facilities are adequate for its present level of business. Of the six facilities described in Item 1, two are subject to a land lease (Bill, Wyoming and Sioux City, Iowa). ITEM 3. LEGAL PROCEEDINGS. On or about September 15, 1995, Great American Insurance Company ("Great American") filed an action (the "Action") in the Superior Court of the State of California in and for the County of Marin against Mark Hungerford, a former Chairman, Director, and Chief Executive Officer of the Company. The action purports to set forth three causes of action for declaratory relief, and prays for judgment in the amount of $2,675,000 (plus interest as provided by law) against Mr. Hungerford. According to the complaint, the Action purports to arise out of a certain payment made by Great American on behalf of Mr. Hungerford in connection with the partial settlement of certain litigation, captioned Daniels v. PLM International, Inc., et al., to which Mr. Hungerford, and others including the Company, previously were parties. The Daniels litigation has been settled, and the state and federal complaints have been dismissed with prejudice. The complaint in the Action also seeks a declaration that two endorsements each barred coverage under a Directors' and Officers' Policy issued by Great American to the directors and officers of the Company. The complaint in the Action also seeks a declaration that no coverage is afforded under that policy for the director and officer defendants in the Daniels litigation in their capacities as directors or officers of PLM International, Inc. Prior to the commencement of the Action in the Marin County Superior Court, the United States District Court for the Northern District of California ruled, on a summary judgment motion in a declaratory relief action, that neither of the endorsements relied upon by Great American precluded coverage under the particular Directors' and Officers' Policy issued by Great American. The Court of Appeals for the Ninth Circuit reversed and remanded that decision, directing that it be dismissed on grounds which did not address the coverage issues under the two endorsements. Great American thereafter filed the Action in Marin County Superior Court. Mr. Hungerford may attempt to seek reimbursement from the Company for any sums paid in connection with defense or settlement of the claim, subject to certain terms and conditions in an indemnification agreement with the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is currently traded on the American Stock Exchange ("AMEX") under the symbol TNI. The following table sets forth the high and low closing sales prices per share of the Common Stock as reported on the AMEX for the periods indicated. No dividends have been paid since 1990. The Company's senior loan agreement prohibits payment of dividends without the consent of its senior lenders. The Company has made no determination whether to declare dividends in the foreseeable future. The closing price of the Company's Common Stock, on June 24, 1996, as reported in the Wall Street Journal was $6.125 per share. As of June 24, 1996, there were approximately 1,200 record holders of the Company's Common Stock.
- ------------------------------------------------------------------------------------ QUARTER OF FISCAL YEAR QUARTER OF FISCAL YEAR 1996 1995 ----------------------------- ------------------------------ Market Prices for 4th 3rd 2nd 1st 4th 3rd 2nd 1st Common Stock: Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. ------ ------ ------ ------ ------ ------ ------ ------ Common Stock High $5.750 $3.500 $3.688 $1.875 $1.750 $1.500 $1.500 $2.250 Low $3.000 $2.625 $1.438 $1.000 $1.063 $1.000 $0.938 $1.063 - ------------------------------------------------------------------------------------
4 5 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA. FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA (In thousands, except ratio and per share amounts)
- -------------------------------------------------------------------------------------------------------------- THREE MONTH FISCAL YEARS ENDED PERIOD ENDED MARCH 31 MARCH 31, CALENDAR YEARS ENDED DECEMBER 31 1996 1995 1994 1993 1992 1991 -------- ------- -------- -------- -------- -------- (restated) Results of Operations: Revenues $ 42,630 $34,579 $ 7,221 $ 32,513 $ 31,833 $ 29,715 Income (loss) from continuing operations before reorganization items, income tax equity in earnings of affiliated companies, asset write-down, extraordinary gain and cumula- tive effect of accounting change 3,874 571 (341) 674 1,622 (3,975) Equity in earnings (loss) of affiliated companies 5,975 2,019 -- -- (3,641) 1,823 Asset write-down (3,000) -- -- -- -- -- (Loss) income from continuing operations 6,651 2,590 (341) (3,412) (4,632) (6,301) Discontinued operations, net of income tax -- -- -- (1,381) (4,146) (16,518) Net gain (loss) before extraordinary gain and accounting change 6,651 2,590 (341) (4,793) (8,778) (22,819) Extraordinary gain 6,058 -- -- 13,929 -- -- Cumulative effect of change to the equity method of accounting -- 7,590 -- -- -- -- -------- ------- -------- -------- -------- -------- Net income (loss) $ 12,709 $10,180 $ (341) $ 9,136 $ (8,778) $(22,819) ======== ======= ======== ======== ======== ======== Per common Share: Primary Net (loss) income - continuing operations $ 1.09 $ 0.49 $ (0.06) $ (0.73) $ (1.05) $ (1.43) Net loss - discontinued operations -- -- -- (0.29) (0.94) (3.75) Extraordinary gain 1.00 -- -- 2.97 -- -- Accounting change -- 1.44 -- -- -- -- -------- ------- -------- -------- -------- -------- Net income (loss) per share $ 2.09 $ 1.93 $ (0.06) $ 1.95 $ (1.99) $ (5.18) ======== ======= ======== ======== ======== ======== Financial Position: Current assets $ 12,147 $11,471 $ 8,993 $ 8,919 $ 14,319 $ 18,002 Total assets $ 44,046 $40,137 $ 30,499 $ 30,564 $ 45,693 $ 54,170 Long-term debt $ 3,561 $13,415 $ 17,998 $ 18,683 $ 36 $ 72 Shareholders' equity (deficit) $ 25,760 $12,844 $ 2,649 $ 2,916 $ (6,810) $ 1,968 Ratio of current assets to current liabilities 1.35 1.16 1.00 1.05 1.50 2.20 Debt to equity ratio 0.14 1.04 7.24 6.71 -- 18.10 - --------------------------------------------------------------------------------------------------------------
5 6 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. On April 14, 1994, the Board of Directors voted to change the Company's fiscal year end from December 31, to March 31. In the following discussion, "1996" refers to the Company's fiscal 1996 year, (the twelve months ending March 31, 1996); "1995" refers to the Company's fiscal 1995 year, (the twelve months ending March 31, 1995) "1993" refers to the fiscal (and calendar year) ending December 31, 1993. For the three month period, January 1 to March 31, 1994, results of operations are presented where appropriate. For a discussion and comparison of this three-month period in relation to the same period of 1993, the reader is referred to the Company's Form 10-Q for the quarterly period ended March 31, 1994. COMPARISON OF THE COMPANY'S OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1996 AND 1995 REVENUES. Revenue for the Company during the fiscal year ended March 31, 1996 increased to $42.6 million from $34.6 million in fiscal 1995. The increase in revenue was primarily a result of growth in TLC's railcar fleet under management, which grew to 11,283 railcars from 6,182 railcars at March 31, 1995. The Company's revenue growth was also the result of the purchase and resale of 1,036 railcars, which contributed $3.1 million in revenues. TLC's growth in revenue was offset by lower revenues at TRS, which declined as a result of lower program repair work and the closure of two of its six mobile repair operations. OPERATIONS AND SUPPORT EXPENSES. For the fiscal year ended March 31, 1996, operations and support expenses increased to $31.7 million from $27.7 million in fiscal 1995. This increase was primarily a result of higher maintenance expenses arising from growth in TLC's managed railcar fleet. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the fiscal year ended March 31, 1996, selling, general and administrative expenses increased to $6.1 million from $4.8 million in the same period of 1995. This increase was caused by higher personnel and marketing costs incurred to facilitate growth in revenue, primarily at TLC. ASSET WRITE-DOWN. In 1995, the Financial Accounting Standards Board issued a Statement of Financial Accounting Standards, No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets for Long-Lived Assets to be Disposed of." SFAS 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the undiscounted cash flows attributed to such assets. The Company adopted the provisions of SFAS 121 as of October 1, 1995. In connection with the refinancing of the Company's debt, the Company evaluated the ongoing value of its property and equipment. Based on this evaluation, the Company determined in December 1995 that assets at one facility with a carrying value of approximately $5.5 million were impaired and such assets were written down by $3 million to their fair value. Fair value was estimated based upon property and equipment appraisals. EQUITY IN THE EARNINGS OF SFAT. Equity in earnings of SFAT represents the Company's share of earnings in SFAT, of which Transcisco Trading Company (a wholly owned subsidiary of the Company) had a 23.5% ownership interest as of March 31, 1996. For the year ended March 31, 1996, equity in earnings of SFAT were $5.98 million, versus $2 million for the same period of 1995. The increase in earnings is attributable to growth in the volume of goods transported by SFAT, as well 6 7 as expanded volumes of collection of certain transportation tariffs by SFAT on behalf of the Russian Ministry of Railways. Please refer to note 1 to the Consolidated Financial Statements for a further description of the Company's equity in the earnings of SFAT. NET INCOME. Net income for the fiscal year ended March 31, 1996 was $12.7 million, or $2.09 per share. Approximately $6.1 million, or $1.00 per share, of net income was a result of an extraordinary gain on the debt refinancing completed in August 1995. In fiscal 1996, income before the extraordinary gain was approximately $6.7 million or $1.09 per share. In fiscal 1995, net earnings were $10.2 million, or $1.93 per share. Fiscal 1995 net earnings reflect a $7.6 million cumulative effect from the Company's change to the equity method of accounting for SFAT. In addition, the 1995 earnings were restated to reflect $2 million of equity in SFAT's fiscal 1994 net income (see note 1 to the Consolidated Financial Statements). The $4.2 million increase in fiscal 1996 income (before the extraordinary gain) was a result of several factors. First, TLC's purchase and resale of 1,036 railcars increased net earnings by $2.7 million. Second, growth in TLC's managed railcar fleet boosted sales and earnings. Third, the Company's share of SFAT's income increased approximately $4 million over 1995 as a result of SFAT's continued success providing Russian rail transportation services. The increase in income was offset by a $3 million asset write-down (see note 3 of the Consolidated Financial Statements) and a $400,000 charge related to operating changes made at TRS to more efficiently manage small dollar value inventory. COMPARISON OF THE COMPANY'S OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1995 AND DECEMBER 31, 1993 REVENUES. Revenue for the Company during the fiscal year ended March 31, 1995 increased to $34.6 million from $32.5 million in fiscal 1993. The increase in revenue was primarily a result of growth in TLC's railcar fleet under management, which grew to 6,182 railcars from 2,544 railcars at December 31, 1993. OPERATIONS AND SUPPORT EXPENSES. For the fiscal year ended March 31, 1995, operations and support expenses increased to $27.7 million from $27 million in fiscal 1993. This increase was primarily a result of higher maintenance expenses arising from growth in TLC's managed railcar fleet. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the fiscal year ended March 31, 1995, selling, general and administrative expenses decreased to $4.8 million from $4.9 million in 1993. This decrease was a result of the Company's cost cutting measures implemented during its Chapter 11 proceedings. Such cost cutting measures included consolidation of offices and of employee job functions. EQUITY IN THE EARNINGS OF SFAT. Equity in earnings of SFAT represents the Company's share of earnings in SFAT, of which Transcisco Trading Company (a wholly owned subsidiary of the Company) had a 23.5% ownership interest as of March 31, 1995, and a 20% ownership as of December 31, 1993. Equity in the earnings of SFAT for the year ended March 31, 1995 were $2 million. As of April 1, 1994, the Company recorded a cumulative effect of the resumption of equity accounting of $7.6 million. The Company is unable to determine comparable data for the year ended December 31, 7 8 1993. Refer to note 1 to the Consolidated Financial Statements for a further description of the Company's equity in the earnings of SFAT. NET INCOME. Net income for the fiscal year ended March 31, 1995 was $10.2 million, or $1.93 per share. Approximately $7.6 million, or $1.44 per share, of net income was attributable to a cumulative effect from the change in accounting for SFAT. In addition, approximately $2 million, or $0.38 per share, of net income was a result of the Company's equity in the fiscal 1994 earnings of SFAT. In fiscal 1993, net earnings were $9.1 million, or $1.95 per share. Net income in 1993 included approximately $14 million, or $2.97 per share, from an extraordinary gain recognized in connection with forgiveness of debt in the Company's Chapter 11 proceedings. Excluding equity in the earnings of SFAT and the cumulative effect of the change in accounting, the Company's net income was $571,000 in 1995. In 1993 - -- excluding the extraordinary gain -- the Company recorded losses of $4.8 million. Fiscal 1995's $5.4 million increase in net income before equity in the earnings of SFAT, the cumulative accounting change, and extraordinary items was primarily a result of certain charges taken in 1993. These charges included $5.6 million in bankruptcy-related costs and adjustments to claims. LIQUIDITY AND CAPITAL RESOURCES On August 1, 1995, the Company refinanced substantially all of its long-term debt. Financing for the transaction was provided by Transamerica Business Credit Corporation, ("Transamerica") and Furman Selz SBIC, L.P. ("Furman Selz"). Transamerica provided a $10 million asset-based credit facility, while Furman Selz purchased a $3 million subordinated note (Furman Selz also purchased warrants to acquire 1 million shares of the Company's common stock at $1.50 per share). The proceeds from these loans and approximately $3 million of the Company's available cash were used to repurchase approximately $15 million of the Company's Class F debt (including accrued interest) for a cash payment of $8.4 million and other consideration, resulting in an approximate $6 million extraordinary gain. The Company also used $1.7 million of proceeds from the refinancing to retire all of its short-term revolving line of credit held by Congress Financial Corporation. The ratio of current assets to current liabilities was 1.35 to 1.0 at March 31, 1996 compared to 1.16 to 1.00 at March 31, 1995. Working capital increased by $1.5 million as a result of cash flow from operations. This increase was also due to the refinancing. The Company's cash flow from operations was $9,465,000 for the year ended March 31, 1996, compared to $367,000 for the year ended March 31, 1995. The growth in operating cash flow resulted from higher earnings and increases in certain liabilities, including increases in the Company's deferred maintenance liability due to the timing of customer prepayments and actual maintenance costs. Cash flow from financing activities was a deficit of $6,942,000 for the year ended March 31, 1996, compared to a positive cash flow of $1,094,000 for the year ended March 31, 1995. The reduction in cash flow from financing activities was due to the Company's refinancing. The Company's cash requirements were satisfied primarily through cash on hand, operating earnings and revolving loans (in addition to a term loan and subordinated note used to fund the refinancing). There were no outstanding borrowings under the Company's revolving loan at March 31, 1996. Based upon the Company's level of inventory and accounts receivable, coupled with the revolving loan's eligibility requirements, the net availability of funds under the facility increased to approximately $1.5 million as of March 31, 1996. Management believes its present cash balance, availability of working capital from the loan facility, and attainment of projected cash flow should be sufficient to meet the Company's working capital requirements for at least the next 12 months. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See Item 14 for financial statement information. 8 9 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. GENERAL. The following table shows the directors and executive officers of the Company, their respective ages, and their current positions:
Term expires Name Age in fiscal year Current Position - ---- --- -------------- ---------------- Eugene M. Armstrong 78 1997 Chairman of the Board William F. Bryant 57 -- President, Transcisco Leasing Company Brian J. Comstock 34 -- Vice President, Sales & Marketing, TRS Ottokarl F. Finsterwalder 60 1996 Director Brian P. Friedman 40 1996 Director William E. Greenwood 58 1998 Director Paul G. Hayes 58 -- Vice President, Engineering, TRS Robert A. Jahnke 52 -- President, Transcisco Rail Services Steven L. Pease 52 1997 President and CEO of the Company; Director Gregory S. Saunders 33 -- Vice President, Controller of the Company George A. Tedesco 73 1998 President, Transcisco Trading Company, Director
Eugene M. Armstrong was elected to the Board of Directors in February 1985, and was appointed President and Chief Executive Officer of the Company in July 1991. Mr. Armstrong resigned as President and became Chairman of the Board in January 1993. From 1969 to his retirement in August 1983, Mr. Armstrong held a number of executive positions with Morrison-Knudsen, Inc. (MK), a construction company, including director of MK, President of two MK-owned short line railroads and all of its railroad operations, and as President, Chairman of the Board and director of H.K. Ferguson Co., director and Executive Vice President of Industrial, Mining and Manufacturing Operations and Manager of the Missile and Space Division of Morrison-Knudsen, Inc. William F. Bryant was appointed President of Transcisco Leasing Company in August, 1990 when the Board of Directors decided the Company should re-enter the rail equipment leasing business. From 1985 to 1990, Mr. Bryant was Senior Vice President, Marketing and Sales for U.S. Leasing International, Inc. Prior to this, Mr. Bryant held senior marketing positions in the rail industry with BRAE Corporation and PLM, Inc., where he was President of PLM Railcar Services, Inc. from 1974 to 1979. Brian J. Comstock became Vice President of Sales and Marketing of Transcisco Rail Services Company, a subsidiary of the Company in February 1995. From 1986 through 1995, Mr. Comstock served as Regional Director of Sales overseeing Central and Northwestern U.S. markets. Previously, Mr. Comstock held management positions in operations. Mr. Comstock is a member of the Association of American Railroads and the Car Department Officers Association. Ottokarl F. Finsterwalder was elected to the Board of Directors in September, 1990. Mr. Finsterwalder was an attorney with Shearman & Sterling until 1970. From 1970 to 1975, he was a director of Hill Samuel & Co., Ltd., a merchant bank located in London. Since 1975, Mr. Finsterwalder has served as Executive Vice President in charge of international operations of Creditanstalt-Bankverein in Vienna. In July, 1985, he was appointed to the Board of Managing Directors of Creditanstalt-Bankverein. Mr. Finsterwalder is also a director of several companies, including Banco Interfinanzas S.A., Buenos Aires, Eckes AG, Frankfurt, Global bond Plus, Ltd., London, Banco BBA-Crediantstalt S.A., Sao Paulo, and Energy International, London. 9 10 Brian P. Friedman was appointed to the Board of Directors on August 31, 1995, pursuant to the Note and Warrant Purchase Agreement dated August 1, 1995, which provides Furman Selz SBIC, L.P. the right to designate one director to serve on the Company's board of directors. Mr. Friedman is President of Furman Selz Investments LLC and has been an Executive Vice President of Furman Selz LLC for more than the past five years. Mr. Friedman serves on the board of directors of the Coast Distribution System and on the board of a number of private companies. William E. Greenwood was elected to Board of Directors on January 20, 1995. Mr. Greenwood is currently president of the Zephyr Group, a Fort Worth, Texas based company. For thirty years, Mr. Greenwood served in various capacities at Burlington Northern Railroad Company (BN), one of the largest railroads in the United States. Mr. Greenwood's most recent position was Chief Operating Officer of BN (1990-1994). He resigned from that post in June, 1994. Prior to this position, he served as Executive Vice President-Marketing & Sales for BN (1985-1990) and Vice President-Intermodal Transportation (1981-1984). Previously, he served in numerous executive positions with BN. Mr. Greenwood serves on the boards of Mark VII, Inc. and Ameritruck Distribution System Corp. Paul G. Hayes became Vice President, Engineering of Transcisco Rail Services Company, a subsidiary of the Company, in November 1987. Mr. Hayes has spent the past 28 years in the rail industry after 5 years in aerospace engineering. Previous positions include Director of Engineering, Director Research and Development, Director of Quality Control while at Richmond Tank Car Company, and Chief Product Engineer at ACF Industries, Incorporated. Robert A. Jahnke became President of Transcisco Rail Services Company, a subsidiary of Company in April 1995. Mr. Jahnke was previously Senior Vice President, Operations of Chicago and Northwestern Transportation Company, where his entire career of 29 years resulted in major contributions in areas of operations, equipment management, and finance. Steven L. Pease, Chairman, Chief Executive Officer and President of Deucalion Securities, Inc., became President and Chief Executive Officer of Transcisco Industries, Inc. for the third time in his career in January of 1995. Mr. Pease had earlier rejoined the Board of Directors in December 1992. Mr. Pease brings with him considerable expertise in the rail services industry, having served as the former President and Chief Executive Officer of PLM Companies, Inc. (the predecessor company of Transcisco Industries and PLM International) from 1981 through 1987, and having served on the Board of Directors from 1981 through 1989. Mr. Pease was also a member of the PLM International Inc., Board of Directors from 1988 through 1989. Mr. Pease served as Chief Executive Officer of Transcisco Industries from January 1993 to March 1994, in the process leading the Company from its bankruptcy. Mr. Pease is a graduate of the Harvard Business School. Gregory S. Saunders became Vice President, Controller of the Company in May 1995. Previously, Mr. Saunders was Manager of Business Development for the Company from 1990 to 1995. In this position Mr. Saunders served in various financial and project management capacities. From 1985 through 1988, Mr. Saunders served in various financial management capacities for the Company's predecessor (PLM Companies, Inc.), including the position of Manager of Accounting of Financial Analysis. Prior to 1985, Mr. Saunders held finance and system analytical positions at American Express Company and Control Data Systems, Inc. Mr. Saunders is a graduate of the Harvard Business School. George A. Tedesco has twenty-one years of continuous service with the Company (including its predecessor companies) and was appointed president of TTC in 1992. Prior to that, Mr. Tedesco was the senior vice president of marketing and sales of the Company. Mr. Tedesco played a key role in creating the Company's successful Russian affiliate, SFAT, and has extensive experience doing business in Russia. Mr. Tedesco was elected to the Company's board of directors in January 1995. Mr. Tedesco has been employed in various executive positions since he joined the Company's predecessor in 1975. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership of Common Stock with the SEC and the 10 11 American Stock Exchange using Form 3, 4, or 5. Officers, directors and greater-than-ten-pecent holders are required to furnish the Company with copies of all such forms which they file. Except for one delinquent filing each of Form 4 by Messrs. Pease, Jahnke and Saunders, the Company believes that during fiscal 1996 all filing requirements applicable to the Company's officers, directors, greater-than-ten-percent beneficial owners, and other persons subject to Section 16 of the Exchange Act were complied with based solely on the Company's review of the filings by such persons and written representations from certain persons that no filing on Form 4 or 5 was required. ITEM 11. EXECUTIVE COMPENSATION. GENERAL. The following table sets forth, for each of the Company's last three fiscal years, the compensation awarded to, earned by, or paid to the chief executive officer and each of the four most highly compensated executive officers of the Company other than the chief executive officer (together, the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
Long-Term Compensation ---------------------------------- Annual Compensation Restricted LTIP All other Name & Principal Fiscal ---------------------- Stock Options Payouts Compen- Position Year(1) Salary ($) Bonus($)(7) Awards(6) (# of Shares)* ($) sation ($) -------- ------- ---------- ----------- --------- -------------- --- ---------- STEVEN L. PEASE(2) 1996 226,667 330,000 -- 150,000 -- -- President & Chief 1995 87,521 -- -- 300,000 -- -- Executive Officer 1994 43,750 -- -- -- -- -- WILLIAM F. BRYANT 1996 172,802 447,000 -- -- -- 8,600(3) President, 1995 172,308 135,500 -- -- -- 4,800 Transcisco Leasing Co. 1994 43,750 -- -- -- -- 4,800 GEORGE A. TEDESCO 1996 174,060 100,000 -- 170,000(4) -- -- (5) President, 1995 148,260 -- -- -- -- -- Transcisco Trading Co. 1994 37,644 -- -- -- -- -- ROBERT A. JAHNKE 1996 175,000 -- -- 60,000 -- 62,500(8) President, Transcisco 1995 -- -- -- -- -- -- Rail Services Co. 1994 -- -- -- -- -- -- PAUL G. HAYES 1996 103,500 4,500 -- -- -- 7,500 Vice President, Engineering 1995 102,896 6,000 -- -- -- 7,500 Transcisco Rail Services Co. 1994 23,160 -- -- -- -- 1,875(9)
- -------------------------------------------------------------------------------- * No SARs were issued (1) The fiscal period 1994 refers to the three month period ended March 31, 1994, pursuant to the Company's transition to a March 31 fiscal year beginning with the twelve months ended March 31, 1995. (2) Amounts paid to Deucalion Securities, an affiliate of Mr. Pease. (3) Includes $3,800 in life insurance premiums paid by the Company and a $4,800 per annum automobile allowance. Years 1994-1995 include only the automobile allowance. (4) Mr. Tedesco was granted 170,000 options at $0.22 per share in partial settlement of Mr. Tedesco's Class F deferred compensation claim. (5) Mr. Tedesco was a Class F claimant in connection with a terminated deferred compensation agreement and received common stock options, a note cash, and the waiving of the exercise price and vesting period on 60,000 options in consideration for his claim. (6) None of the Named Executive Officers hold restricted stock pursuant to the issuance of Restricted Stock Award(s). (7) Bonus amounts reflect sums earned in each respective year, but paid in following year. (8) Amount reflects value of 250,000 stock purchase rights issued to Mr. Jahnke. Value was calculated as difference between exercise price and market value of common stock on the date the stock purchase agreement was signed. (9) Amount reflects debt forgiveness on a loan of approximately $30,000 to Mr. Hayes. OPTIONS. The following table sets forth certain information with respect to stock options granted to the Named Executive Officers during the fiscal year ended March 31, 1996, including hypothetical gains based on assumed rates of annual compound stock price appreciation: 11 12 STOCK OPTION GRANTS IN LAST FISCAL YEAR - INDIVIDUAL GRANTS
Potential Realizable Value at Assumed Annual Rates of Number of Stock Price Appreciation Securities % of Total Exercise Expira- (through Expiration Date)(7) Underlying Options Price tion ---------------------------- Name Options Granted Granted ($/sh) Date(6) 5% Per Year 10% Per Year ---- --------------- ------- ------ ------- ----------- ------------ William F. Bryant(1) -- -- $ 0.50 3-31-2003 $ 18,867 $ 47,812 Paul G. Hayes(2) -- -- $ 0.50 3-31-2003 $ 566 $ 1,434 Robert A. Jahnke(3) 60,000 14.2% $ 1.4375 4-15-2005 $160,368 $ 406,404 Steven L. Pease(4) 150,000 35.5% $ 4.50 2-1-2006 $405,637 $1,027,964 George A. Tedesco(5) 170,000 40.3% $ 0.22 7-31-2005 $ 54,242 $ 137,460
- -------------------------------------------------------------------------------- (1) Mr. Bryant was not granted options in fiscal 1996. Exercise price, expiration date, and realizable values refer to 60,000 options granted March 31, 1993. (2) Mr. Hayes was not granted options in fiscal 1996. Exercise price, expiration date, and realizable values refer to 1,800 options granted March 31, 1993. (3) Options were granted effective April 1995 pursuant to the Company's Amended and Restated (1994) Stock Option Plan (the "1994 Stock Option Plan"). Mr. Jahnke's options vest over a three year period in even monthly amounts. The 1994 Stock Option plan is administered by the independent directors. (4) Options were granted effective March 1996: (i) pursuant to the Company's 1994 Stock Option Plan, if the amendment to such plan is adopted by the stockholders of the Company at the 1996 annual meeting, or (ii) outside of such plan if the amendment is not adopted. Mr. Pease's options vest over a five year period in even monthly amounts. (5) Options were granted effective July 1995 as partial compensation for a deferred compensation Class F bankruptcy claim. (6) Subject to earlier termination in certain events related to termination of employment. (7) Represents assumed rates of stock price appreciation in accordance with the Commission's rules. Actual gains, if any, on stock options exercises are dependent on the future market price of the Company's Common Stock. Computation based on actual option term and annual compounding, computed as the product of: (a) the difference between: (i) the product of the per share market price at the effective date of grant and the sum of 1 plus the adjusted stock price appreciation rate (5% - 62.8%, 10% - 159.4%) and (ii) the per share exercise price of the option and (b) the number of securities underlying the grant at fiscal year end. AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Number of Securities Value of Underlying Unexercised Unexercised in-the-money Options at Options Fiscal Year End at Fiscal Year-End Shares Value (#) end ($) Acquired on Realized Exercisable/ Exercisable/ Name Exercise (#) ($) Unexercisable Unexercisable - ---- ------------ --- ------------- ------------- William F. Bryant -- -- 48,771/11,229 219,470/50,531 Paul G. Hayes 2,600 5,217 425/1,375 1,913/6,188 Robert A. Jahnke -- -- 19,180/40,820 68,329/145,421 Steven L. Pease -- -- 121,585/328,415 432,843/1,169,157 George A. Tedesco -- -- 170,000/0 812,600/0
- -------------------------------------------------------------------------------- DIRECTOR COMPENSATION. Each non-employee director of the Company receives a fee of $2,000 per month. In addition, directors are reimbursed reasonable and customary expenses incurred for attendance at meetings, including, but not limited to, air fare and hotel accommodations. Directors are also awarded additional compensation in connection with extraordinary contributions to the Company. During fiscal 1996, Mr. Finsterwalder was awarded special compensation in the form of options to purchase 25,000 shares of Common Stock, which will be issuable under the Company's Stock Purchase Plan, as amended.. The options carry an exercise price of $4.50 per share and are exercisable immediately. EMPLOYMENT CONTRACTS. In January 1995, the Company entered into a consulting agreement (the "Consulting Agreement") with Deucalion Securities, of which Mr. Pease is CEO. The Consulting Agreement was amended in March 1996. The Agreement is identical to an earlier agreement executed between the Company and its former CEO, Mr. Phil Kantz. The Agreement, as amended, terminates on March 31, 1998, through which period of time Mr. Pease is to receive his base salary, which was increased to $240,000 per year in accordance with the Consulting Agreement (such increase occurring upon the refinancing of the Company on August 1, 1995). The Consulting Agreement also establishes 12 13 incentive compensation for Mr. Pease in terms of performance of the Company relative to its goals outlined in the Company's Chapter 11 bankruptcy plan, including a bonus for exceeding earnings and cash flow projections. In addition, the Agreement grants to Mr. Pease 300,000 options pursuant to the Company's Amended and Restated (1994) Stock Option Plan. The exercise price of the options was set at the market price of the stock on the day of granting, which was $1.4375 per share. The options vest over a three year term, ending January 1998. The Agreement states that, upon a change of control (as defined in the Consulting Agreement), Mr. Pease's options will immediately vest. The Consulting Agreement was amended to include a 1996 bonus award of $330,000 in cash and options to purchase 150,000 shares of the Company's Commons Stock at $4.50 per share. The bonus was awarded as a result of Mr. Pease's achievement of specific earnings and cash flow targets as outlined in the Consulting Agreement. In 1993, the Company entered into an employment agreement (the "1993 Bryant Agreement") with Mr. William F. Bryant, President of Transcisco Leasing Company (TLC). The 1993 Bryant Agreement supersedes the previous employment agreement with Mr. Bryant dated July 9, 1990. The term of the 1993 Bryant Agreement is five years ending June 30, 1998. Pursuant to the 1993 Bryant Agreement, Mr. Bryant's employment may be terminated for cause only. Mr. Bryant's base salary was set at $175,000 per annum; the board of directors of TLC may increase the base salary if it determines an adjustment is equitable and in the best interests of the Company. The 1993 Bryant Agreement includes incentive compensation, allowing Mr. Bryant and the management employees of TLC to share up to 10% of the pretax earnings of Transcisco Leasing Company. The 1993 Bryant Agreement also includes customary healthcare and other benefits. In the event of a merger, acquisition, or change of control of TLC, the 1993 Bryant Agreement shall become binding on the successor entity or the controlling person. In 1995 the Company signed a letter agreement (the "Jahnke Letter") with Mr. Robert A. Jahnke, President of Transcisco Rail Services Company (TRS). Pursuant to the Jahnke Letter, Mr. Jahnke's employment may be terminated for cause only. Mr. Jahnke's base salary was set at $175,000 per annum; the board of directors of TRS may increase the base salary if it determines an adjustment is equitable and in the best interests of the Company. The Jahnke Letter includes incentive compensation, allowing Mr. Jahnke to receive a bonus up to 100% of his base salary for exceeding certain financial targets. In addition, the Jahnke Letter provided for the grant of 60,000 options, vesting over three years and exercisable at $1.4375 per share. The options vest immediately upon a change in control. The Jahnke Letter also awarded 250,000 stock purchase rights (the "Purchase Rights") issuable under the Company's Stock Purchase Plan. The Purchase Rights carried an exercise price of $1.00 per share and were exercisable immediately. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. During the period ended March 31, 1996, no executive officer of the Company served (i) as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on the Company's compensation committee (the "Company Compensation Committee"); (ii) as a director of another entity, one of whose executive officers served on the Company Compensation Committee; or (iii) as a member of the compensation committee (or other board committee performing equivalent functions, or in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on the Company's board of directors. No member of the Company Compensation Committee (i) was, during the period ended March 31, 1996, an officer or employee of the Company or any of its subsidiaries; (ii) was formerly an officer of the Company or any of its subsidiaries; or (iii) had any relationship requiring disclosure by the Company under any paragraph of Item 404 of Regulation S-K. BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION. For the fiscal year 1996, the Company Compensation Committee consisted of Messrs. Armstrong and Finsterwalder, neither of whom currently is an employee of the Company. As part of its duties, the Company Compensation Committee reviews compensation levels of executive officers, evaluates performance of management 13 14 and administers the 1994 Stock Option Plan. The Company Compensation Committee is assisted by the Company's human resources personnel and the Company's independent auditor, Ernst & Young LLP, which supplies the Company Compensation Committee with statistical data and other executive compensation information to permit the Company Compensation Committee to compare the Company's compensation policies against compensation levels nationwide and against programs of other companies of similar size in the Company's industry and geographic area. The companies included in the salary comparisons are generally not the same as the companies included in the index in the stock performance graph included hereafter. The Company Compensation Committee believes that the Company's most direct competitors for executive talent in the San Francisco Bay Area are not necessarily the same companies to which the Company would be compared for stock performance purposes. The Company's executive compensation programs are designed to attract and retain executives who will contribute to the Company's long-term success, to reward executives for achieving the Company's short- and long-term strategic goals, to link executive compensation and shareholder interest through equity-based plans, and to recognize individual contributions to the Company's performance. It is the Company Compensation Committee's belief that none of the Company's executive officers will be affected by the provisions of Section 162(m) of the Internal Revenue Code of 1986, as amended, which limits the deductibility of certain executive compensation during fiscal 1996. Therefore, the Committee has not adopted a policy as to compliance with the requirements of Section 162(m). The Company Compensation Committee has established Mr. Pease's base salary in reference to that provided to Mr. Pease's predecessor and in reference to mean total compensation for area companies. Base salaries for executive officers other than the Company's chief executive officer are set at approximately the mean total cash compensation level of referenced surveys. For the executive officers of the Company, compensation consists of three principal elements: base salary, annual bonus, and stock options. Base Salary. The base salaries of executive officers are initially determined by evaluating the responsibilities of the position held and the experience and performance of the individual, with reference to the competitive marketplace for executive talent, including a comparison to base salaries for comparable positions based on data contained in the surveys discussed above. Executive officer base salaries are targeted toward the mean total compensation established by such surveys in order to attract and retain executives who, in the Company's belief, are best able to meet the unique challenges facing the Company. The Company Compensation Committee reviews executive salaries annually and adjusts them as appropriate to reflect changes in market conditions and individual performance and responsibilities. Bonus Program. The bonus program emphasizes the Company's belief that executive compensation should be closely tied to the Company's profitability. The Company's bonus program also acknowledges company and, indirectly, individual performance. Bonuses can be paid only if the Company exceeds specific goals established for the fiscal year. The bonus program is intended to bring the executives' base salary plus bonus compensation above the mean total compensation levels established by referenced surveys when all company and individual performance criteria are met. Stock Options. Under the 1994 Stock Option Plan, stock options may be granted to executive officers and other key employees of the Company. Upon joining the Company, an individual's initial option grant is based on the individual's responsibilities and position and upon information provided in referenced surveys. The size of any annual stock option awards thereafter is based primarily on a qualitative assessment of an individual's performance and the individual's responsibilities and position with the Company, as well as on the individual's present outstanding options. Options are designed to align the interests of executive officers with those of the Company's shareholders. All incentive stock options are granted with an exercise price equal to the fair market value of the Company Common Stock on the date of grant and generally vest over four years. This approach is designed to encourage the creation of shareholder value over the long term since no benefit is realized from the stock option grant unless the price of the Company Common Stock rises over a number of years. 14 15 Other elements of executive compensation include participation in a company-wide medical and insurance benefits plan and the ability to defer compensation pursuant to a 401(k) plan. The Company makes 50% matching contributions to the 401(k) plan, up to $1,000 per employee per year. The Company Compensation Committee established the salary and bonus compensation levels for Mr. Pease, President and CEO of the Company, in reference to a Consulting Agreement (the "Consulting Agreement") between the Company, Mr. Pease and Deucalion Securities, a firm of which Mr. Pease is CEO. The Consulting Agreement was amended March 1, 1996 and is substantially the same agreement executed with the Company's predecessor President and CEO. The salary and bonus levels specified in the Consulting Agreement were established based upon reference to compensation surveys of area companies of similar size. The Consulting Agreement, as amended, provides for Mr. Pease to be paid a salary of $240,000 per year through the expiration date of the Consulting Agreement, which is March 31, 1998.. The Consulting Agreement also provides for a fiscal 1996 bonus of $330,000 in cash and 150,000 options. The options were issued on March 1, 1996, carry an exercise price of $4.50 per share, and vest immediately upon a change in control, as defined in the Consulting Agreement). The 1996 fiscal year bonus was based upon a formula outlined in the Consulting Agreement which provides for a bonus of up to two times Mr. Pease's salary in the event the Company meets or exceeds certain cash flow and earnings targets. The Company exceeded the specified targets. PERFORMANCE GRAPH The following graph sets forth the Company's total five (5) year cumulative shareholder return as compared to the Russell 2000 index ("Russell 2000"), the Standard & Poors Mid-Capitalization Index ("S&P Mid-Cap"), and the S&P Transportation Index ("S&P Transportation"). The Company believes the Russell 2000, which encompasses the shareholder returns of small public companies, is the most representative index for purposes of comparing the Company's total shareholder return. Total shareholder return assumes $100 invested at the beginning of the period in the common stock of the Company and the stocks represented in the S&P Mid-Cap, S&P Transportation, and Russell 2000 indices. Total return also assumes reinvestment of dividends; the Company has paid no dividends on the Company's Common Stock since 1990. Historical stock price performance should not be relied upon as indicative of future stock price performance. [GRAPHIC] 15 16 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following tables sets forth, as of June 1, 1996, the most recent practicable date, for purposes of Item 12, prior to the filing of this report on Form 10-K, certain information with respect to (i) persons who, to the best knowledge of the Company, was the beneficial owner of more than five percent of the outstanding shares of Company Common Stock, the Company's only class of voting security, and (ii) the number of shares of Company Common Stock beneficially owned by each current director, the Named Executive Officers, and by all current directors and executive officers as a group: (A) Security Ownership of Certain Beneficial Owners
Number of Percent Name Shares(2) of Total(3) ---- --------- ----------- Brian P. Friedman(1) 972,667 14.3% Steve L. Pease 383,975 5.7%
- -------------------------------------------------------------------------------- (1) Includes 6,000 shares issuable upon exercise of options and 966,667 shares issuable upon exercise of a warrant purchased by Furman Selz SBIC, L.P., of which Mr. Friedman is an officer of the general partner. (2) Shares include 978,667 and 186,940 shares issuable upon exercise of warrants or options within 60 days of the date of this proxy to Furman Selz and Mr. Pease, respectively. Amount does not include 263,060 of additional shares issuable pursuant to options upon a change in control of the Company. (3) Based upon 5,269,614 shares outstanding plus 1,530,241 shares issuable within 60 days from the date of this Annual Report on Form 10-K to directors, officers and employees under option and warrant agreements. Amount does not include an additional 295,492 shares issuable pursuant to options upon change in control of the Company. (B) Security Ownership of Directors and Management
Number of Percent Name Shares of Total(1) ---- ------ ----------- Eugene M. Armstrong 80,500 1.2% William F. Bryant(2) 89,232 1.3% Dr. Ottokarl F. Finsterwalder(3) 40,000 ** Brian F. Friedman(4) 972,667 14.3% William E. Greenwood(5) 6,000 ** Paul G. Hayes(6) 998 ** Robert A. Jahnke(7) 277,568 4.1% Steven L. Pease(8) 383,975 5.7% George A. Tedesco(9) 265,834 3.9% All directors & officers as a group (9 persons)(10) 2,116,774 31.1%
- -------------------------------------------------------------------------------- (1) Based upon 5,269,614 shares outstanding plus 1,530,241 shares issuable within 60 days from the date of this Annual Report on Form 10-K to directors, officers and employees under option and warrant agreements. (2) Includes 53,482 shares of the Company Common Stock which may be purchased by Mr. Bryant upon exercise of options over the sixty days following the date of this Annual Report on Form 10-K. (3) Includes 25,000 shares of the Company Common Stock which may be purchased by Mr. Finsterwalder upon exercise of options over the sixty days following the date of this Annual Report on Form 10-K. (4) Includes 6,000 shares issuable exercise of options and 1,000,000 shares issuable upon exercise of warrants issued to Furman Selz SBIC, L.P., of which Mr. Friedman is an officer of the general partner. (5) Includes 6,000 shares of the Company Common Stock which may be purchased by Mr. Greenwood upon exercise of options over the sixty days following the date of this Annual Report on Form 10-K. (6) Includes 998 shares of the Company Common Stock which may be purchased by Mr. Hayes upon exercise of options over the sixty days following the date of this Annual Report on Form 10-K. (7) Includes 27,568 shares of the Company Common Stock which may be purchased by Mr. Jahnke upon exercise of options over the sixty days following the date of this Annual Report on Form 10-K. (8) Includes 176,107 shares of the Company Common Stock which may be purchased by Mr. Pease upon exercise of options over the sixty days following the date of this Annual Report on Form 10-K. (9) Includes 170,000 shares of the Company Common Stock which may be purchased by Mr. Tedesco upon exercise of options over the sixty days following the date of this Annual Report on Form 10-K. (10) Includes 1,431,822 shares of the Company Common Stock which may be purchased by the directors and Named Executive Officers upon exercise of options over the sixty days following the date of this Annual Report on Form 10-K ** = Less than 1% 16 17 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Brian P. Friedman, a director nominated for re-election at the upcoming 1996 Annual Meeting of Stockholders, is an executive vice president of Furman Selz LLC, an affiliate of Furman Selz SBIC, L.P., to which the Company is indebted in the amount of $1,450,000, pursuant to that certain Note and Warrant Purchase Agreement, dated as of August 1, 1995, among the Company, TRS, TLC, TTC, Furman Selz SBIC, L.P., and James Dowling. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) FINANCIAL STATEMENTS AND EXHIBITS: (1) Transcisco Industries, Inc. Consolidated Financial Statements and Report of Independent Auditors: see the Index on page 12 of this Report. (2) Exhibits: 3.1 Joint Plan of Reorganization, incorporated by reference to Form 8-A filed by the Company on August 12, 1993. 3.2 Amended and Restated Certificate of Incorporation of Transcisco Industries, Inc., incorporated by reference to Form 8-A by the Company on August 12, 1993. 3.3 Amended and Restated By-Laws, incorporated by reference to Form 8-A filed by the Company on August 12, 1993. 4.1 Form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of Transcisco Industries, Inc. 10.1 Lease agreement for 601 California Street, incorporated herein by reference to Company's filing of Form 10-K for December 31, 1988, filed with the Securities and Exchange Commission. * 10.2 Transcisco Industries, Inc. Amended and Restated (1994) Stock Option Plan (including implementing agreement: Transcisco Industries, Inc., Stock Option Agreement) incorporated herein by reference to Form S-8 filed April 13, 1995 with the Securities and Exchange Commission. 10.3 Plan and Agreement of Reorganization, incorporated by reference to the Company's Registration Statement on Form S-4 (Reg. No. 33-2236) dated December 23, 1985, filed with the Securities and Exchange Commission. * 10.4 Employment Agreement between TRS and Mr. Robert A. Jahnke, dated April 13, 1995, incorporated herein by reference to the Company's Form 10-K for the fiscal year ended March 31, 1995. * 10.6 Transcisco Industries, Inc. Directors' (1994) Stock Option Plan, incorporated by reference to the Company's Form S-8 filed April 8, 1995 with the Securities and Exchange Commission. * 10.7 Employment Agreement as amended, dated May 1, 1995 between Mr. William F. Bryant and Transcisco Leasing Company, a subsidiary of Company, incorporated herein by reference to the Company's Form 10-K for the fiscal year ended March 31, 1995. * 10.8 Agreement between Deucalion Securities, Inc., and Steven L. Pease and the Company dated January 3, 1995, incorporated herein by reference to the Company's Form 10-K for the fiscal year ended March 31, 1995. 17 18 * 10.9 Amendment dated March 1, 1996 to the Agreement between Deucalion Securities, Inc., and Steven L. Pease and the Company dated January 3, 1995. 10.10 The Note and Warrant Purchase Agreement Among the Company, Transcisco Rail Services Company, Transcisco Leasing Company, and Transcisco Trading Company and Furman Selz S.B.I.C., L.P. and James Dowling dated as of August 1, 1995 is incorporated herein by reference to the Company's Form 8-K filed on October 6, 1995. 10.11 The Registration Rights Agreement by and between the Company, Furman Selz S.B.I.C., L.P., and James Dowling dated August 1, 1995 is incorporated herein by reference to the Company's Form 8-K filed on October 6, 1995. 10.12 The Loan and Security Agreement between the Company, Transcisco Rail Services Company, Transcisco Leasing Company, Transcisco Trading Company, and Transamerica Business Credit Corporation, dated as of July 31, 1995 is incorporated herein by reference to the Company's Form 8-K filed on October 6, 1995. 10.13 The Shareholder Rights Plan by and between the Company and First Interstate Bank of California, as rights agent, dated September 5, 1995, is incorporated herein by reference to the Company's Form 8-A filed on September 15, 1995. 10.14 Letter Agreement by and between the Company and Mark C. Hungerford dated July 1, 1995, incorporated herein by reference to the Form S-3 dated February 7, 1996. 10.15 Agreement and Plan of Merger dated June 17, 1996 among Trinity Industries, Inc., Trinity Y, Inc., and the Company. * 10.17 The Company's Stock Purchase Plan incorporated by reference to the Company's Form S-8 filed April 8, 1995 with the Securities and Exchange Commission. 10.18 Amendment dated June 17, 1996 to the Rights Agreement by and between the Company and Wells Fargo Bank National Association (formerly First Interstate Bank of California), dated September 5, 1995. 21.1 List of subsidiaries of the Company, incorporated herein by reference to the Company's Form 10-K for the fiscal year ended December 31, 1993. 23.1 Consent of Independent Auditors regarding the Company's consolidated financial statements filed as part of this Annual Report on Form 10-K. 27.0 Financial data schedule. 99.1 JSC SFAT Consolidated Financial Statements for the years ended December 31, 1995 and 1994 with Independent Auditors' Report thereon. * Compensatory plans or arrangements required to be filed pursuant to item 14(c) of Form 10-K. (b) REPORT ON FORM 8-K FOR LAST QUARTER OF 1996: No reports on Form 8-K were filed during the last quarter of fiscal 1996. 18 19 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. Date: June 24, 1996 Transcisco Industries, Inc. By: /s/ Gregory S. Saunders ------------------------------------ Gregory S. Saunders, Vice President, Controller Know all persons by these presents, that each person whose signature appears below constitutes and appoints Steven L. Pease, and each of them, his attorney-in-fact, with full power of substitution, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities Exchange Commission, hereby satisfying and confirming all that such attorneys-in-fact may do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report had been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Steven L. Pease President and June 24, 1996 - ----------------------------------- Chief Executive Officer (Steven L. Pease) /s/ Eugene M. Armstrong Chairman of the Board June 24, 1996 - ----------------------------------- (Eugene M. Armstrong) /s/ Dr. Ottokarl F. Finsterwalder Director June 22, 1996 - ----------------------------------- (Dr. Ottokarl F. Finsterwalder) /s/ Brian P. Friedman Director June 24, 1996 - ----------------------------------- (Brian P. Friedman) /s/ William E. Greenwood Director June 25, 1996 - ----------------------------------- (William E. Greenwood) /s/ Gregory S. Saunders Vice President, Controller June 24, 1996 - ----------------------------------- (principal financial and (Gregory S. Saunders) accounting officer) /s/ George A. Tedesco Director June 26, 1996 - ----------------------------------- (George A. Tedesco) 19 20 TRANSCISCO INDUSTRIES, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (ITEM 14 (a) (1) AND (2))
DESCRIPTION PAGE NO. ----------- -------- Report of Independent Auditors. 22 Consolidated Balance Sheets at March 31, 1996 and 1995. 23 Consolidated Statements of Operations for the years ended March 31, 1996 and 1995, the three month period ended March 31, 1994, and the year ended December 31, 1993. 24 Consolidated Statements of Shareholders' Equity (net capital deficiency) for the years ended March 31, 1996 and 1995, the three month period ended March 31, 1994, and the year ended December 31, 1993. 25 Consolidated Statements of Cash Flows for the years ended March 31, 1996 and 1995, the three month period ended March 31, 1994, and the year ended December 31, 1993. 26 Notes to Consolidated Financial Statements. 28
All schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto. 20 21 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Transcisco Industries, Inc. We have audited the accompanying consolidated balance sheets of Transcisco Industries, Inc. (the "Company") as of March 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years ended March 31, 1996 and 1995, the three month period ended March 31, 1994, and the year ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the consolidated financial statements of SFAT (a Russian joint stock corporation in which the Company has a 23.5% ownership interest) for SFAT's fiscal years ended December 31, 1995 and 1994, or for any prior periods. Those statements were audited by other auditors whose report has been furnished to us and, our opinion, insofar as it relates to data included for SFAT, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based upon our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Transcisco Industries, Inc. at March 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for the years ended March 31, 1996 and 1995, the three month period ended March 31, 1994 and for the year ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, as of April 1, 1994, the Company changed its method of accounting for its equity investment in SFAT. ERNST & YOUNG LLP San Francisco, California May 10, 1996, except note 11 as to which the date is June 17, 1996 21 22 TRANSCISCO INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
- ------------------------------------------------------------------------------------------------- FISCAL YEAR ENDED MARCH 31 1996 1995 -------- -------- (restated) ASSETS: Current Assets: Cash and cash equivalents $ 2,695 $ 1,371 Receivables 6,377 6,221 Inventories 2,501 3,460 Other current assets 574 419 -------- -------- Total current assets 12,147 11,471 Property and equipment, net 14,606 17,561 Investment in SFAT 17,214 11,024 Other 79 81 -------- -------- $ 44,046 $ 40,137 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: Current Liabilities: Accounts payable $ 3,743 $ 2,744 Accrued compensation and benefits 1,968 1,202 Unearned revenue 1,505 265 Other current liabilities 1,394 2,351 Borrowings under bank line of credit -- 1,722 Current portion of long-term debt 382 1,563 -------- -------- Total current liabilities 8,992 9,847 Long-term debt 3,561 13,415 Other long-term liabilities 2,861 2,923 Deferred maintenance liability 2,872 1,108 Commitments and contingencies Shareholders' Equity: Preferred Stock, no par value, 1,000,000 shares authorized, none issued -- -- Common Stock, $.01 par value, 15,000,000 shares authorized, issued and outstanding 6,064,004 shares in 1996, and 5,609,961 shares in 1995 53 51 Paid-in capital in excess of par 17,747 17,022 Retained earnings (accumulated deficit) 11,474 (1,235) Less cost of Common shares in Treasury; 794,390 in 1996 and 478,726 in 1995 (3,514) (2,994) -------- -------- Total Shareholders' Equity 25,760 12,844 -------- -------- $ 44,046 $ 40,137 ======== ======== - -------------------------------------------------------------------------------------------------
22 23 TRANSCISCO INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data)
- --------------------------------------------------------------------------------------------------------------------------- THREE MONTH FISCAL YEAR ENDED MARCH 31 PERIOD ENDED YEAR ENDED 1996 1995 MARCH 31, 1994 DEC. 31, 1993 ----------- ----------- -------------- ------------- (restated) Revenues (primarily maintenance & repair) $ 42,630 $ 34,579 $ 7,221 $ 32,513 Costs and expenses: Operations and support 31,718 27,717 6,087 26,989 General and administrative 6,169 4,792 1,153 4,903 Interest income (85) (189) (78) (383) Interest expense 954 1,688 400 330 ----------- ----------- ----------- ----------- Total costs and expenses 38,756 34,008 7,562 31,839 Income (loss) from continuing operations, before tax, reorganization items, asset write- down, equity in earnings of SFAT, extra- ordinary gain, and cumulative effect of a change in accounting principle 3,874 571 (341) 674 Reorganization items: Bankruptcy administrative costs -- -- -- (2,386) Adjustment to estimated allowed claims -- -- -- (1,700) Asset write-down (3,000) -- -- -- Equity in earnings of SFAT 5,975 2,019 -- -- ----------- ----------- ----------- ----------- Income (loss) from continuing operations before tax 6,849 2,590 (341) (3,412) Provision for income tax (198) -- -- -- ----------- ----------- ----------- ----------- Income (loss) from continuing operations 6,651 2,590 (341) (3,412) Discontinued operations: Loss from discontinued operations -- -- -- (23) Gain (loss) on close-down and disposal of business segment -- -- -- 142 Adjustment to estimated allowed claims -- -- -- (1,500) ----------- ----------- ----------- ----------- Loss from discontinued operations -- -- -- (1,381) Income (loss) before extraordinary gain and cumulative effect of a change in accounting principle 6,651 2,590 (341) (4,793) Extraordinary gain 6,058 -- -- 13,929 Cumulative effect as of April 1, 1994, of changing to the equity method of accounting -- 7,590 -- -- ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ 12,709 $ 10,180 $ (341) $ 9,136 =========== =========== =========== =========== Per share amounts: Continuing operations $ 1.09 $ 0.49 $ (0.06) $ (0.73) Discontinued operations -- -- -- (0.29) Extraordinary gain 1.00 -- -- 2.97 Cumulative effect of accounting change -- 1.44 -- -- ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ 2.09 $ 1.93 $ (0.06) $ 1.95 =========== =========== =========== =========== Weighted average number of shares 6,085,381 5,283,926 5,422,935 4,689,530 - ---------------------------------------------------------------------------------------------------------------------------
23 24 TRANSCISCO INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) Fiscal Years Ended March 31, 1996 and 1995, the Three Month Period Ended March 31, 1994 and the Year Ended December 31, 1993 (in thousands)
- ------------------------------------------------------------------------------------------------------- TOTAL SHARE- HOLDERS' COMMON STOCK RETAINED EQUITY AND PAID-IN EARNINGS/ (NET CAPITAL IN (ACCUMULATED TREASURY CAPITAL EXCESS OF PAR DEFICIT) SHARES DEFICIENCY) ------------- ------------ -------- ------------ Balance at December 31, 1992 $16,394 $(20,210) $(2,994) $ (6,810) Net income -- 9,136 -- 9,136 Issuance of common stock 590 -- -- 590 ------- -------- ------- -------- Balance at December 31, 1993 16,984 (11,074) (2,994) 2,916 Net loss -- (341) -- (341) Issuance of common stock 74 -- -- 74 ------- -------- ------- -------- Balance at March 31, 1994 17,058 (11,415) (2,994) 2,649 Net income -- 10,180 -- 10,180 Issuance of common stock 15 -- -- 15 ------- -------- ------- -------- Balance at March 31, 1995 (restated) 17,073 (1,235) (2,994) 12,844 Net income -- 12,709 -- 12,709 Issuance of common stock 727 -- -- 727 Treasury shares released from escrow -- -- (520) (520) ------- -------- ------- -------- Balance at March 31, 1996 (restated) $17,800 $ 11,474 $(3,514) $ 25,760 ======= ======== ======= ======== - -------------------------------------------------------------------------------------------------------
24 25 TRANSCISCO INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
THREE MONTH FISCAL YEAR ENDED MARCH 31 PERIOD ENDED YEAR ENDED 1996 1995 MAR. 31, 1994 DEC. 31, 1993 ------- ------- ------------- ------------- (RESTATED) CASH FLOWS FROM OPERATING ACTIVITIES: Income (loss) from continuing operations before extraordinary gain and cumulative $ 6,651 $ 2,590 $(341) $(3,412) effect of change in accounting principle Adjustments to reconcile loss to net cash (used in) provided by continuing operations: Equity in (earnings) of SFAT, net of dividends (5,915) (2,019) -- -- Reorganization items not requiring cash -- -- 130 1,332 Loss on fixed asset write-downs 3,000 -- -- -- Depreciation and amortization 1,154 1,186 287 1,127 Common stock issued for services 450 15 74 67 Changes in operating assets and liabilities: Accounts receivable (156) (870) (680) 1,909 Inventories 959 (1,059) 22 414 Other current assets (155) 97 82 409 Other assets 2 78 (28) 55 Accounts payable 999 (895) (804) 546 Accrued compensation and benefits 766 370 (139) (348) Deferred maintenance liability 1,764 1,042 (17) (520) Unearned revenue 1,240 -- -- -- Other current liabilities (1,232) (596) 616 (434) Other long-term liabilities (62) 428 -- (299) ------- -------- ---- ------- Net cash (used in) provided by continuing operations 9,465 367 (798) 846 ------- -------- ---- ------- Loss from discontinued operations -- -- -- (1,381) Adjustments to reconcile loss to net cash used in discontinued operations: Accrual for loss on disposal of business segment -- -- -- (150) Liabilities subject to compromise -- -- -- (658) Other, net -- -- -- (586) ------- -------- ---- ------- Net cash used in discontinued operations -- -- -- (2,775) ------- -------- ---- ------- Net cash (used in) provided by operating activities 9,465 367 (798) (1,929) ------- -------- ---- -------
-Continued - 26 (continued from previous page) TRANSCISCO INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
THREE MONTH FISCAL YEAR ENDED MARCH 31 PERIOD ENDED YEAR ENDED 1996 1995 MAR. 31, 1994 DEC. 31, 1993 -------- ------- ------------- ------------- (RESTATED) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net (1,199) (815) (120) (339) Restricted cash -- -- 124 123 Discontinued operations: Capital expenditures, net -- -- -- -- Disposal of equipment -- -- -- 1,580 Restricted cash -- -- -- 600 -------- ------- ------- ------- Net cash provided by (used in) investing activities (1,199) (815) 4 1,964 -------- ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on Class F and other senior debt (11,929) (2,452) (109) (386) Redemption of note receivable -- 2,000 -- -- Borrowings under long-term debt 6,709 341 -- -- Short-term borrowings (repayment) (1,722) 1,205 525 -- -------- ------- ------- ------- Net cash (used in) provided by financing activities (6,942) 1,094 416 (386) -------- ------- ------- ------- Net increase (decrease) in cash and cash equivalents 1,324 646 (378) (351) -------- ------- ------- ------- Cash and cash equivalents at beginning of year 1,371 725 1,103 1,454 -------- ------- ------- ------- Cash and cash equivalents at end of year $ 2,695 $ 1,371 $ 725 $ 1,103 ======== ======= ======= ======= SUPPLEMENTAL CASH FLOW INFORMATION: Treasury shares released from escrow in connection with the debt refinancing $ (520) $ -- $ -- $ -- ======== ======= ======= ======= Common stock issued in connection with the debt refinancing $ 277 $ -- $ -- $ -- ======== ======= ======= =======
26 27 TRANSCISCO INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. BASIS OF PRESENTATION. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. CONCENTRATION OF CREDIT RISK. The Company markets its services throughout the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses and such losses have been within management's expectations. Reserves for doubtful accounts were approximately $97,000 at March 31, 1996 and $48,000 at March 31, 1995. INVENTORIES. Inventories, consisting of rail parts, supplies and work in process, are stated at the lower of cost or market. Cost is determined by the last-in, first out (LIFO) method for substantially all inventories. PROPERTY AND EQUIPMENT. Property and equipment are stated at cost. Depreciation of property and equipment is computed primarily using the straight-line method based on the estimated useful lives of the assets. Estimated useful lives used in computing depreciation provisions are as follows: Buildings and improvements 17 to 40 years Equipment and track 3 to 40 years Rolling stock 15 to 20 years Other 3 to 10 years
When properties are retired, or otherwise disposed of, the asset cost and accumulated depreciation are removed from the accounts, and the resulting gain or loss is credited or charged to operations. Normal recurring maintenance and repair costs are expensed as incurred. Major repairs or betterments are capitalized and depreciated over the remaining useful lives of the related assets. PER SHARE DATA. Net income per share data is computed using the weighted average number of shares of outstanding common stock and diluted common stock equivalents from the assumed exercise of stock options and warrants. Net loss per share data is computed using the weighted average number of shares of outstanding common stock and excludes common stock equivalents as their effect would be anti-dilutive. STATEMENTS OF CASH FLOWS. For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. For the years ended March 31, 1996 and 1995, the three month period ended March 31, 1994, and the year ended December 31, 1993, interest of $623,000, $906,000, $106,000, and $135,000 was paid. For the years ended March 31, 1996 and 1995, the three month period ended March 31, 1994, and the year ended December 31, 1993, the Company paid $200,000, $51,000, $17,000, and $36,000 in income taxes related to various federal and state filings. 27 28 INCOME TAXES. The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." This statement requires that deferred income taxes be determined using the asset and liability method. EQUITY IN EARNINGS OF SFAT. Equity in earnings of SFAT represents the Company's share of earnings in SFAT, of which Transcisco Trading Company (a wholly owned subsidiary of the Company) has a 23.5% ownership interest as of March 31, 1996. The Company believes SFAT is the largest privately owned railcar transportation company in Russia. Effective April 1, 1994, the Company resumed the equity method of accounting for its SFAT investment in December 1995. The resumption of equity accounting was based upon a number of factors including the Company's continuing ability to influence SFAT's operations and the availability of audited financial data from SFAT. The Company's equity in the earnings of SFAT is presented as a cumulative effect as of April 1, 1994. Beginning with the Company's fiscal year ended March 31, 1995, the Company's equity in earnings of SFAT were restated to reflect the Company's equity in SFAT's earnings one quarter in arrears. Accordingly, the Company's equity in the earnings of SFAT for the fiscal year ended March 31, 1995 reflects SFAT's income through SFAT's fiscal year ended December 31, 1994. Similarly, the Company's equity in the earnings of SFAT for the fiscal year ended March 31, 1996 reflects SFAT's earnings for its fiscal year ended December 31, 1995, net of certain costs incurred. The adoption of a one quarter-in-arrears recognition of equity earnings resulted in the Company not reporting any equity earnings for the three month period ended March 31, 1994. The Company also earns licensing and service fees from SFAT which amounted to (in thousands): $1,500, $1,200, $150, and $1,300 for the years ended March 31, 1996 and 1995, the three month period ended March 31, 1994 and the year ended December 31, 1993, respectively. These amounts are included in revenues in the accompanying statement of operations. The Company also received dividends from SFAT which amounted to (in thousands): $60,000, $51,000, $0, and $43,500 for the years ended March 31, 1996 and 1995, the three month period ended March 31, 1994 and the year ended December 31, 1993, respectively. Summarized financial information from the audited financial statements of SFAT is presented below (in thousands):
Year Ended December 31 1995 1994 ---- ---- Current assets $ 57,073 $ 38,035 Total assets 136,597 103,448 Current liabilities 51,510 41,162 Total liabilities 52,560 45,262 Shareholders' equity 79,825 53,915 Total revenues 81,982 27,337 Operating income before interest and taxes 29,701 12,441 Net income 26,594 8,925
REVENUE RECOGNITION. The Company recognizes revenue from repair and maintenance services in the period in which such services are performed. Performance of services is deemed to have occurred when a railcar's repairs have been completed and the railcar is made available for customer disposition. For maintenance fees earned under long term contracts, revenues are recognized over the length of the maintenance agreements in accordance with the terms of the agreements. Such agreements generally require customers to pay fees monthly as consideration for maintenance and management services as defined in the contracts. For railcar leases, the Company recognizes revenues over the length of the leases in amounts reflecting contractual lease payments due from lessees. 28 29 USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. STOCK OPTIONS. The Company accounts for its stock option plan in accordance with provisions of the Accounting Principles Board's Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock Based Compensation." SFAS 123 provides an alternative to APB 25 and is effective for fiscal years beginning after December 15, 1995. The Company expects to continue to account for its employee stock plans in accordance with the provisions of APB 25 with the disclosures required by SFAS 123. Accordingly, the adoption of SFAS 123 is not expected to have any impact on the Company's financial position or results of operations. RECLASSIFICATIONS. Certain prior year balances have been reclassified to conform to the current year's presentation. NOTE 2. PROPERTY AND EQUIPMENT. Property and equipment at March 31, 1996 and 1995 were as follows (in thousands):
1996 1995 ---- ---- Land $ 937 $ 1,078 Building and improvements 8,123 8,852 Rolling stock 677 682 Equipment and track 9,523 13,863 Other 1,112 1,044 ------- ------- 20,732 25,519 Less: Accumulated depreciation (5,766) (7,958) ------- ------- $14,606 $17,561 ======= =======
In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the undiscounted cash flows attributed to such assets. The Company adopted the provisions of SFAS 121 as of October 1, 1995. In connection with the refinancing of the Company's debt, the Company evaluated the ongoing value of its property and equipment. Based on this evaluation, the Company determined that assets at one facility with a carrying value of approximately $5,500,000 were impaired and such assets were written down by $3,000,000 to their fair value. Fair value was estimated based upon property and equipment appraisals. NOTE 3. INCOME TAXES. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows (in thousands): (next page) 29 30
March 31, 1996 March 31, 1995 -------------- -------------- Deferred tax liability: Non-current: Book basis of fixed assets in excess of tax basis $ 3,426 $ (5,162) ------- -------- Total deferred tax liability 3,426 (5,162) Deferred tax asset: Current Difference in reporting bad debt expense and other current assets and liabilities for tax purposes 260 624 Non-current: Net operating loss carryforwards 4,208 11,190 Accrued interest 17 556 Other-net 1,470 682 ------- -------- Total deferred tax asset 5,910 13,052 Net deferred tax asset 2,484 7,890 Valuation allowance (2,484) (7,890) ------- -------- Net deferred tax liability $ -- $ -- ======= ========
The net change in the valuation allowance for the year ended March 31, 1996 was an decrease of $5,406,000 due largely to a decrease in net operating losses as well as other changes in the components of the deferred tax asset and liability. The provision for income taxes is comprised of the following:
Fiscal Year Ended Fiscal Year Ended March 31, 1996 March 31, 1995 ----------------- ----------------- Current: Federal $189,000 -- State 9,000 -- Total current 198,000 -- Deferred: Federal -- -- State -- -- -------- --- Total deferred -- -- -------- --- $198,000 -- ======== ===
A reconciliation between income tax provisions computed at the U.S. federal statutory rate and the effective rate is reflected in the statement of operations:
Fiscal Year Fiscal Year Three Month Ended Ended Period Ended March 31, 1996 March 31, 1995 March 31, 1994 -------------- -------------- -------------- Federal statutory rate 34% 34% 34% State rate, net of federal benefit 7 7 7 Alternative minimum tax rate differential (14) -- -- Benefit from carryforward of net operating losses (27) (41) (41) --- --- --- Effective income tax rates -- -- -- === === ===
The balance sheets as of March 31, 1996 and 1995 reflect liabilities for tax claims. The tax claims are the result of unresolved tax authority audits pertaining to the years 1985 through 1989. The potential liability for the tax 30 31 claims was approximately $200,000 and $660,000 at March 31, 1996 and 1995, respectively. Tax account balances related to the tax claims total $2,040,000 and $2,235,000 as of March 31, 1996 and 1995, respectively, and are included in other long-term liabilities in the accompanying balance sheet. At March 31, 1996 and 1995, the Company had net operating loss carryforwards for federal income tax purposes of approximately $11,600,000 and $30,000,000, respectively. These net operating loss carryforwards expire from 2004 through 2008. The Company's ability to utilize the net operating loss carryforwards may be limited in the event of a 50% or more ownership change within any three year period. No provision for income taxes on $16,703,000 of accumulated undistributed earnings of the Company's investment in a foreign company has been recorded since the earnings are intended to be indefinitely reinvested in that company. Cash paid for income taxes was $197,000 for the fiscal year ended March 31, 1996. NOTE 4. BANK BORROWINGS AND LONG-TERM DEBT (IN THOUSANDS). SUMMARY OF LONG-TERM DEBT.
March 31, 1996 March 31, 1995 -------------- -------------- Secured revolving credit agreement: Transamerica $ -- $ -- Senior term loan: Transamerica 1,985 -- Series A subordinated debt: Furman Selz 1,500 -- Other long-term debt 458 458 Restructured Debt (Note 9) -- 14,520 ------ --------- 3,943 14,978 Less current portion (382) (1,563) ------- --------- LONG-TERM DEBT $3,561 $ 13,415 ====== =========
REFINANCING. On August 1, 1995, the Company refinanced substantially all of its long-term debt. Financing for the transaction was provided by Transamerica Business Credit Corporation, ("Transamerica") and Furman Selz SBIC, L.P. ("Furman Selz"). Transamerica provided a $10 million asset-based credit facility, while Furman Selz purchased a $3 million subordinated note (Furman Selz also purchased warrants to acquire 1 million shares of the Company's common stock at $1.50 per share). The proceeds from these loans and approximately $3 million of the Company's available cash were used to repurchase approximately $15 million of the Company's Class F debt (including accrued interest) for a cash payment of $8.4 million and other consideration, resulting in an approximate $6 million extraordinary gain. The Company also used $1.7 million of proceeds from the refinancing to retire all of its short-term revolving line of credit held by Congress Financial Corporation. SENIOR TERM LOAN. Pursuant to a term loan with Transamerica, principal payments are due in equal monthly installments of $26,000 for 59 months through June 30, 2000, with the balance of the then outstanding principal due July 31, 2000; interest is due monthly in arrears, computed at prime plus 2% (10.25% at March 31, 1996). The loan is secured by substantially all of the Company's property and equipment. The term loan note contains financial covenants, including certain ratios that the Company must satisfy, and certain prepayment fees for payments made before July 31, 1998. 31 32 REVOLVING CREDIT LINE. This credit facility with Transamerica has a limit of $7,835,000, subject to certain reserves and eligibility requirements (available credit facility in March 31, 1996 was $1.5 million). The loan is collateralized by the Company's accounts receivables and inventory (the "collateral base"). The collateral base is computed on a daily basis. Interest is accrued daily based on the amount of loan outstanding, at a rate of prime plus 1.75% (10% as of March 31, 1996), payable in arrears. A fee of 0.25% is assessed on any unused line of credit. A fee of 0.25% of the daily average of loan outstanding during each month is charged to the Company. The term of the credit line is five years (expiring July 31, 2000), when all outstanding balances are due in full. SECURED REAL ESTATE LOAN. Collateral for this loan (through the Wyoming Community Development Center) consists of the real estate, land and buildings of Transcisco Rail Services' Rock Springs, Wyoming facility. The loan is payable in two remaining installments: $100,000 in December 1997 and $200,000 in December 2000. Interest is 6% and is due monthly. SERIES A SENIOR SUBORDINATED NOTES. The notes were issued to Furman Selz S.B.I.C., L.P. and James Dowling. Principal is due in total in 2000. The note bears interest at an annual rate of 10% through July 31, 1997, and 12% thereafter. Interest is payable on July 31, of 1996 and 1997, and January 31 and July 31 of each year thereafter (all prepayments will first be applied to the Series A notes). Half of the interest due on July 31, 1996 and July 31, 1997 is to be deferred and payable on July 31, 1998 and July 31, 1999, respectively. The subordinated debt may be prepaid without penalty upon proper notice. Principal payments on debt are approximately (in thousands): $382 in 1997; $450 in 1998; $338 in 1999; $2,024 in 2000, and $749 thereafter. The Company believes that as of March 31, 1996, the fair value of its long-term debt approximates the carrying value of those obligations. The fair value of the Company's long-term debt is estimated based on quoted market prices for similar issues with the same interest rates that would be available to the Company for similar debt obligations. NOTE 5. LONG-TERM MAINTENANCE, MANAGEMENT AND SUB-LEASE CONTRACTS. The Company has long-term maintenance contracts, including certain cost-per-mile maintenance contracts, with several major customers requiring the Company to provide maintenance services on unit train coal cars, primarily over one to fifteen year periods. Fees are based on a fixed price per railcar-mile traveled, with provisions for adjustments based on a projected frequency of repair and changes in costs of materials and industry labor rates. The Company estimates the cost of providing maintenance under these contracts and accrues these estimates as a Deferred Maintenance Liability and a current period expense. These estimates may differ from actual results and such estimates could be material to the financial statements. The actual amount of future maintenance costs will vary depending on the actual lives of the maintenance components, the proportion of repairs performed by outside railroad maintenance shops, inflation and other factors. Actual costs are deducted from the Deferred Maintenance Liability as incurred. Overhead costs are recognized as incurred. NOTE 6. COMMITMENTS AND CONTINGENCIES. LEASING ARRANGEMENTS. Various production and office facilities and equipment are leased under operating leases ranging from one to ten years, with options to renew at various times. In addition, certain rolling stock is leased on a long-term basis. Rental expenses for operating leases with non-cancelable terms in excess of one year are (in thousands): $2,607 in 32 33 1997; $2,628 in 1998; $2,340 in 1999; $2,414 in 2000, and $2,029 in 2001 and beyond. The Company has certain long-term non-cancelable management and sub-lease agreements related to railcar leasing transactions between 1997 and 2006. Amounts receivable under the terms of these non-cancelable agreements with terms in excess of one year are (in thousands): $2,931 in 1997; $2,935 in 1998; $2,796 in 1999; $2,741 in 2000, and $2,707 in 2001 and beyond. Rent expense during the year ended December 31, 1993, the three month period ended March 31, 1994, the years ended March 31, 1995 and 1996 was (in thousands): $1,998, $492, $1,699, and $3,085, respectively. LITIGATION. On or about September 15, 1995, Great American Insurance Company ("Great American") filed an action (the "Action") in the Superior Court of the State of California in and for the County of Marin against Mark Hungerford, a former Chairman, Director, and Chief Executive Officer of the Company. The action purports to set forth three causes of action for declaratory relief, and seeks judgment in the amount of $2,675,000 (plus interest as provided by law) against Mr. Hungerford. According to the complaint, the Action purports to arise out of a certain payment made by Great American on behalf of Mr. Hungerford in connection with the partial settlement of certain litigation, captioned Daniels v. PLM International, Inc., et al., to which Mr. Hungerford and others, including the Company, previously were parties. The Daniels litigation has been settled, and the state and federal complaints have been dismissed with prejudice. The complaint in the Action also seeks a declaration that two endorsements each barred coverage under a Directors' and Officers' Policy issued by Great American to the directors and officers of the Company. The complaint in the Action also seeks a declaration that no coverage is afforded under that policy for the director and officer defendants in the Daniels litigation in their capacities as directors or officers of PLM International, Inc. Prior to the commencement of the Action in the Marin County Superior Court, the United States District Court for the Northern District of California ruled, on a summary judgment motion in a declaratory relief action, that neither of the endorsements relied upon by Great American precluded coverage under the particular Directors' and Officers' Policy issued by Great American. The Court of Appeals for the Ninth Circuit reversed and remanded that decision, directing that it be dismissed on grounds which did not address the coverage issues under the two endorsements. Great American thereafter filed the Action in Marin County Superior Court. Mr. Hungerford may attempt to seek reimbursement from the Company for any sums paid in connection with defense or settlement of the claim, subject to certain terms and conditions in an indemnification agreement with the Company. NOTE 7. SHAREHOLDERS' EQUITY. COMMON STOCK. On August 11, 1993, the Company filed an Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware. Upon the effectiveness of the Amended and Restated Certificate of Incorporation the then outstanding 3,188,369 shares of Class A Common Stock and 1,358,960 shares of Class B Common Stock were converted into one form of stock designated Common Stock. The Amended and Restated Certificate of Incorporation was filed by order of the Bankruptcy Court pursuant to the Plan. During fiscal years 1996, 1995 and 1993, the Company granted 25,000, 60,000 and 165,000 shares of common stock, valued at approximately $50,000, $75,000 and $67,000, respectively, to members of the Board of Directors as compensation for extraordinary services. STOCK OPTIONS. In January 1995, the Company's shareholders approved an Amended and Restated (1994) Stock Option Plan (the "1994 Plan"). The prior stock option plan was adopted in its original form and amended in 1989. The 1994 Plan reserves for the issuance of 750,000 shares of common stock. There were no common shares available for grant at March 31, 1996. 33 34 In January 1995, the Company's Board of Directors also approved an Amended and Restated Directors Stock Option Plan which reserves 100,000 shares of common stock. Common shares available for grant were 88,000 at March 31, 1996. Activity under these stock option plans for the years ended March 31, 1996 and 1995, the three month period ended March 31, 1994, and the year ended December 31, 1993 was as follows:
SHARES UNDER OPTION EXERCISE PLAN PER SHARE ------------ --------- Outstanding, December 31, 1993 393,000 $0.50 to $3.75 Granted 310,000 $1.1875 Exercised (6,600) $0.50 Cancellations (21,500) $0.50 to $0.81 -------- Outstanding, March 31, 1994 674,900 Granted 353,500 $1.188 to $1.50 Exercised (29,875) $0.50 to $1.1875 Cancellations (318,792) $0.50 to $ 1.1875 -------- Outstanding, March 31, 1995 679,733 Granted 117,000 $1.44 to $5.563 Exercised (191,818) $0.50 to $1.1875 Cancellations (30,073) $0.50 to $1.50 -------- Outstanding, March 31, 1996 574,842 ========
STOCK WARRANTS. In connection with the refinancing, Furman Selz purchased warrants to acquire 1 million shares of the Company's common stock at an exercise price of $1.50 per share. The agreement governing the warrants was reached in June 1995, when the Company's stock price was approximately $1.50 per share. Furman Selz paid $30,000 for the warrants, which expire in July 2005. The warrants are subject to certain anti-dilution provisions and may be fully exercised at any time. The warrants may be exercised for cash consideration only. STOCK PURCHASE RIGHTS. In 1995 the Board of Directors approved an employee stock purchase plan (the "Purchase Plan"), which provides for the issuance of stock purchase rights to key employees. The Company has reserved 510,000 shares for issuance under the Purchase Plan. In fiscal 1996, employees were granted 260,000 stock purchase rights under the plan. SHAREHOLDER RIGHTS PLAN. On September 5, 1995, the Company adopted a Shareholder Rights Plan (the "Rights Plan"), pursuant to which each holder of the Company's Common Stock was issued a currently unexercisable right ("Right") to purchase Series A Junior Preferred Participating Stock (the "Preferred Stock") at an exercise price of $12.00 per share. Following public announcement that a person or group has acquired, or is making a tender offer for, 5% or more of the outstanding shares of the Company's Common Stock, the Rights will become exercisable to purchase the number of shares of Preferred Stock having a value equal to ten times the exercise price. In the event that the Company engages in a merger or business combination with the acquirer or tender offeror, the Rights will become exercisable for shares of common stock in the acquiring entity having a value equal to ten times the exercise price of the Right. The Rights would not become exercisable, however, if the Company's Board of Directors approved the acquisition of the common stock, the merger, or the business combination prior to the occurrence thereof. 34 35 NOTE 8. BENEFIT PLAN. Substantially all employees are eligible to participate in the Company's Profit Sharing and Tax Advantage Savings Plan. The Company makes discretionary contributions to the Plan up to a maximum matching contribution of $1,000 for each participant. Contributions charged to operations were $114,653 in the year ended March 31, 1996, $101,000 in the year ended March 31, 1995, $22,000 in the three month period ended March 31, 1994, and $75,000 in the year ended December 31, 1993. NOTE 9. CHAPTER 11 REORGANIZATION PROCEEDINGS. On July 1, 1991, certain holders of Transcisco Industries, Inc.'s (the "Company's") 9% Convertible Senior Subordinated Notes due May 15, 1996, filed an Involuntary Petition for Relief Under Chapter 7 of the United States Bankruptcy Code against the Company in the United States Bankruptcy Court. The petition was in response to the Company's previous announcement that it was delaying the May 15, 1991 interest payment on these Notes. On July 30, 1991, the Company filed a motion (which was granted) to convert the case to voluntary Chapter 11 of the United States Bankruptcy Code. In addition, one of its subsidiaries, Transcisco Tours, Inc., filed a voluntary petition with the United States Bankruptcy Court seeking protection under Chapter 11. The Chapter 11 proceedings did not include any of the Company's other operating subsidiaries: Transcisco Rail Services Company (TRS), Transcisco Leasing Company, Transcisco Trading Company or Transcisco Texan Railway, Inc., (whose operations were subsequently discontinued). The Chapter 11 cases were administered by the Bankruptcy Court, with Transcisco Industries, Inc. and Transcisco Tours, Inc. (the Debtor Companies) managing their businesses as debtors-in-possession subject to the control and supervision of the Bankruptcy Court. The primary cause of the Chapter 11 filings was the outlay required and significant losses incurred in the construction and operation of a luxury "cruise train" operating from the San Francisco Bay Area to Lake Tahoe/Reno, Nevada by Transcisco Tours, Inc. The "cruise train" operated from December 7, 1990 to April 29, 1991. As a result of substantial losses, Union Bank terminated the Company's line of credit, and the Company was unable to satisfy its then current cash flow requirements, all of which prompted the two Chapter 11 cases. Following a hearing on September 3, 1993, the Bankruptcy Court announced its intention to confirm the Joint Plan of Reorganization ("Plan") propounded by the Company, its Official Unsecured Creditors' Committee and its Official Bondholders' Committee. The Findings of Fact and Conclusions of Law Regarding the Joint Plan of Reorganization and the Order Confirming the Joint Plan of Reorganization were entered by the Bankruptcy Court on October 21, 1993 and the Plan became effective on November 3, 1993. In September 1993, Transcisco Tours filed a liquidating Plan of Reorganization. The Disclosure Statement accompanying that Plan was approved by the Bankruptcy Court in October 1993 and confirmed in December 1993. Accordingly, other than liabilities guaranteed by the Company as part of the Plan, the accompanying financial statements do not include the accounts of Transcisco Tours after September 1993. The Plan generally provided that: 1. Tax claims of approximately $1,300,000 (applied against the previously established deferred tax liability) were to be paid in full over a six-year period including 7% interest. 2. The Company transferred 3,367,367 shares of PLM International ("PLMI") common stock and 60% of a $5,000,000 subordinated PLMI promissory note receivable to a court-appointed representative of the holders of the Company's senior subordinated notes ("Bondholders") in full satisfaction of the Bondholders' claims in the Chapter 11 case. The Company retained a 40% interest in the principal and interest paid by PLMI with respect to the foregoing $5 million note. That 40% interest was redeemed by PLMI in October 1994, and the proceeds were paid to the Class F Creditors. 3. In connection with the Plan, the Company had previously settled litigation brought by Shirley B. Daniels against the Company, PLMI and other defendants. Pursuant to the settlement in the Plan, the Company paid the entire $750,000 in full satisfaction over a ten quarter period ended December 31, 1995. 35 36 4. In August 1993, in accordance with the Plan, the Company paid $1.5 million in cash to Amtrak in full satisfaction of its claim of $10,206,000. Amtrak's claim was based upon the Company's alleged breach of a five-year operating and management agreement with Amtrak to operate the Transcisco Tours' cruise train. 5. Eighty percent (80%) of the claims of most remaining unsecured creditors ("Class F" claims) plus monthly interest at prime plus 11/2%, were to be paid over a seven year period ending in December 31, 1999. The aggregate amount of unsecured claims allowed, after the 20% reduction, was approximately $18,270,570. The Company retired all Class F claims in connection with its August 1995 refinancing. In addition, on November 4, 1993, the Company issued 489,976 shares of its common stock (representing 10% of the Company's then outstanding Common Stock) to a Collateral Agent acting on behalf of the unsecured creditors. These shares were to be distributed over a three year period. Upon completion of the refinancing, approximately 175,000 shares were distributed to the Class F claimants. The Company retained approximately 315,000 of shares in treasury. 6. Upon the filing of the amended Certificate of Incorporation on August 11, 1993, each share of the Class A Common Stock (par value $0.01 per share), of the Company and each share of the Class B Common Stock, (par value $0.01 per share), of the Company, then issued and outstanding immediately prior thereto was canceled and changed into one share of the Common Stock, (par value $0.01 per share), of the Company. In connection with the Company's emergence from bankruptcy, the Company recognized a $13,929,000 extraordinary gain in the third quarter of 1993. The gain on early extinguishment of debt is summarized as follows: Extinguished of subordinated debentures $ 7,391,000 20% reduction unsecured creditor claims, less value of 10% of the Company's Common Stock issued ($523,000) 2,232,000 Transcisco Tours unsecured debt 4,306,000 ----------- $13,929,000 ===========
During 1993, the Company also recognized $1,700,000 and $1,500,000 in increases in estimated allowed claims related to continuing and discontinued operations, respectively. The consolidated financial statements for the year ended December 31, 1993 reflect the financial reporting guidance for entities in reorganization as prescribed by the American Institute of Certified Public Accountants' Statement of Position 90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy Code." The Consolidated Statements of Operations separately disclose reorganization expenses related to the Chapter 11 proceedings. Interest expense related to pre-petition indebtedness of approximately $3.1 million was not accrued in the financial statements for the year ended December 31, 1993. Such interest was not be paid nor became a secured claim since the Company was operating under Chapter 11 during most of 1993. Of the unaccrued interest, approximately $604,000 from 1993 relates to discontinued operations. From November 3, 1993, until the refinancing in August 1995, interest was accrued on the Class F claims in accordance with generally accepted accounting principles. NOTE 10. SUBORDINATED NOTE RECEIVABLE FROM PLMI. Until the Company's emergence from bankruptcy, the Company had a $5 million subordinated note from PLMI. The note bore interest at 14.75% with interest payable semi-annually. Interest income of approximately $160,000, $73,000, and $371,000 was recorded in the year ended March 31, 1995, the three month period ended March 31, 1994, and the year ended December 31, 1993, respectively. In October 1994, PLMI redeemed the note for 36 37 90% of its face value. In accordance with the Plan of Reorganization, the $1.8 million in redemption proceeds due Transcisco was paid to its Class F Creditors. NOTE 11. SUBSEQUENT EVENTS. On June 17, 1996, the Company entered into an Agreement and Plan of Merger (the "Agreement") with Trinity Industries, Inc. ("Trinity"). Under terms of the Agreement, and subject to certain approvals, a wholly-owned subsidiary of Trinity will merge with Transcisco through the exchange of shares of common stock of Trinity for 100 percent of the issued and outstanding shares of common stock of Transcisco. The Agreement provides that each share of Transcisco's outstanding common stock will be exchanged on a tax free basis for .1884 of a share of Trinity's common stock. Based on the June 14, 1996 closing price of $35 per share of Trinity's stock, the transaction would have a value of approximately $47.6 million. The stock exchange ratio is fixed. The consummation of the proposed merger is subject, among other conditions, to registration with the Securities and Exchange Commission of the stock of Trinity to be issued in the transaction, approval of the definitive agreement by the shareholders of Transcisco, expiration of the waiting period prescribed under the Hart-Scott-Rodino Antitrust Improvements Act, and all necessary regulatory approvals. 37 38 INDEX TO EXHIBITS TRANSCISCO INDUSTRIES, INC.
EXHIBIT NO. PAGE NO. - ----------- -------- 3.1 Joint Plan of Reorganization. * 3.2 Amended and Restated Certificate of Incorporation of Transcisco Industries, Inc. * 3.3 Amended and Restated By-Laws of Transcisco Industries, Inc. * 4.1 Form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of Transcisco Industries, Inc. 44 10.1 Lease agreement for 601 California Street. * 10.2 Transcisco Industries, Inc., Amended and Restated (1994) Stock Option Plan (including implementing agreement: Transcisco Industries, Inc., Stock Option Agreement). * 10.3 Plan and Agreement of Reorganization. * 10.4 Employment Agreement between TRS and Mr. Jahnke, dated April 13, 1995. * 10.6 Transcisco Industries, Inc. Directors' (1994) Stock Option Plan. * 10.7 Employment Agreement as amended, dated May 1, 1995 between Mr. William F. Bryant and Transcisco Leasing Company. * 10.8 Agreement between Deucalion Securities, Inc., and Steven L. Pease and the Company dated January 3, 1995. * 10.9 Amendment dated March 1, 1996 to the Agreement between Deucalion Securities, Inc., and Steven L. Pease and the Company dated January 3, 1995. 41 10.10 The Note and Warrant Purchase Agreement Among the Company, Transcisco Rail Services Company, Transcisco Leasing Company, and Transcisco Trading Company and Furman Selz S.B.I.C., L.P. and James Dowling dated as of August 1, 1995. * 10.11 The Registration Rights Agreement by and between the Company, Furman Selz S.B.I.C., L.P., and James Dowling dated August 1, 1995. * 10.12 The Loan and Security Agreement between the Company, Transcisco Rail Services Company, Transcisco Leasing Company, Transcisco Trading Company, and Transamerica Business Credit Corporation, dated as of July 31, 1995. * 10.13 The Shareholder Rights Plan by and between the Company and First Interstate Bank of California, as rights agent, dated September 5, 1995. * 10.14 Letter Agreement by and between the Company and Mark C.
38 39 Hungerford dated July 1, 1995. * 10.15 Agreement and Plan of Merger among Trinity Industries, Inc., Trinity Y, Inc., and the Company dated June 17, 1996. 54 10.17 The Company's Stock Purchase Plan. * 10.18 Amendment dated June 17, 1996 to the Rights Agreement by and between the Company and Wells Fargo Bank National Association (formerly First Interstate Bank of California), dated September 5, 1995. 135 21.1 List of Subsidiaries of the Company. * 23.1 Consent of Independent Auditors regarding the Company's consolidated financial statements included in this Annual Report on Form 10-K. 40 27.0 Financial Data Schedule. 155 99.1 JSC SFAT Consolidated Financial Statements for the years ended December 31, 1995 and 1994, with Independent Auditors' Report thereon. 137
* = incorporated by reference 39
EX-4.1 2 EXHIBIT 4.1 1 EXHIBIT 4.1 FORM OF CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK of TRANSCISCO INDUSTRIES, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware The undersigned officers of Transcisco Industries, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Amended and Restated Certificate of Incorporation of the Corporation, the Board of Directors on August 31, 1995 adopted the following resolution creating a series of 100,000 shares of Preferred Stock designated as Series A Junior Participating Preferred Stock: RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Amended and Restated Certificate of Incorporation, a series of Preferred Stock of the Corporation be and it hereby is created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" and the number of shares constituting such series shall be 100,000. 2 Section 2. Dividends and Distributions. (A) The holders of shares of Series A Junior Participating Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $0.01 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, par value $0.01 per share, of the Corporation (the "Common Stock") since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock. In the event the Corporation shall at any time after August 31, 1995 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Junior Participating Preferred Stock as provided in Paragraph (A) above immediately after it declares a dividend or distribution on 2 3 the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $0.01 per share on the Series A Junior Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than thirty (30) days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Junior Participating Preferred Stock shall entitle the holder 3 4 thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Junior Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) (i) If at any time dividends on any Series A Junior Participating Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Junior Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Series A Junior Participating Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) Directors. (ii) During any default period, such voting right of the holders of Series A Junior Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual 4 5 meeting of stockholders, and thereafter at annual meetings of stockholders, provided that such voting right shall not be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Junior Participating Preferred Stock. (iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the President, a Vice-President or the Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this Paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him or her at his or her last address as the same appears on the books of the Corporation. Such meeting shall be called 5 6 for a time not earlier than twenty (20) days and not later than sixty (60) days after such order or request, or in default of the calling of such meeting within sixty (60) days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this Paragraph (C)(iii), no such special meeting shall be called during the period within sixty (60) days immediately preceding the date fixed for the next annual meeting of the stockholders. (iv) In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in Paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References in this Paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the Amended and Restated Certificate of Incorporation or By-laws of the Corporation irrespective of any increase made pursuant to the provisions of Paragraph (C)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law 6 7 or in the Amended and Restated Certificate of Incorporation or By-laws of the Corporation). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors. (D) Except as set forth herein, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Participating Preferred Stock as provided in Section 2 hereof are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, provided that the Corporation may at any time redeem, 7 8 purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Junior Participating Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under Paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Junior Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Pre- 8 9 ferred Stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received an amount equal to $12,000 per share of Series A Junior Participating Preferred Stock, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set forth in subparagraph (C) below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Junior Participating Preferred Stock and Common Stock, respectively, holders of Series A Junior Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (C) In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller 9 10 number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Junior Participating Preferred Stock shall not be redeemable. Section 9. Amendment. The Amended and Restated Certificate of Incorporation of the Corporation shall not be further amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the 10 11 outstanding shares of Series A Junior Participating Preferred Stock, voting separately as a class. Section 10. Fractional Shares. Series A Junior Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holders fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Junior Participating Preferred Stock. IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this 12th day of September 1995. TRANSCISCO INDUSTRIES, INC. /s/ Steven L. Pease ------------------------------------ Name: Steven L. Pease Title: President and Chief Executive Officer Attest: /s/ Gregory S. Saunders - ---------------------------- Assistant Secretary 11 EX-10.9 3 EXHIBIT 10.9 1 EXHIBIT 10.9 AMENDMENT TO CONSULTING AGREEMENT This agreement entered into on this 1st day of March, 1996 is an amendment to that Consulting Agreement (the "Agreement") dated January 3, 1995 between Transcisco Industries, Inc., a Delaware corporation (the "Company"), and Deucalion Securities, Inc. ("Deucalion"). Capitalized terms used herein and not defined herein have the same meaning as such terms have in the Agreement. WITNESSETH: WHEREAS the parties hereto desire to amend the Agreement in certain respects; NOW THEREFORE, intending to be legally bound, the parties agree as follows: 1. Section 3 of the Agreement is amended in its entirety to read as follows: 3. TERM. The employment of Mr. Pease and Deucalion by the Company pursuant to this Agreement shall terminate on March 31, 1998. 2. Notwithstanding any provision to the contrary in the Agreement, the Bonus payable to Deucalion with respect to the Company's fiscal year ended March 31, 1996 shall be $330,000. 3. In addition to the Options previously granted to Mr. Pease, within 30 days from the date hereof the Company shall grant to Mr. Pease options to purchase an additional 150,000 shares of Common Stock of the Company ("Shares") at $4.50 per share. Such options shall expire ten years from the date of grant. Options to purchase 2,500 of such Shares shall be exercisable on the first of the month next following the date of this Agreement, and options to purchase an additional 2,500 Shares shall become exercisable on the first day of each of the next 59 calendar months. 4. In the event of a Change in Control, all of the options granted pursuant to paragraph 2 hereof shall immediately vest and become exercisable, and Mr. Pease shall have 365 days from the date of such Change in control to exercise all or any part of such options. 5. The Company will maintain the effectiveness of an S-8 registration statement (or its equivalent) relating to the Shares issued pursuant to the options granted to Mr. Pease pursuant to paragraph 2 above. 6. Section 6 (b) (1) of the Agreement is amended by replacing the figure "200%" in the last line thereof with the figure "100%." 2 7. Section 9 (a) of the Agreement (including Section 9 (a) (1)) relating to the Company's unilateral right to terminate the Agreement, is deleted and shall have no further force or effect. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first set forth above. TRANSCISCO INDUSTRIES, INC. By: _____________________________ Eugene M. Armstrong, Chairman By: _____________________________ DEUCALION SECURITIES, INC. Steven L. Pease, President EX-10.15 4 EXHIBIT 10.15 1 Exhibit 10.15 AGREEMENT AND PLAN OF MERGER dated June 17, 1996 among TRINITY INDUSTRIES, INC., TRINITY Y, INC. and TRANSCISCO INDUSTRIES, INC. 2 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER, is entered into this 17th day of June, 1996, among TRANSCISCO INDUSTRIES, INC., a Delaware corporation (the "Company"), TRINITY INDUSTRIES, INC., a Delaware corporation ("Trinity"), and TRINITY Y, INC., a Delaware corporation and a wholly-owned subsidiary of Trinity ("Subsidiary"). WITNESSETH: WHEREAS, the Boards of Directors of the Company, Subsidiary and Trinity have determined that it is in their respective best interests for Subsidiary to merge with and into the Company upon the terms and subject to the conditions set forth herein in order for the Company to become a wholly-owned subsidiary of Trinity. WHEREAS, in furtherance of such acquisition, the Boards of Directors of the Company, Subsidiary and Trinity have approved the merger of Subsidiary with and into the Company in accordance with Delaware law and upon the terms and subject to the conditions set forth herein. WHEREAS, it is the intention of the parties that this transaction qualify as a tax-free reorganization pursuant to Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), so that the shares of common stock of Trinity received by the Stockholders (as hereinafter defined) shall not be immediately taxable to the Stockholders upon receipt. WHEREAS, it is the intent of the parties that there shall be a continuity of interest and a continuity of business enterprise with respect to the acquisition by Trinity of the Company in the subject merger transaction. NOW, THEREFORE, the parties hereto agree as follows: 1. THE MERGER 1.1 The Merger. (a) Subject to the terms and conditions of this Agreement, on the Closing Date (as defined in Section 1.4 hereof), Subsidiary shall be merged (the "Merger") with and 3 into the Company in accordance with Delaware law, whereupon the separate existence of Subsidiary shall cease and the Company shall continue as the surviving corporation (the Company thus being sometimes hereinafter referred to as the "Surviving Corporation") under the name of Transcisco Industries, Inc. as set forth in Section 2 hereof. (b) On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing a certificate of merger ("Certificate of Merger") with the Secretary of State of the State of Delaware in such form as required by, and executed in accordance with the relevant provisions of, Delaware law, and the parties hereto shall make all other filings or recordings required by any applicable law in connection with the Merger. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Secretary of State of the State of Delaware (the "Effective Time"). (c) At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of Delaware law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of Subsidiary shall vest in the Surviving Corporation, and all debts, liabilities and duties of Subsidiary shall become the debts, liabilities and duties of the Surviving Corporation. 1.2 Conversion of Shares of Stock. The manner and basis of converting each share of Subsidiary common stock into a share of the Surviving Corporation's common stock and of converting each issued and outstanding share of common stock, $.01 par value, of the Company (the "Company Stock") into a right to receive shares of voting common stock, $1.00 par value, of Trinity (the "Trinity Stock") shall be as follows: (a) Each share of Subsidiary common stock which is issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any act on the part of the holder thereof, be converted into one (1) fully paid and nonassessable share of voting common stock of the Surviving Corporation. (b) Each share of Company Stock which is issued and outstanding immediately prior to the Effective Time shall, by -2- 4 virtue of the Merger and without any action on the part of any of the Company's stockholders (individually, a "Stockholder", and, collectively, the "Stockholders"), be converted into and become a right to receive eighteen hundred and eighty-four ten-thousandths (.1884) (the "Exchange Ratio") of one (1) share of Trinity Stock (with cash paid to any Stockholder entitled to a fractional share of Trinity Stock), all of which shall be issued and distributed in accordance with Section 1.3 hereof. In the event that subsequent to the date of this Agreement but prior to the Effective Time, Trinity shall have declared a stock split (including a reverse split) of Trinity Stock or a dividend payable in Trinity Stock, or any other distribution of securities or special cash dividends (which specifically excludes Trinity's regular quarterly dividends) with respect to Trinity Stock (including, without limitation, such a distribution made in connection with a recapitalization, reclassification, merger, consolidation, reorganization or similar transaction) then the Exchange Ratio shall be appropriately adjusted to reflect such stock split, dividend or other distribution of securities. (c) (i) At the Effective Time, each outstanding option to purchase Company Stock (a "Stock Option") granted under any Company stock option plan (a "Company Stock Plan") or pursuant to an agreement identified on Schedule 3.6 of the Disclosure Schedule (as defined in Section 3.1 hereof), whether vested or unvested, shall be deemed to constitute an option to acquire, on the same terms and conditions as were applicable under such Stock Option, the same whole number of shares of Trinity Stock (being rounded upward to the nearest whole share) as the holder of such Stock Option would have been entitled to receive pursuant to the Merger had such holder exercised such option in full immediately prior to the Effective Time (not taking into account whether or not such option was in fact exercisable), and shall have an exercise price per share equal to such Stock Option's exercise price per share divided by the Exchange Ratio (the option price per share, as so determined, being rounded to the nearest full cent). In the case of any Stock Option to which Section 421 of the Code applies by reason of its qualification under any of Sections 422-423 of the Code ("Qualified Stock Options"), the option price, the number of shares purchasable pursuant to such option and the terms and conditions of such option shall comply with Section 424(a) of the Code. -3- 5 (ii) As soon as practicable after the Effective Time, Trinity shall deliver to each holder of an outstanding Stock Option an appropriate notice setting forth such holder's rights pursuant hereto and such Stock Option shall continue in effect on the same terms and conditions (including further antidilution provisions and subject to the adjustments required by this Section 1.2(c) after giving effect to the Merger). Trinity shall comply with the terms of all such Stock Options and ensure, to the extent required by, and subject to the provisions of, any such Company Stock Plan, that Stock Options which qualified as Qualified Stock Options prior to the Effective Time continue to qualify as Qualified Stock Options after the Effective Time. Trinity shall take all corporate actions necessary to reserve for issuance a sufficient number of shares of Trinity Stock for delivery pursuant to the terms set forth in this Section 1.2(c). 1.3 Payment and Arrangements. (a) In accordance with Section 1.2(b) above and as soon as practicable following the mailing of the Proxy Statement (as defined in Section 3.24 hereof), but in no event later than ten (10) business days prior to the meeting of the Stockholders required by Section 5.3(b) hereof, The Bank of New York, or the entity then serving as Registrar and Transfer Agent of Trinity's common stock, as the exchange agent for the Merger (the "Exchange Agent"), shall mail or otherwise provide to each Stockholder a notice and transmittal form for effecting an exchange of such Stockholder's Company stock certificates (the "Company Certificates") for certificates representing Trinity Stock. Upon surrender to the Exchange Agent of (A) his or her Company Certificates (in compliance with applicable instructions), and (B) a duly executed transmittal form, each holder of such Company Certificates shall be entitled to receive in exchange therefor a certificate or certificates representing such Stockholder's Trinity Stock. Company Certificates so surrendered shall be canceled and, until satisfaction of (A) and (B) above, risk of loss and title to any Company Certificate shall not pass to the Exchange Agent. In the event of any transfer of Company Stock that is not registered on the stock transfer records of the Company, certificates representing Trinity Stock shall be issued, substantially as provided above but to the transferee, if all documents required to evidence and effect such transfer -4- 6 are also presented to the Exchange Agent, and by payment of all applicable stock transfer taxes. Trinity Stock into which Company Stock shall be converted in the Merger shall be deemed to have been issued as of the Effective Time. Until surrendered and exchanged, each outstanding Company Certificate shall be deemed for all corporate purposes (subject to the dividend, distribution and transfer limitations provided for in Section 1.3(b), 1.3(c) and 1.3(d) below), to represent the number of shares of Trinity Stock for which such Company Certificate shall have been converted. (b) No dividends or other distributions, if any, payable to holders of record of Trinity Stock after the Effective Time shall be distributed to Stockholders holding outstanding Company Certificates; provided, however, that, upon surrender and exchange of such outstanding Company Certificates, such surrendering Stockholder shall be entitled to receive from Trinity, without interest thereon, any dividends or distributions which shall have become payable or distributable with respect to such Trinity Stock between the Effective Time and the time of the surrender of the Company Certificate. (c) With respect to each outstanding Company Certificate not surrendered and exchanged for Trinity Stock certificates, the holder of such Company Certificate shall look as a general creditor only to Trinity for payment and delivery of dividends or distributions, as the case may be, withheld pursuant to Section 1.3(b) above. Notwithstanding the foregoing, none of Trinity, Subsidiary, the Company, the Surviving Corporation, the Exchange Agent or any other party shall be liable to any Stockholder or any other person or entity for any Trinity Stock or dividends or distributions thereon delivered to a public official pursuant to escheat laws, if applicable. (d) Except as provided expressly in Section 1.3(a) above, after the Effective Time, no transfer of Company Stock outstanding prior to the Effective Time shall be made on the stock transfer books of the Surviving Corporation and no sale or transfer of Trinity Stock shall be made or recognized by the Exchange Agent with respect to any shares of Trinity Stock held for a Stockholder who has failed to surrender and exchange his or her Company Certificate. With respect to Company Certificates surrendered for exchange by any person constituting an Affiliate (as defined in Section 5.3(d) -5- 7 hereof), Trinity reserves the right to affix the following legend on the Trinity Stock certificate issued to any Affiliate: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED BY A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933." (e) No fractional shares of Trinity Stock shall be issued pursuant hereto. In lieu of the issuance of any fractional share of Trinity Stock pursuant to Section 1.2(b), cash adjustments will be paid to holders in respect of any fractional share of Trinity Stock that would otherwise be issuable, and the amount of such cash adjustment shall be equal to such fractional proportion of the "Average Price" of a share of Trinity Stock. The "Average Price" of a share of Trinity Stock shall be the average of the closing sales prices thereof as reported on the NYSE (as defined in Section 3.3(a) hereof) Composite Tape (as reported by The Wall Street Journal or, if not reported thereby, by another authoritative source) over the ten (10) trading days including and ending on the second trading day preceding the Closing Date. (f) All Trinity Stock issued upon and in accordance with the surrender and exchange provisions hereinabove shall be deemed to have been issued in full satisfaction of all rights pertaining to such exchanged Company Stock. 1.4 The Closing. Subject to the terms and conditions of this Agreement, the closing of the transactions contemplated herein (the "Closing") shall occur as soon as practicable, at a mutually agreeable time and date not later than five (5) business days after the later of the date of the meeting of the Stockholders as -6- 8 required by Section 5.3(b) hereof and the satisfaction or waiver of the conditions to the parties' obligation to effect the Merger at the offices of Trinity Industries, Inc., 2525 Stemmons Freeway, Dallas, Texas, or such other time, date or place as the parties may otherwise agree (the "Closing Date"). At or prior to the Closing: (a) The Company will deliver to Trinity and Subsidiary: (i) a copy of the corporate actions taken by the Company with respect to the authorization, execution, delivery and performance of this Agreement and the consummation of the Merger, each duly certified as of the Closing Date by the Secretary or an Assistant Secretary of the Company; (ii) a duplicate original of the Certificate of Merger to be filed with the Secretary of State of the State of Delaware in connection with the transaction as executed by the Company; and (iii) executed originals or copies of any and all consents, approvals, waivers and/or acknowledgments required in order (a) for the Company to consummate the Merger or (b) to permit the Surviving Corporation to continue to carry on the business of the Company substantially in the manner now conducted. (b) Trinity and Subsidiary will deliver to the Company: (i) a duplicate original of the Certificate of Merger to be filed with the Secretary of State of the State of Delaware in connection with the transaction as executed by Subsidiary; and (ii) a copy of the corporate actions taken by Trinity and Subsidiary with respect to the authorization, execution, delivery and performance of this Agreement and the consummation of the Merger, each duly certified as of the Closing Date by the Secretary or an Assistant Secretary of Trinity or Subsidiary, as appropriate. Trinity shall cause to be filed with the Secretary of State of the State of Delaware a fully executed duplicate original of the -7- 9 Certificate of Merger as promptly as practical after the Closing and the Merger shall be effective upon such filing. 2. THE SURVIVING CORPORATION 2.1 Name and Certificate of Incorporation. The corporation surviving the Merger shall be the Company, and the certificate of incorporation of Subsidiary in effect on the Closing Date shall be the certificate of incorporation of the Surviving Corporation. 2.2 Bylaws. The Bylaws of Subsidiary in effect on the Closing Date shall be the Bylaws of the Surviving Corporation. 2.3 Directors and Officers. From and after the Closing Date, until successors are duly elected or appointed in accordance with applicable law, the directors of Subsidiary on the Closing Date shall be the directors of the Surviving Corporation and the officers of Subsidiary on the Closing Date shall be the officers of the Surviving Corporation. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Trinity and Subsidiary that: 3.1 Corporate Status. The Company and each of its subsidiaries is a corporation organized, validly existing and in good standing under the laws of the state of its incorporation and has all corporate powers required to carry on its business as now conducted. The Company and each of its subsidiaries is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of the property owned or leased by it or the nature of its activities makes such qualification necessary, except where the failure to be so qualified would not individually or in the aggregate have a material adverse effect on the business, assets, liabilities, results of operations or financial condition of the Company and its subsidiaries, taken as a whole ("Company Material Adverse Effect"). The Company has heretofore made available or delivered to Trinity true and complete copies of the Certificate or Articles of Incorporation and Bylaws for the Company and each of its subsidiaries, as currently in effect. The Company and each of its -8- 10 subsidiaries is not in violation or breach of, or default under (and no event has occurred which with notice or the lapse of time or both would constitute a violation or breach of, or default under) any term, condition or provision of its Certificate or Articles of Incorporation, as the case may be, or Bylaws, which such violation, breach or default creates a Company Material Adverse Effect. Except as disclosed in Schedule 3.1 of the schedules delivered by the Company to Trinity and Subsidiary (all schedules referred to in, or delivered pursuant to, this Agreement shall be collectively referred to as the "Disclosure Schedule"), the Company has no subsidiaries and does not, directly or indirectly, own or have the power to vote, or to exercise a controlling influence with respect to, any securities of any class of any person, the holders of which class are entitled to vote for the election of directors (or persons serving similar functions) of such person. 3.2 Corporate Authorization. The Company has full corporate power and authority to execute and deliver this Agreement and, subject to the approval of this Agreement by the Stockholders, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the Company's Board of Directors and no other corporate proceedings (other than the approval of this Agreement by the Stockholders as contemplated by Section 5.3(b) hereof) on the part of the Company are necessary to authorize the execution and delivery of this Agreement or the consummation of the transactions contemplated herein. 3.3 Governmental Authorization; Consents. (a) The execution, delivery and performance by the Company of this Agreement and the consummation of the Merger by the Company require no action by or in respect of, or filing with, any governmental body, agency, official or authority except for filings with or approvals by (i) the Securities and Exchange Commission (the "Commission"), (ii) the New York Stock Exchange ("NYSE") and the American Stock Exchange ("AMEX"), (iii) the Federal Trade Commission ("FTC"), (iv) the United States Department of Justice ("DOJ"), (v) appropriate state officials in jurisdictions where blue sky or similar securities law clearance is required, and (vi) the Secretary of State of the State of Delaware, and except where -9- 11 the lack of such action or filing would not individually or in the aggregate have a Company Material Adverse Effect. (b) Except as disclosed in Schedule 3.3 of the Disclosure Schedule and except for the approval of the Stockholders, no consent, approval, waiver or other action by any person not a party to this Agreement under any material contract, agreement, indenture, lease, instrument or other document to which the Company or any of its subsidiaries is a party or by which any of them are bound is required or necessary for the execution, delivery and performance of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby. 3.4 Non-contravention. Except as disclosed in Schedule 3.4 of the Disclosure Schedule and except in the case of clauses (ii) and (iii) for contraventions, defaults, terminations, cancella tions, accelerations, creations or impositions that would not individually or in the aggregate have a Company Material Adverse Effect, the execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby do not and will not (i) materially contravene or constitute a material default under the Certificate of Incorporation or Bylaws of the Company, (ii) contravene or constitute a default under or give rise to a right of termination, cancellation or acceleration of any right or obligation of the Company or any of its subsidiaries or to a loss of any benefit to which the Company or any of its subsidiaries are entitled, or (iii) result in the creation or imposition of any Lien on any asset of the Company or any of its subsidiaries. For purposes of this Agreement, "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, restriction on transfer or encumbrance of any kind in respect of such asset. 3.5 Binding Effect. Assuming the due execution and delivery of this Agreement by Trinity and Subsidiary but subject to its approval by the Stockholders as contemplated by Section 5.3(b) hereof and the filings with or approvals by the governmental bodies, agencies, officials or authorities described in Section 3.3 hereof, this Agreement constitutes a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by principles of equity regarding the availability of remedies. -10- 12 3.6 Capitalization. The authorized capital stock of the Company consists of (i) fifteen million (15,000,000) common shares, $.01 par value, of which five million two hundred sixty-nine thousand six hundred fourteen (5,269,614) shares were issued and outstanding on June 1, 1996 and (ii) one million (1,000,000) preferred shares, $.01 par value, of which none are issued and outstanding on the date hereof. The Company owns all of the issued and outstanding shares of capital stock of each of its subsidiaries. All outstanding shares of capital stock of the Company and each of its subsidiaries have been duly authorized and validly issued and are fully paid and nonassessable. Except as disclosed in Schedule 3.6 of the Disclosure Schedule, there are no plans, agreements or other arrangements pursuant to which any options, warrants or other rights to acquire shares of capital stock from the Company or any of its subsidiaries are outstanding. Except as disclosed in Schedule 3.6 of the Disclosure Schedule, other than the shares of capital stock of the Company described above and the shares of capital stock of the Company's subsidiaries owned by the Company, there are outstanding (i) no shares of capital stock or other voting securities of the Company or any of its subsidiaries, (ii) no securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company or any of its subsidiaries, and (iii) no phantom stock, options or other rights to acquire from the Company or any of its subsidiaries, and no obligation of the Company or any of its subsidiaries to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company or any of its subsidiaries. 3.7 Financial Statements. The Company has delivered to Trinity the Company's audited financial statements for the years ended December 31, 1992 and 1993, the three-month period ended March 31, 1994, and the years ended March 31, 1995 and 1996 (the "Financial Statements"). The Financial Statements have been prepared from the books and records of the Company in accordance with generally accepted accounting principles consistently applied (except as may be indicated therein or in the notes thereto), and fairly present in all material respects the financial condition of the Company as at their respective dates and the results of its operations for the periods covered thereby. 3.8 Company SEC Reports. The Company has delivered or made available to Trinity true and complete copies of each registration statement, report and proxy or information statement (including exhibits and any amendments thereto) filed by the Company with the Commission since January 1, 1993 through the date hereof -11- 13 (collectively, the "Company SEC Reports"). As of the respective dates the Company SEC Reports were filed or, if any such Company SEC Reports were amended, as of the date such amendment was filed, each of the Company SEC Reports (i) complied in all material respects with all applicable requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.9 Absence of Certain Changes. Except as disclosed in Schedule 3.9 of the Disclosure Schedule, or as otherwise set forth in the Financial Statements, the Company SEC Reports or as contemplated by this Agreement, since March 31, 1996, the Company and each of its subsidiaries has not: (a) incurred any obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due, except (i) obligations and liabilities incurred in the ordinary course of business and consistent with its prior practice, (ii) obligations or liabilities, in any one case or in the aggregate, which have not had a Company Material Adverse Effect and (iii) obligations and liabilities incurred pursuant to, or contemplated by, this Agreement; (b) mortgaged or pledged any of its property, business or assets, tangible or intangible; (c) sold, transferred, leased to others or otherwise disposed of any of its assets, except for transactions in the ordinary course of business and transactions not individually in excess of One Hundred Thousand Dollars ($100,000), or canceled or compromised any debt or Claim (as defined in Section 3.11 hereof) (other than accounts receivable compromised in the ordinary course of business consistent with its prior practice and debts or Claims not individually in excess of One Hundred Thousand Dollars ($100,000)), or waived or released any right, except for such rights the loss of which, in any one case or the aggregate, have not had, or are not reasonably likely to have, a Company Material Adverse Effect; -12- 14 (d) received any notice or threat of termination of any contract, lease or other agreement or suffered any damage, destruction or loss (not covered by insurance) which, in any case or in the aggregate, has had, or is reasonably likely to have, a Company Material Adverse Effect; (e) paid any dividends, paid any compensation other than in the ordinary course of the Company's business, or made any change in the rate of compensation, commission, bonus or other direct or indirect remuneration payable, or paid or agreed or orally promised to pay, conditionally or otherwise, any bonus, extra compensation, pension or severance or vacation pay, to any current or former stockholder, director, officer, employee, salesman, distributor or agent, except for (i) increases in the ordinary course of business consistent with past practice in the compensation of employees who are not directors or officers, (ii) bonuses and other remuneration accrued as of or prior to March 31, 1996 and (iii) payments pursuant to an agreement identified on Schedule 3.9 of the Disclosure Schedule; (f) suffered any change, event or condition which, in any case or in the aggregate, has had, or is reasonably likely to have, a Company Material Adverse Effect (other than as a result of change in conditions, including economic or political developments, applicable to the industries in which the Company operates) (for purposes of this Agreement, the results of any elections in Russia or in any country formerly part of the Soviet Union shall not be considered in determining whether there has been, or is reasonably likely to be, a Company Material Adverse Effect); (g) issued any shares of capital stock or voting securities of the Company, any phantom stock, options or other rights to acquire from the Company any capital stock, voting securities convertible into or exchangeable for capital stock or voting securities of the Company (except pursuant to warrants, options and other rights outstanding on the date hereof in accordance with the terms of such agreements as of the date hereof); or (h) entered into any agreement or made any commitment to take any of the types of action described in subparagraphs (a)-(g) above. -13- 15 3.10 Properties. Except as disclosed in the Company SEC Reports or the Financial Statements, the Company or a subsidiary of the Company owns all of the tangible assets, real and personal, reflected in the Financial Statements as being owned by the Company or a subsidiary (except such property as has been disposed of in the ordinary course of business) free and clear of any Liens (as defined in Section 3.4 hereof) except for Liens that do not individually exceed One Hundred Thousand Dollars ($100,000), and the Company or a subsidiary of the Company has good and marketable title to, or in the case of leased property has valid leasehold interests in, all such properties and assets. Each of the Company and its subsidiaries owns, has valid leasehold interests in or valid contractual rights to use, all of the material tangible assets used by, or necessary for the conduct of, its business. 3.11 Litigation. Except as set forth in Schedule 3.11 of the Disclosure Schedule, the Financial Statements or the Company SEC Reports (and except as provided in Section 3.17, which shall govern environmental matters exclusively), (i) there is no claim, action, suit, investigation, inquiry, review or proceeding ("Claim") pending, or, to the best knowledge of the Company, threatened against the Company, any of its subsidiaries or any of their properties or assets involving a Claim in excess of One Hundred Thousand Dollars ($100,000) not covered by insurance and (ii) the Company does not know of any unasserted Claims involving a Claim in excess of One Hundred Thousand Dollars ($100,000). Except as set forth in Schedule 3.11 of the Disclosure Schedule, the Company does not know of any pending or current judgment, order, writ, injunction or decree of any governmental, administrative or judicial authority in which the Company or any of its subsidiaries is a named party involving in excess of One Hundred Thousand Dollars ($100,000). 3.12 Taxes. Each of the Company and its subsidiaries (i) has timely filed all tax returns, reports and declarations (for purposes of this Section 3.12, "returns") required to be filed by such Company or subsidiary under applicable federal, state, local or foreign tax laws, for tax years ended prior to the date of this Agreement or requests for extensions have been timely filed, except where the failure to file such returns or requests would not be reasonably likely to have a Company Material Adverse Effect, and any such request shall have been granted and not expired and, except as disclosed in Section 3.12 of the Disclosure Schedule, all such returns are complete and accurate in all material respects and -14- 16 (ii) has paid all taxes and governmental charges (including, without limitation, any interest and penalties (hereinafter, collectively "taxes") shown to be due and payable on such returns other than such taxes as are being contested in good faith, except where the failure to so pay such taxes would not have a Company Material Adverse Effect. Except as set forth in Schedule 3.12 of the Disclosure Schedule, (i) neither the Company nor any of its subsidiaries have been notified that any returns are currently under audit by the Internal Revenue Service or any foreign, state or local tax agency, (ii) neither the Company nor any of its subsidiaries have made any agreements for the extension or waiver of the statute of limitations for the assessment or payment of any federal, foreign, state or local taxes, (iii) no deficiency, assessment or other formal claim for any material taxes has been asserted or made against the Company or its subsidiaries that has not been fully paid or finally settled, except where such claim would not have a Company Material Adverse Effect and (iv) no action or proceeding for the assessment or collection of any taxes are pending against the Company or its subsidiaries. All taxes and other assessments which the Company or its subsidiaries is or has been required by law to withhold or to collect have been duly withheld or collected, and have been timely paid over to the proper governmental authority or are properly held by the Company or its subsidiaries for such payment, except where failure to so withhold or to collect would not have a Company Material Adverse Effect. Except as set forth in Schedule 3.12 of the Disclosure Schedule, the Company does not have knowledge of any fact or issue of law that is likely to result in a payment by the Company of federal income taxes, penalties and interest in excess of Two Hundred Fifty Thousand Dollars ($250,000) for the tax year ended December 31, 1985. 3.13 ERISA. (a) Schedule 3.13 of the Disclosure Schedule sets forth (i) the name of each Plan (as defined in paragraph (l) of this Section 3.13) and indicates any Plan that is a "multiemployer plan," as defined in ERISA Section 4001, (ii) the name of any other employee benefit plan as defined in Section 3(3) of ERISA with respect to which the Company or any Group Member (as defined in such paragraph (l)) is a "Party in Interest," as defined in Section 3(14) of ERISA, and (iii) the name of any other Employee Benefit Arrangement (as defined in such paragraph (l)). -15- 17 (b) Each of the Company, each Group Member, and each Plan is in compliance in all material respects with the provisions of ERISA and the Code insofar as ERISA and the Code are applicable to such Plans. Each Plan intended to be qualified under Section 401(a) of the Code has been determined to be so qualified by the IRS and nothing has occurred since the date of the last such determination which resulted or is likely to result in the revocation of such determination. (c) Except as disclosed in Schedule 3.13, there has not occurred with respect to any Plan any "Prohibited Transaction," as defined in either Section 406 of ERISA or Section 4975 of the Code, which has had, or may reasonably be expected to have, a material adverse effect on the business, operations, properties, condition (financial or otherwise), assets, liabilities, or prospects of the Company or of any Group Member. (d) Except as disclosed in Schedule 3.13, there has not occurred with respect to any Plan any "Reportable Event," as defined in Section 4043 of ERISA, for which the thirty-day notice requirements has not been waived under applicable PBGC requirements and which has had, or may reasonably be expected to have, a material adverse effect on the business, operations, properties, condition (financial or otherwise), assets, liabilities, or prospects of the Company or of any Group Member. No Plan has applied for or obtained a waiver from the IRS of any minimum funding requirement under Section 412 of the Code. (e) (i) No Plan has been terminated, and no withdrawal from any "multiemployer plan," as defined in Section 4001 of ERISA, has occurred since the inception of any Plan under circumstances that have given rise to, or would give rise to, any actual or potential liability to the PBGC or any other person (excluding liabilities to participants for benefits payable in the normal course of events pursuant to any such termination or withdrawal); (ii) no event or condition exists which presents a meaningful risk of termination of any Plan by the PBGC; and (iii) there is no actual or potential liability to the PBGC or any other person (other than any liability for unpaid benefits) reasonably expected by the Company or any Group Member to be incurred with respect to any Plan, including, but not limited to, any liability for premium -16- 18 payments, for any accumulated funding deficiency as defined in Section 302 of ERISA or for any minimum funding contribution under Section 302 of ERISA. (f) As of March 31, 1996 the then current value of the assets of any Plan which is a defined benefit pension plan maintained by the Company was at least equal to the then current value (as defined in Section 4062(b)(1)(A) of ERISA) of all accrued benefits (as defined in Section 3 of ERISA) under such Plan. As of the date of this Agreement, there has been no material change in either the value of such assets or the value of such benefits (except for increases in such benefits attributable to new Plan participants and regular salary increases). (g) Except as disclosed in Schedule 3.13, no Lien imposed under Section 412(n) of the Code exists in favor of any Plan upon any property belonging to a Group Member. (h) The Company has previously delivered or made available to Trinity true and correct copies of each Plan and each Employee Benefit Arrangement, together with, if applicable, true and correct copies of the annual reports and actuarial reports for the preceding two plan years filed with respect to each such Plan and Employee Benefit Arrangement, summary plan descriptions and other communications to employees relating to each such Plan and Employee Benefit Arrangement, any related trust or third-party funding vehicle documents and related financial statements, and all letters from the IRS, if any, confirming the tax-exempt status or qualification under Section 401(a) of the Code of any Plan. There are no Plans or Employee Benefit Arrangements other than those listed in the Disclosure Schedule. (i) Neither (a) the Company, or any director, officer, employee, or agent of the Company or its subsidiaries, has, with respect to any Plan, nor (b) any Plan or trust created thereunder or trustee or administrator thereof has, engaged in any conduct that would result in any penalties under Section 502(i) of ERISA or any liability under Section 409 of ERISA for breach of fiduciary duty which has had, or is reasonably likely to have, a Company Material Adverse Effect. Except as disclosed in Schedule 3.13, no material civil or criminal action or Claim (other than uncontested Claims for benefits) -17- 19 is pending or, to the Company's knowledge, threatened with respect to any Plan. (j) Each Plan or Employee Benefit Arrangement maintained by the Company specifically provides that it may be terminated at any time by its sponsoring employer (subject, in the case of any Plan which is subject to Title IV of ERISA, to the provisions of Section 4041 of ERISA), and there are no circumstances or conditions that exist prior to the Merger that would prevent the applicability of those provisions. Each Plan or Employee Benefit Arrangement can be terminated or amended unilaterally by the Company on not more than 90 days' notice, and none of the Company, any Group Member, or any director, officer, or employee of any of the foregoing has taken any action that would commit the Company to continue any Plan or Employee Benefit Arrangement or any benefit thereunder for any present or former employee of the Company or that would prevent the Company from changing or terminating any such benefit or Plan. (k) The Company does not now have in effect, and has not previously had in effect, any welfare benefit plan, commitment, understanding, or arrangement providing for medical or death benefits (whether insured or uninsured) with respect to current or former employees beyond their date of retirement or other termination of service (other than coverage mandated by Section 4980B of the Code and Section 601 of ERISA, the cost of which is fully paid by the former employee or his or her dependents). (l) For purposes of this Section 3.13, the following terms used herein shall have the meanings set forth below: (i) "Code" means the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder. (ii) "Employee Benefit Arrangement" means any plan, agreement, or arrangement which is not an employee benefit plan within the meaning of Section 3(3) of ERISA but which provides benefits to one or more of the officers or other employees of the Company, such as a bonus, incentive, stock purchase, or stock appreciation rights plan, or any employment or consulting agreement. -18- 20 (iii) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. (iv) "Group Member" means any member of any "affiliated service group," as defined in Section 414(m) of the Code, that includes any of the Company, any member of any "controlled group of corporations," as defined by Section 1563 of the Code, that includes the Company, or any member of any group of "trades or businesses under common control," as defined in Section 414(c) of the Code, that includes the Company. (v) "IRS" means the Internal Revenue Service. (vi) "PBGC" means the Pension Benefit Guaranty Corporation. (vii) "Plan" means at any time any employee benefit plan as defined in Section 3(3) of ERISA (i) which is either (1) maintained by the Company or any Group Member or (2) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and (ii) to which any of the Company or any Group Member is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions. 3.14 Permits; Compliance With Laws. Except as provided in Section 3.17, which shall govern environmental matters exclusively, the Company and each subsidiary has obtained all permits, licenses, operating certificates, orders or approvals of any federal, state, local or foreign governmental or regulatory agency which are material to the conduct of the business of the Company and its subsidiaries as presently conducted (hereinafter collectively, "Permits"), all of which permits are in full force and effect. No material violations have been recorded in respect of the Permits, nor has any threat of revocation been received with respect thereto. Except as provided in Section 3.17, which shall govern environmental matters exclusively, the business of the Company and each of its subsidiaries has been and is being conducted in compliance in all material respects with all applicable statutes, codes, ordinances, orders, rules and regulations relating to its properties, assets and business and the operation and conduct thereof (including, without limitation, all laws and regulations -19- 21 relating to compensation, employment and occupational safety) except where such noncompliance would not have a Company Material Adverse Effect and no assertion of a material violation of any such statute, code, ordinance, order, rule or regulation which is reasonably likely to involve a payment, in any one case, by the Company or any of its subsidiaries in excess of One Hundred Thousand Dollars ($100,000) has been received or, to the best knowledge of the Company, is threatened, and no reasonable basis for any such assertion exists to the best knowledge of the Company. To the best knowledge of the Company, the consummation of this Agreement will not require the transfer, modification or amendment of any such Permits. 3.15 Finders' Fees. Except for Schroder Wertheim & Co. Incorporated, the arrangements with which have been disclosed in writing to Trinity prior to the date hereof, there is no investment banker, broker, finder or other similar intermediary which has been retained by or is authorized to act on behalf of, the Company who might be entitled to any fee or commission from the Company upon consummation of the transactions contemplated by this Agreement. 3.16 Patents, Trademarks, Etc. Schedule 3.16 of the Disclosure Schedule sets forth a complete and accurate list of all trademarks, patents, copyrights, service marks, applications therefor, logos, trade names and software owned or utilized by the Company or any of its subsidiaries and material to the business of the Company and its subsidiaries taken as a whole (the "Technology", which such term includes, without limitation, all rights of any of the Company and its subsidiaries in and to any intellectual property relating in any way to the use, manufacture or marketing of goods or services embodying the Uni-Temp heating technology). Except as set forth in Schedule 3.16 of the Disclosure Schedule, the Company or a subsidiary owns, or has valid, binding and enforceable rights to use, all of the Technology in each case free and clear of any material Lien and subject to no known interference and without any known conflict with the rights of others which materially and adversely affects the operations of the Company and its subsidiaries as presently conducted. Except as set forth in Schedule 3.16 of the Disclosure Schedule, the Technology owned by or licensed to the Company or a subsidiary, and any licenses or other agreements relating thereto, is sufficient to carry on the operation of the business of the Company and its subsidiaries substantially in the manner presently conducted. The Company and each of its subsidiaries has not infringed, -20- 22 misappropriated, misused or been charged with, or, to the best knowledge of the Company and each of its subsidiaries, been threatened or charged with, and the Company and each of its subsidiaries has not received any notice with respect to, any material infringement, misappropriation or misuse of any Technology owned or claimed by another. Except as disclosed in Schedule 3.16 of the Disclosure Schedule, the Company and each of its subsidiaries have not granted any outstanding licenses or other rights to such Technology, or obligated itself to grant licenses or such other rights, and the parties to any such license or other arrangements described in Schedule 3.16 are no more than Three Hundred Thousand Dollars ($300,000) in arrears on all payments thereunder. 3.17 Environmental Matters. Except as set forth in Schedule 3.17 of the Disclosure Schedule, to the knowledge of the Company: (a) the Company and each of its subsidiaries is in compliance with all federal, state, and local laws governing pollution or the protection of human health or the environment ("Environmental Laws"), except in each case where noncompliance with Environmental Laws would not reasonably be expected to have a Company Material Adverse Effect; (b) none of the Company's or its subsidiaries' properties or facilities that are used for the business of the Company or any of the subsidiaries is a treatment, storage or disposal ("TSD") facility, as defined in and regulated under the Resource Conservation and Recovery Act, 42 U.S.C. SectionSection 6901 et seq.; (c) neither the Company nor any of the subsidiaries has received any written notice, pursuant to which it is reasonably likely that the Company or any subsidiary would have to pay an amount in excess of One Hundred Thousand Dollars ($100,000), that remains pending or outstanding with respect to the business of, or any property now or formerly owned or leased by, the Company or any subsidiary from any governmental entity or third party alleging that the Company or any subsidiary is not in material compliance with any Environmental Law; (d) there has been no release of a Hazardous Substance, as that term is defined in the Comprehensive Environmental -21- 23 Response, Compensation, and Liability Act, 42 U.S.C. Sections 9601 et seq., or petroleum products (except with respect to any such release which would not reasonably be expected to have a Company Material Adverse Effect), in excess of a reportable quantity on any real property now or formerly owned or leased by the Company or any subsidiary during such time, with respect to the Company's or any subsidiary's formerly owned or leased properties, used for the business of the Company or any subsidiary, and neither the Company nor any subsidiary has received any notice of actual or potential liability for any such release, which would reasonably be expected to have a Company Material Adverse Effect, pursuant to applicable Environmental Laws for Hazardous Substances sent to off-site locations from any real property now or formerly owned or leased by the Company or any subsidiary during such time as such property was used for the business of the Company or any subsidiary; (e) there is no response or remediation or other similar corrective action, or related investigation, by the Company or any subsidiary pursuant to any Environmental Law or under the direction of any governmental authority currently being performed or that has been performed at any real property now or formerly owned or leased by the Company or any subsidiary for the business of the Company during the last three (3) years in connection with Hazardous Substances that would reasonably be expected to have a Company Material Adverse Effect; and (f) there are no underground storage tanks at any real property owned or leased by the Company or any subsidiary that is used for the business of the Company or any subsidiary. 3.18 Contracts. Schedule 3.18 of the Disclosure Schedule sets forth all of the following contracts, arrangements and other agreements (for purposes of this Section 3.18 "contracts") on the date hereof to which the Company or any of its subsidiaries is a party or by which the Company, any of its subsidiaries or their assets or properties are bound or subject: (a) contracts not otherwise set forth in the Disclosure Schedule for which the aggregate amount or value of services to be performed for or by, or funds or other property -22- 24 transferred or to be transferred to or by, a party to such contract exceeds One Hundred Thousand Dollars ($100,000); (b) contracts involving either (i) an indemnification by the Company or any of its subsidiaries that could result in payments in excess of One Hundred Thousand Dollars ($100,000) or (ii) a guarantee of the performance of a third party by the Company or any of its subsidiaries that could result in payments in excess of One Hundred Thousand Dollars ($100,000); and (c) contracts involving ownership of an interest in a general partnership, joint venture, limited liability partnership, limited partnership, limited liability corporation, business trust or other non-corporate entity. There have been delivered or made available to Trinity true and complete copies of all such contracts set forth in Schedule 3.18 of the Disclosure Schedule. All of such contracts are in full force and effect and the Company and each of its subsidiaries is not in material default under any of them, nor is, to the best knowledge of the Company, any other party to any such contract in material default thereunder, nor does, to the best knowledge of the Company, any condition exist that with notice or lapse of time or both would constitute a material default thereunder by the Company or any of its subsidiaries. Except as disclosed in Schedule 3.18 of the Disclosure Schedule, no approval or consent of any person is needed in order that any material contracts to which the Company is a party or by or to which the Company, any of its subsidiaries or their assets or properties are bound or subject shall continue in full force and effect following the consummation of the Merger. 3.19 Liabilities. To the best knowledge of the Company (and except as provided in Section 3.17, which shall govern environmental matters exclusively), the Company and each of its subsidiaries does not have and is not subject to any direct or indirect indebtedness, liability, Claim, loss, damage, deficiency, obligation or responsibility, accrued, absolute, contingent or otherwise, whether or not of a kind required by generally accepted accounting principles to be set forth in a financial statement (for purposes of this Section 3.19, "Liabilities") , which arose, existed or was incurred on or prior to the Closing Date, other than (i) Liabilities fully and adequately reflected, disclosed or reserved against in the Financial Statements or the Unaudited -23- 25 Interim Financial Statements (as defined in Section 5.1(m) hereof), (ii) Liabilities disclosed in the Disclosure Schedule, (iii) Liabilities disclosed in the Company SEC Reports and (iv) Liabilities that individually or in the aggregate are not reasonably likely to result in a Company Material Adverse Effect. To the best of the knowledge of the Company, there is no intercorporate indebtedness existing between Trinity and the Company or between Subsidiary and the Company that was issued or acquired at a discount or that will be settled at a discount. 3.20 Insurance. The Company and each of its subsidiaries carries insurance with respect to its properties, assets and business as is appropriate in the Company's reasonable business judgment considering the character and nature of the business of the Company or such subsidiary or as may be required pursuant to any material franchise, license, agreement or permit to which the Company or such subsidiary is a party. Schedule 3.20 of the Disclosure Schedule lists each such policy in full force and effect on the date hereof and with respect to which the Company and each of its subsidiaries has not received notice of cancellation by policy number, policy issuer, type of coverage, policy limits and deductible amounts, if any. To the best knowledge of Steven L. Pease and Gregory S. Saunders, no insurance policy providing coverage in excess of One Hundred Thousand Dollars ($100,000) has been cancelled by the insurer during the three (3) year period ending on the date of this Agreement. 3.21 Employee Relations. Except as set forth in Schedule 3.21 of the Disclosure Schedule, no employee of the Company or any of its subsidiaries is represented by any union or other collective bargaining unit; no petition for an election as to representation of any group of employees by a union or other collective bargaining unit has been filed and remains pending with respect to the Company or any subsidiary thereof; and there is no collective bargaining agreement between the Company or any of its subsidiaries and any of their employees or any representatives of any of their employees. In addition, except as disclosed in Schedule 3.21 of the Disclosure Schedule, there are currently no disputes, grievances, charges, complaints or proceedings involving the employees of the Company, any of its subsidiaries or its collective bargaining representatives (excluding matters encountered in the day-to-day administration of any collective bargaining agreement) that are reasonably likely to have a Company Material Adverse Effect and at no time during the past five (5) years has the Company or any of -24- 26 its subsidiaries suffered any strikes (including wildcat strikes), lockouts or general work stoppages which have caused a cessation of operations nor has the Company or any of its subsidiaries, during such five (5) year period, been the subject of any orders to show cause or notices barring any of its employment practices. 3.22 Unfilled Purchase Orders. As of the date hereof, no unfilled purchase orders of the Company and each of its subsidiaries (i) are with persons, corporations or other entities that are affiliates of the Company, a subsidiary of the Company or with any organization or entity in which any Stockholder owns an interest in the profits or capital of five percent (5%) or more and (ii) are entered into outside the ordinary course of the business of the Company and its subsidiaries as currently conducted. 3.23 Unfilled Sales Orders. Except as set forth in Schedule 3.23 of the Disclosure Schedule, as of the date hereof, no unfilled sales orders of the Company and its subsidiaries are (i) with persons, corporations or other entities that are affiliates of the Company or any of its subsidiaries, or with any organization or entity of which any Stockholder owns an interest in the profits or capital of five percent (5%) or more and (ii) to the best knowledge of the Company reasonably likely to create, in any one case, a loss (calculated as aggregate direct costs associated with the performance of the unfilled sales order in excess of aggregate revenues associated with such unfilled sales order as determined from the books and records of the Company consistent with past practice) in excess of One Hundred Thousand Dollars ($100,000). 3.24 Registration Statement; Proxy Statement. None of the information supplied by the Company for inclusion in (i) the S-4 Registration Statement (as defined in Section 5.3(a) hereof) or (ii) the proxy statement to be distributed in connection with the meeting of the Stockholders to vote upon this Agreement and the Merger (the "Proxy Statement") will, in the case of the Proxy Statement or any amendments thereof or supplements thereto, at the time of such meeting of the Stockholders, or, in the case of the S-4 Registration Statement, at the time it becomes effective and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. -25- 27 3.25 Accuracy and Completeness of Representations and Warranties; Incorporation by Reference. No representation or warranty made by the Company in this Agreement, in any exhibit referenced herein or in any schedule referenced herein, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading. There is no fact known to the Company which could reasonably be expected to have a Company Material Adverse Effect which has not been set forth in the Company SEC Reports, in this Agreement, in the Disclosure Schedule or in any exhibit referenced herein. For purposes of this Agreement, the Disclosure Schedule shall include and be deemed to incorporate any amendment or supplement thereto as provided for in Section 5.1(f) hereof. Each schedule referenced herein and contained in the Disclosure Schedule is incorporated herein by reference to the same extent and as fully as copied herein in full. 4. REPRESENTATIONS AND WARRANTIES OF TRINITY AND SUBSIDIARY Trinity and Subsidiary, jointly and severally, represent and warrant to the Company that: 4.1 Corporate Status. (a) Each of Trinity and Subsidiary is a corporation organized, validly existing and in good standing under the laws of the State of Delaware, and each has all corporate powers required to carry on its business as now conducted and to execute and deliver this Agreement. Each of Trinity and Subsidiary is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of the property owned or leased by it or the nature of its activities makes such qualification necessary, except where the failure to be so qualified would not individually or in the aggregate have a material adverse effect on the business, assets, liabilities, results of operations or financial condition of Trinity and Subsidiary, taken as a whole ("Trinity Material Adverse Effect"). Trinity has heretofore delivered to the Company true and complete copies of the Certificate of Incorporation and Bylaws, as currently in effect, of each of Trinity and Subsidiary. -26- 28 (b) Each subsidiary of Trinity, other than Subsidiary (collectively, the "Trinity Subsidiaries"), is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the corporate power and authority and all necessary government approvals to own, lease and operate its properties and to carry on its business as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority or necessary governmental approvals would not individually or in the aggregate have a Trinity Material Adverse Effect. Each Trinity subsidiary is duly qualified or licensed and in good standing to do business in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except in such jurisdictions where the failure to be so duly qualified or licensed and in good standing would not individually or in the aggregate have a Trinity Material Adverse Effect. 4.2 Corporate Authorization. Each of Trinity and Subsidiary has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of Trinity and Subsidiary and by Trinity as the sole stockholder of Subsidiary, and no other corporate proceedings on the part of Trinity and Subsidiary or their respective stockholders are necessary to authorize the execution and delivery of this Agreement or to consummate the transactions contemplated herein. 4.3 Governmental Authorization; Consents. (a) The execution, delivery and performance by Trinity and Subsidiary of this Agreement and the consummation by Trinity and Subsidiary of the Merger require no action by or in respect of, or filing with, any governmental body, agency, official or authority, except for filings with or approvals by (i) the Commission, (ii) the NYSE and the AMEX, (iii) the FTC, (iv) the DOJ, (v) appropriate state officials in jurisdictions where blue sky or similar securities law clearance is required, and (vi) the Secretary of State of the State of Delaware, and except where the lack of such action or filing -27- 29 would not individually or in the aggregate have a Trinity Material Adverse Effect. (b) No consent, approval, waiver or other action by any person not a party to this Agreement under any contract, agreement, indenture, lease, instrument or other document to which Trinity or Subsidiary is a party or by which they are bound is required or necessary for the execution, delivery and performance of this Agreement by Trinity or Subsidiary or the consummation by Trinity or Subsidiary of the transactions contemplated hereby, except where the failure to obtain such consent, approval, waiver or other action would not individually or in the aggregate have a Trinity Material Adverse Effect. 4.4 Non-contravention. The execution, delivery and performance by Trinity and Subsidiary of this Agreement and the consummation by Trinity and Subsidiary of the transactions contemplated hereby do not and will not (i) materially contravene or constitute a material default under the Certificate of Incorporation or Bylaws of Trinity or Subsidiary, (ii) contravene or constitute a default under or give rise to a right of termination, cancellation or acceleration of any right or obligation of Trinity or any subsidiary or to a loss of any benefit to which Trinity or any subsidiary is entitled, or (iii) result in the creation or imposition of any Lien on any asset of Trinity or any subsidiary, except in the case of clauses (ii) and (iii) for contraventions, defaults, terminations, cancellations, accelerations, creations or impositions which would not individually or in the aggregate have a Trinity Material Adverse Effect. 4.5 Binding Effect. Assuming the due execution and delivery of this Agreement by the Company but subject to its approval by the Stockholders as contemplated by Section 5.3(b) hereof and the filings with or approvals by the governmental bodies, agencies, officials or authorities described in Section 4.3 hereof, this Agreement constitutes a legal, valid and binding agreement of each of Trinity and Subsidiary enforceable against Trinity and Subsidiary in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by principles of equity regarding the availability of remedies. -28- 30 4.6 Reports and Financial Statements. Trinity has previously furnished the Company with true and complete copies of Trinity's (i) Annual Reports on Form 10-K for each of its three (3) fiscal years ending March 31, 1993, 1994 and 1995, respectively, as filed with the Commission, (ii) Trinity's Quarterly Reports on Form 10-Q for each of the first three (3) quarters ending December 31, 1995, as filed with the Commission, (iii) Trinity's most current reports on Form 8-K, as filed with the Commission, and (iv) any other relevant public information reasonably requested by the Company prior to the date hereof. Trinity agrees to continue to provide the Company with any such public information filed with the Commission or reasonably requested by the Company subsequent to the date hereof and prior to the Closing Date. As of their respective dates, such reports and statements (i) complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act and the rules and regulations promulgated thereunder and (ii) did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of Trinity included in such reports and separately furnished to the Company by Trinity were prepared in accordance with generally accepted accounting principles consistently applied (except as may be indicated therein or in the notes thereto), and fairly present in all material respects the financial condition of Trinity as of their respective dates and the results of its operations for the periods covered thereby. 4.7 Finders' Fees. There is no investment banker, broker, finder or other similar intermediary which has been retained by, or is authorized to act on behalf of, Trinity or Subsidiary who might be entitled to any fee or commission from Trinity, Subsidiary or the Company upon consummation of the transactions contemplated by this Agreement. 4.8 Registration Statement; Proxy Statement. On the date that the S-4 Registration Statement is declared effective by the Commission, and on the date any post-effective amendment to the S-4 Registration Statement shall become effective, the S-4 Registration Statement and any amendment thereto will comply, in all material respects, with any applicable provisions of the Securities Act, the Exchange Act and the rules and regulations of the Commission thereunder, except with regard to statements of fact, and omissions -29- 31 thereof, made by the Company and the financial information of the Company. None of the information supplied by Trinity or Subsidiary for inclusion in (i) the S-4 Registration Statement or (ii) the Proxy Statement will, in the case of the Proxy Statement or any amendments thereof or supplements thereto, at the time of the meeting of the Stockholders to be held in connection with this Agreement and the Merger, or, in the case of the S-4 Registration Statement, at the time it becomes effective and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 4.9 Capitalization. (a) The authorized capital stock of Trinity consists of (i) one hundred million (100,000,000) common shares, $1.00 par value, of which forty-one million six hundred twelve thousand sixty-two (41,612,062) shares of Trinity Stock were issued and outstanding on June 1, 1996 and (ii) one million five hundred thousand (1,500,000) preferred shares, no par value, of which none are issued and outstanding on the date hereof. All of the issued and outstanding shares of capital stock of Trinity are validly issued, fully paid and nonassessable and free of preemptive rights. At the Effective Time, Trinity will have a sufficient number of authorized but unissued and/or treasury shares of Trinity Stock available for issuance to the Stockholders in accordance with this Agreement. The shares of Trinity Stock to be issued pursuant to this Agreement will, when so delivered, be (i) duly and validly issued, fully paid and nonassessable, (ii) issued pursuant to an effective registration statement under the Securities Act and (iii) authorized for listing on the NYSE upon official notice of issuance. Except for Trinity's stock option and employee stock purchase plans (the "Trinity Stock Option Plans") and the rights attributable to Trinity's Stockholder's Rights Plan (as described in the annual financial statements of Trinity), as of the date hereof, there are no plans, agreements or other arrangements pursuant to which any options, warrants or other rights to acquire shares of capital stock from Trinity are outstanding that would materially affect the capitalization of Trinity or the ability of Trinity to consummate the transactions contemplated by this Agreement. Except for the Trinity Stock Option Plans, the shares of Trinity described -30- 32 above and other shares, securities, options or rights that would not materially affect the capitalization of Trinity, there are outstanding (i) no shares of capital stock or other voting securities of Trinity, (ii) no securities of Trinity convertible into or exchangeable for shares of capital stock or voting securities of Trinity, and (iii) no phantom stock, options or other rights to acquire from Trinity, and no obligation of Trinity to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of Trinity. (b) The authorized capital stock of Subsidiary consists of ten thousand (10,000) shares of common stock, $1.00 par value ("Subsidiary Common Stock"). As of the date hereof, one thousand (1,000) shares of Subsidiary Common Stock are validly issued and outstanding, fully paid and nonassessable, free and clear of all Liens. Trinity owns, beneficially and of record, all the issued and outstanding shares of Subsidiary Common Stock. Trinity has taken all actions as may be required in its capacity as the sole stockholder of Subsidiary to approve the Merger. 4.10 Absence of Certain Changes. Except as disclosed in Trinity's filings with the Commission prior to the date of this Agreement or as contemplated by this Agreement, since March 31, 1996, there has not been any Trinity Material Adverse Effect (other than as a result of changes in conditions, including economic or political developments, applicable to the industries in which Trinity operates) and Trinity has in all material respects conducted its business in the ordinary course except as disclosed in a June 7, 1996 press release of Trinity. 4.11 Litigation. Except as disclosed in Trinity's filings with the Commission, there is no suit, action, proceeding or investigation (whether at law or equity, before or by any federal, state or foreign court, tribunal, commission, board, agency or instrumentality, or before any arbitrator) pending or, to the best knowledge of Trinity, threatened against Trinity which is required to be disclosed in accordance with the Securities Act or the Exchange Act or the rules and regulations promulgated thereunder, nor is there any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator outstanding against Trinity which is required to be -31- 33 disclosed in accordance with the Securities Act or the Exchange Act or the rules and regulations promulgated thereunder. 4.12 No Default. Trinity is not in violation or breach of, or default under (and no event has occurred which with notice or the lapse of time or both would constitute a violation or breach of, or default under) any term, condition or provision of (a) its Certificate of Incorporation, as the case may be, or Bylaws, which such violation, breach or default creates a Trinity Material Adverse Effect, (b) any note, bond, mortgage, deed of trust, security interest, indenture, license, agreement, plan, contract, lease, commitment or other instrument or obligation to which Trinity is a party or by which it or any of its properties or assets may be bound or affected, (c) any order, writ, injunction, decree, statute, rule or regulation applicable to Trinity or any of its properties or assets, or (d) any permit, license, governmental authorization, consent or approval necessary for Trinity to conduct its businesses as currently conducted, except in the case of clauses (b), (c) and (d) above for violations, breaches or defaults which would not individually or in the aggregate have a Trinity Material Adverse Effect. 4.13 Taxes. Trinity (i) has timely filed all federal, state, local and foreign tax returns, reports and declarations required to be filed by it for tax years ended prior to the date of this Agreement or requests for extensions have been timely filed, except where the failure to file such returns or requests would not be reasonably likely to have a Trinity Material Adverse Effect, and any such request shall have been granted and not expired and all such returns are complete in all material respects, (ii) has paid all taxes shown to be due and payable on such returns other than such taxes as are being contested by Trinity in good faith, except where the failure to so pay such taxes would not have a Trinity Material Adverse Effect, (iii) has properly accrued in all material respects all taxes for such periods subsequent to the periods covered by such returns and (iv) has not received notice, oral or written, that a deficiency, assessment or other formal claim for any taxes has been asserted or made against Trinity that has not been fully paid or finally settled except for claims which would not reasonably be expected to have a Trinity Material Adverse Effect. 4.14 Accuracy and Completeness of Representations and Warranties. No representation or warranty made by Trinity or -32- 34 Subsidiary in this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in the light of the circumstances in which they are made, not misleading. There is no fact known to Trinity which is likely to have a Trinity Material Adverse Effect which has not been set forth in Trinity's filings with the Commission or in this Agreement or in any exhibit referenced herein. 4.15 Ownership. Trinity does not own, nor has it owned during the past five years, any of the stock of the Company. 4.16 Investigation by Trinity. Trinity has conducted its own independent review and analysis of the businesses, assets, condition, operations and prospects of the Company and acknowledges that Trinity has been provided access to the properties, premises and records of the Company for this purpose. In entering into this Agreement, Trinity has relied solely upon its own investigation and analysis, and the specific representations, warranties and covenants and conditions contained herein, and Trinity acknowledges that none of the Company's directors, officers, employees, affiliates, agents or representatives makes any representation or warranty, either express or implied, as to the accuracy or completeness of any of the information provided or made available to Trinity or its agents or representatives prior to the execution of this Agreement. 5. COVENANTS OF THE COMPANY, TRINITY AND SUBSIDIARY 5.1 Covenants of the Company. From the date hereof and continuing until the Closing, the Company agrees, except as otherwise set forth in this Agreement or to the extent that Trinity shall otherwise consent in writing, that: (a) the Company and each of its subsidiaries will carry on its businesses in the ordinary and customary course, consistent with past practice, will make reasonable efforts to preserve and protect its business, properties and assets and will make reasonable efforts to preserve intact its present business organization, keep available the services of its present employees and preserve its relationships with customers, suppliers and others having business dealings with it in order to preserve its goodwill and business; -33- 35 (b) the Company and each of its subsidiaries will make reasonable efforts to comply promptly with all requirements that federal or state law may impose on it with respect to the Merger and promptly cooperate with and furnish information to Trinity in connection with any such requirements imposed upon Trinity or on Subsidiary in connection with the Merger; (c) the Company and each of its subsidiaries will make reasonable efforts to obtain (and cooperate with Trinity in preparing, filing and obtaining), at the earliest practicable date and prior to the Closing Date, any consent, authorization or approval of, or any exemption by, any governmental authority or agency, or other third party, required to be obtained or made by the Company or a subsidiary (or by Trinity) in connection with the Merger or the taking of any action necessary to the transactions contemplated hereby or thereby; (d) subject to the terms of Section 5.3(g) hereof, the Company will afford to Trinity and to Trinity's accountants, counsel and other representatives, reasonable access, during normal business hours during the period prior to the Closing Date or the earlier termination of this Agreement, to all of the business, operations, facilities, personnel, properties, books, contracts, commitments and records of the Company and each subsidiary and, during such period, the Company shall furnish as promptly as practicable to Trinity all other information concerning the business, properties and personnel of the Company and each subsidiary as Trinity may reasonably request, provided that no investigation pursuant to this Section 5.1(d) shall affect any representations or warranties made herein by the Company or the conditions to the obligations of the Company to consummate the Merger; (e) the Company will (i) promptly advise Trinity orally and in writing of any change in the business, results of operations, financial condition, assets, liabilities or prospects of the Company or a subsidiary that is or is reasonably likely to cause a Company Material Adverse Effect and (ii) promptly advise Trinity if, at any time before the S- 4 Registration Statement becomes effective, the S-4 Registration Statement, as it relates to the Company or a subsidiary, contains an untrue statement of a material fact or omits to state a material fact required to be stated therein -34- 36 or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading, and, in such event, the Company will promptly provide Trinity with the information needed to correct such misstatement or omission; (f) the Company, acting reasonably and in good faith, will supplement or amend the Disclosure Schedule hereto to reflect changes in facts occurring after the date hereof which, if existing on the date of this Agreement, would have been required to be set forth or described in the Disclosure Schedule; (g) promptly after its filing with the Commission, the Company shall furnish Trinity with a true and complete copy of the Company's Annual Report on Form 10-K for its fiscal year ending March 31, 1996, as filed with the Commission, along with a copy of the most recent audited financial statements referenced therein; (h) subject to the confidentiality provisions of this Agreement, (i) the Company shall make available to Trinity access to all records and information in the Company's possession concerning Hazardous Substances currently used, stored, generated, treated, or disposed of by the Company or any subsidiary, all environmental or safety studies conducted by or on behalf of the Company and all reports, correspondence, or filings to governmental environmental agencies with jurisdiction over the Company or any subsidiary concerning the compliance of the Company's or any subsidiary's properties that are used for the business of the Company or any subsidiary or the operation of such properties, to the extent such properties are currently owned or operated by the Company or any subsidiary, with applicable Environmental Laws, and (ii) Trinity may undertake at its sole cost and expense any environmental investigations of the properties or businesses of the Company or any subsidiary, provided however, that Trinity shall confer with the Company regarding the nature, scope and scheduling of any such investigations, shall comply with any and all conditions as the Company may reasonably impose thereon, and shall not contact any governmental authorities or agencies, or conduct any subsurface, sampling or other intrusive or invasive testing or investigation, without the prior written consent of the -35- 37 Company, which consent shall not be unreasonably withheld for any such matter requested by Trinity that could reasonably result in a Company Material Adverse Effect. Trinity shall promptly provide the Company with copies of any report (draft or final), study, test data or other documentation, other than working notes, prepared in connection with Trinity's investigation and, in the event that this Agreement terminates prior to the Closing, Trinity shall promptly deliver to the Company all originals and copies of any and all documents, other than working notes, prepared, generated or received in connection with or pursuant to the investigation, and all associated materials, including but not limited to reports (draft or final), data, analyses and findings concerning the investigation, compliance or condition of or relating to the properties or business of the Company or any subsidiary, and Trinity shall destroy any working notes not provided pursuant to this provision. Trinity shall keep, and shall cause its agents, representatives and any consultants to keep, confidential all information and materials provided or made available to, or generated by or on behalf of, Trinity pursuant to this provision; (i) the Company agrees to take all steps or cooperate with Trinity, as appropriate, in taking all steps reasonably necessary to (a) transfer, amend, or modify at Closing all Permits required for the property of the Company or any subsidiary that are used for the business of the Company or any subsidiary under applicable Environmental Laws, and (b) make or facilitate the filing and, as appropriate, obtain approval of the submissions to any governmental authority regarding the environmental condition, investigation, remediation or cleanup of any of the Company's properties that are used for the business of the Company or any subsidiary required under any applicable state law in order to transfer such properties under this Agreement or consummate this Agreement; (j) the Company shall use all reasonable efforts to cause Ernst & Young LLP, the Company's independent accountants, to deliver to Trinity a letter dated as of the date of the Proxy Statement and addressed to Trinity, in form and substance reasonably satisfactory to Trinity, in connection with the procedures undertaken by them with respect to the financial statements and other financial information of -36- 38 the Company and any subsidiary of the Company contained in the S-4 Registration Statement and the other matters contemplated by AICPA Statement No. 72 and customarily included in comfort letters relating to transactions similar to the Merger; (k) the Company shall not, and shall not permit any subsidiary of the Company to: (i) adopt or propose any change in its Certificate of Incorporation or Bylaws, except a change that would not have any adverse effect on the transactions contemplated by this Agreement; (ii) merge or consolidate with any other person or acquire, except in the ordinary course of business, a material amount of assets of any other person; (iii) issue any shares of capital stock or other securities (except pursuant to warrants, options and other rights outstanding on the date hereof in accordance with the terms of such agreements as of the date hereof) or any options, warrants or other rights to acquire the same; (iv) redeem, purchase or otherwise acquire, or propose to redeem, purchase or acquire, any of its capital stock or other ownership interests; (v) declare, set aside or pay any dividend or make any other distribution or payment with respect to any shares of its capital stock or other ownership interests; (vi) enter into any purchase order (a) with persons, corporations or other entities that are affiliates of the Company, a subsidiary of the Company or with any organization or entity in which any Stockholder owns an interest in the profits or capital of five percent (5%) or more or (b) outside the ordinary course of the business of the Company and its subsidiaries as currently conducted; (vii) enter into any sales order (a) with persons, corporations or other entities that are affiliates of the Company, a subsidiary of the Company or with any -37- 39 organization or entity in which any Stockholder owns an interest in the profits or capital of five percent (5%) or more or (b) reasonably likely to create, in any one case, a loss (calculated as aggregate direct costs associated with the performance of the unfilled sales order in excess of aggregate revenues associated with such unfilled sales order as determined from the books and records of the Company consistent with past practice) in excess of One Hundred Thousand Dollars ($100,000); (viii) except to the extent necessary to comply with the requirements of applicable laws and regulations (a) take, or agree to commit to take, any action that would make any representation and warranty of the Company hereunder inaccurate, in any material respect, at, or as of any time prior to, the Effective Time, (b) omit, or agree or commit to omit, to take any action necessary to prevent any such representation or warranty from being inaccurate, in any material respect, at any such time, provided however that the Company shall be permitted to take or omit to take such action which (without any uncertainty) can be cured, and in fact is cured, at or prior to the Effective Time, or (c) take, or agree to commit to take, any action that would result in, or is reasonably likely to result in, any of the conditions of the Merger set forth in Section 6 hereof not being satisfied; (l) the Company shall (i) not, and it shall direct and use its reasonable efforts to cause its officers, directors, employees, agents and representatives (including, without limitation, any investment banker, attorney or accountant retained by it or any of its subsidiaries) to not, initiate, solicit or encourage, directly or indirectly, any inquiries or the making or implementation of any Acquisition Proposal (as defined in Section 7.2 hereof) or engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to an Acquisition Proposal, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal, (ii) immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing, and take the necessary steps to inform the individuals or entities -38- 40 referred to above of the obligations undertaken in this Section 5.1(l) and (iii) notify Trinity immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with, it; provided, however, that nothing contained in this Section 5.1(l) shall prohibit the Board of Directors of the Company from (a) furnishing information to or entering into discussions or negotiations with, any person or entity that makes an unsolicited bona fide proposal to acquire the Company pursuant to a merger, consolidation, share exchange, purchase of a substantial portion of assets, business combination or other similar transaction, if, and only to the extent that, (1) the Board of Directors of the Company determines in good faith that such action is required for the Board of Directors to comply with its fiduciary duties to stockholders imposed by law, (2) prior to furnishing such information to, or entering into discussions or negotiations with, such person or entity, the Company provides written notice to Trinity to the effect that it is furnishing information to, or entering into discussions or negotiations with, such person or entity, and (3) subject to any confidentiality agreement with such person or entity (which the Company determined in good faith was required to be executed in order for its Board of Directors to comply with fiduciary duties to stockholders imposed by law), the Company keeps Trinity informed of the status (not the terms) of any such discussions or negotiations; and (b) to the extent applicable, complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal; provided that nothing in this Section 5.1(l) shall (1) permit the Company to terminate this Agreement (except as specifically provided in Section 7 hereof), (2) permit the Company to enter into any agreement with respect to an Acquisition Proposal during the term of this Agreement (it being agreed that during the term of this Agreement, the Company shall not enter into any agreement with any person that provides for, or in any way facilitates, an Acquisition Proposal (other than a confidentiality agreement in customary form)), or (3) affect any other obligation of the Company under this Agreement; and (m) the Company shall deliver to Trinity all subsequent unaudited interim quarterly and monthly financial statements of the Company from March 31, 1996 through and including the -39- 41 Closing Date (the "Unaudited Interim Financial Statement") (the quarterly Unaudited Interim Financial Statements shall be prepared from the books and records of the Company in accordance with generally accepted accounting principles consistently applied, except as may be indicated therein or in the notes thereto, and fairly present in all material respects the financial condition of the Company as of their respective dates and the results of its operation for the periods covered thereby, subject to normal year-end audit adjustments which are not expected to be material in amount or effect; and the monthly Unaudited Interim Financial Statements shall be prepared from the books and records of the Company consistent with past practices). 5.2 Covenants of Trinity and Subsidiary. From the date hereof and continuing until the Closing Date, Trinity and Subsidiary each agree, except as otherwise set forth in this Agreement or to the extent that the Company shall otherwise consent in writing, that: (a) Trinity and Subsidiary will use their respective reasonable efforts to comply promptly with all requirements which federal or state law may impose on them with respect to the Merger and will promptly cooperate with and furnish information to the Company in connection with any such requirements imposed upon the Company in connection with the Merger; (b) Trinity and Subsidiary will use their respective reasonable efforts to obtain (and to cooperate with the Company in preparing, filing and obtaining) at the earliest practicable date and prior to the Closing Date, any consent, authorization or approval of, or any exemption by, any governmental authority or agency, or other third party, required to be obtained or made by Trinity or Subsidiary (or by the Company) in connection with the Merger or the taking of any action necessary to the transactions contemplated hereby or thereby; (c) Trinity will (i) promptly advise the Company of any news release prepared by it or Form 8-K actually filed and will cause to be filed any required Form 8-K with the Commission in respect of the business, results of operations, financial condition, assets, liabilities or prospects of -40- 42 Trinity and (ii) promptly advise the Company if, at any time before the S-4 Registration Statement becomes effective or at any time prior to the Company's distribution of the Proxy Statement, either the S-4 Registration Statement or the Proxy Statement, as the same relates to Trinity and Subsidiary, contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading, and, in such event or in the event Trinity receives supplemental information from the Company pursuant to Section 5.1(e) hereof, Trinity will prepare a supplement or amendment to the S-4 Registration Statement which corrects any misstatements or omissions contained therein and furnish to the Company such number of copies of such supplements or amendments as may be required for distribution to the Stockholders; (d) Trinity agrees that it will not discuss the transaction contemplated herein with any customer, supplier or creditor of the Company without first consulting with the Company and obtaining the consent of the Company; (e) promptly after its filing with the Commission, Trinity shall furnish the Company with a true and complete copy of Trinity's Annual Report on Form 10-K for its fiscal year ending March 31, 1996, as filed with the Commission, along with a copy of the most recent audited financial statements referenced therein; (f) Trinity shall as promptly as practicable prepare and submit to the NYSE a listing application covering the shares of Trinity Stock to be issued in connection with the Merger and this Agreement, and shall use all reasonable efforts to obtain, prior to the Effective Time, approval for the listing of such shares, subject to official notice of issuance; (g) Trinity agrees that all rights to indemnification existing in favor of the present or former directors, officers, employees, fiduciaries and agents of the Company or any of the subsidiaries of the Company (collectively, the "Indemnified Parties") as provided in the Company's Certificate of Incorporation or Bylaws or the certificate or articles of incorporation, bylaws or similar organizational -41- 43 documents of any of the subsidiaries of the Company as in effect as of the date hereof or pursuant to the terms of any indemnification agreements entered into between the Company and any of the Indemnified Parties with respect to matters occurring prior to the Effective Time shall survive the Merger and shall continue in full force and effect (without modification or amendment, except as required by applicable law or except to make changes permitted by law that would en large the Indemnified Parties' right of indemnification) to the fullest extent permitted therein and for the maximum term permitted by law, and shall be enforceable by the Indemnified Parties against the Surviving Corporation or subsidiary thereof, as appropriate. At the Closing, the Surviving Corporation shall expressly assume by written instrument such obligations as are set forth in the Company's Certificate of Incorporation or Bylaws that require assumption by virtue of the Surviving Corporation having a Certificate of Incorporation and Bylaws different from that of the Company. Trinity shall use its best efforts to cause to be maintained in effect for not less than six years from the Effective Time the current policies of the directors' and officers' liability insurance maintained by the Company (provided that Trinity may substitute therefor policies of at least equivalent coverage containing terms and conditions which are no less advantageous) with respect to matters occurring prior to the Effective Time (the provisions of this Section 5.2(g) shall survive the consummation of the Merger and expressly are intended to benefit each of the Indemnified Parties); (h) Trinity shall use all reasonable efforts to cause Ernst & Young LLP, Trinity's independent accountants, to deliver to the Company a letter dated as of the date of the Proxy Statement and addressed to the Company, in form and substance reasonably satisfactory to the Company, in connection with the procedures undertaken by them with respect to the financial statements and other financial information of Trinity contained in the S-4 Registration Statement and the other matters contemplated by AICPA Statement No. 72 and customarily included in comfort letters relating to transactions similar to the Merger; (i) Trinity shall not, and shall not permit any subsidiary of Trinity to: -42- 44 (i) adopt or propose any change in its Certificate of Incorporation or Bylaws that would have any adverse effect on the transactions contemplated by this Agreement or that would amend or modify the terms or provisions of the capital stock of Trinity; (ii) merge or consolidate with any other person or (except in the ordinary course of business) acquire a material amount of assets of any other person, if such merger, consolidation or acquisition could reasonably be expected to have a material adverse effect on the ability of Trinity or the Company to consummate the transactions contemplated by this Agreement; (iii) issue any shares of Trinity Stock in connection with any transaction requiring stockholder approval unless Trinity first notifies the Company in writing (an "Issuance Notice") of such transaction and provides the Company with the same information as provided to the stockholders of Trinity; thereafter, the Company shall have the right, by giving written notice to Trinity at any time prior to 5:30 p.m., New York City time, on the tenth trading day following receipt of the Issuance Notice, to abandon the Merger and terminate this Agreement; (iv) purchase or otherwise acquire any shares of Company Stock; and (v) except to the extent necessary to comply with the requirements of applicable laws and regulations (a) take, or agree or commit to take, any action that would make any representation and warranty of Trinity hereunder inaccurate, in any material respect, at, or as of any time prior to, the Effective Time, (b) omit, or agree or commit to omit, to take any action necessary to prevent any such representation or warranty from being inaccurate, in any material respect, at any such time, provided however that Trinity shall be permitted to take or omit to take such action which (without any uncertainty) can be cured, and in fact is cured, at or prior to the Effective Time or (c) take, or agree or commit to take, any action that would result in, or is reasonably likely to result in, any of the conditions of -43- 45 the Merger set forth in Section 6 hereof not being satisfied; and (j) Trinity will promptly advise the Company orally and in writing of any change in the business, results of operations, financial condition, assets, liabilities or prospects of Trinity or any subsidiary that is, or is reasonably likely to cause, a Trinity Material Adverse Effect. 5.3 Additional Covenants. (a) Registration Statement. Trinity shall prepare and file at the appropriate time with the Commission a Registration Statement on Form S-4 with respect to the Trinity Stock issuable pursuant to the Merger (the "S-4 Registration Statement"), which S-4 Registration Statement shall include the Proxy Statement, and shall use all reasonable efforts to have the S-4 Registration Statement declared effective and to maintain such effectiveness until all of the shares covered by the S-4 Registration Statement have been distributed. Trinity shall promptly amend or supplement the S-4 Registration Statement to the extent necessary in order to make the statements therein not misleading or to correct any misstatements which have become false or misleading. Trinity shall cooperate with the Company to have the Proxy Statement approved by the Commission under the Exchange Act. If at any time prior to the Effective Time, Trinity becomes knowledgeable of any event or circumstance relating to Trinity or its officers or directors which should be set forth in an amendment to the S-4 Registration Statement or a supplement to the Proxy Statement, Trinity shall promptly inform the Company and shall promptly file such amendment to the S-4 Registration Statement. If at any time prior to the Effective Time, the Company becomes knowledgeable of any event or circumstance relating to the Company or its officers or directors which should be set forth in an amendment to the S-4 Registration Statement or a supplement to the Proxy Statement, the Company shall promptly inform Trinity. All documents that Trinity is responsible for filing with the Commission in connection with the transactions contemplated hereby will comply as to form and substance in all material respects with the applicable requirements of the Securities Act and the Exchange Act and the rules and regulations thereunder. All documents that the Company is responsible for filing with the Commission in -44- 46 connection with the transactions contemplated hereby will comply as to form and substance in all material respects with the applicable requirements of the Securities Act and the Exchange Act and the rules and regulations thereunder. Trinity shall also take any reasonable action required to be taken under any applicable state blue sky or securities laws in connection with the issuance of the Trinity Stock to be issued as set forth in this Agreement, and the Company shall furnish all information concerning the Company and the Stockholders as may be requested in connection with the issuance of the Trinity Stock to be issued as set forth in this Agreement and shall cooperate with Trinity in the preparation and filing of the S-4 Registration Statement. The Company authorizes Trinity to utilize in the S-4 Registration Statement the information relating to the Company contained in the Proxy Statement. (b) Approval of the Stockholders. The Company shall cause a meeting of the Stockholders to be duly called and held as soon as practicable following effectiveness of the S-4 Registration Statement (and allowing a reasonable period of time to solicit proxies for the purpose of approving the Merger, this Agreement and all actions contemplated hereby which require the approval of the Stockholders). The Company will, through its Board of Directors, recommend to the Stockholders, to the extent that such recommendation is consistent with its fiduciary duties, approval of the transactions contemplated by this Agreement. In connection with the meeting of the Stockholders, the Company and Trinity will cooperate in the preparation of a Proxy Statement relating to the transactions covered by this Agreement. The Company will advise Trinity at least 24 hours prior to the mailing of the Proxy Statement to the Stockholders. (c) Tax Treatment of Merger. It is the intent of the parties to this Agreement that the Merger be treated for federal income tax purposes as a tax-free reorganization pursuant to Section 368(a) of the Code and this Agreement shall constitute a "Plan of Reorganization" for purposes of the Code, and the parties agree (i) not to take any actions which would prevent the Merger from qualifying as such a reorganization, (ii) to report the transactions under this Agreement consistent with such treatment and (iii) to take no -45- 47 positions that are contrary thereto unless otherwise required by law. (d) Agreements by Affiliates. The Company shall deliver to Trinity a letter identifying all persons who are, at the time the Merger is submitted to a vote of the Stockholders, affiliates of the Company for purposes of Rule 145 of the Securities Act ("Affiliates"). Trinity agrees that at all times relevant to a possible sale of shares of the Trinity Stock by an Affiliate that it will satisfy the current public information requirements set forth in paragraph (c) of Rule 144 under the Securities Act (or any rule or regulation promulgated in substitution or replacement of said paragraph (c)). The Company shall use reasonable efforts to cause each person who is identified above as an Affiliate to deliver to Trinity on or prior to the Closing Date an Affiliate Letter substantially in the form attached hereto as Exhibit C. (e) Additional Assurances. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by the Merger and this Agreement, including using all reasonable efforts to obtain all necessary waivers, consents and approvals and effecting all necessary registrations and filings. Specifically, the Company and Trinity will cooperate with each other in preparing and filing the S-4 Registration Statement and the Proxy Statement and in responding to any comments of the staff of the Commission thereon, and will furnish to the other for inclusion therein all such information relating to it as the other party or its counsel shall reasonably request. (f) Closing Conditions. The Company, Trinity and Subsidiary will use their respective reasonable efforts to cause the conditions set forth in Section 6 hereof to occur on or before the Closing Date. (g) Confidentiality. In recognition of the confidential nature of certain of the information that will be provided by the Company to Trinity, and by Trinity to the Company, each of the Company, Trinity and Subsidiary agrees to retain in -46- 48 confidence, and to require its respective directors, officers, employees, consultants, professional representatives and agents (collectively, its "Representatives") to retain in confidence, all information transmitted or disclosed to it in connection with the Merger, and further agrees that it will not use for its own benefit and will not use or disclose to any third party, or permit the use or disclosure to any third party of, any information so obtained or revealed, except that a party hereto may disclose such information to those of its Representatives who need such information for the proper performance of their assigned duties with respect to the consummation of the transactions contemplated hereby. In making such information available to its Representatives, the applicable party shall take any and all precautions reasonably necessary to ensure that its Representatives use the information only as permitted hereby. Notwithstanding anything to the contrary in the foregoing provisions, such information may be disclosed (a) in the S-4 Registration Statement and the Proxy Statement, provided that the party that is the source of the information consents, which consent shall not be unreasonably withheld, (b) where it is necessary by applicable law to be disclosed to any regulatory authorities or governmental agencies (including, but not limited to, the Commission), (c) if it is required by court order or decree, (d) if it is ascertainable or obtained from public or published information, (e) if it is received from a third party not known to the recipient to be under an obligation to keep such information confidential, or (f) if the recipient can demonstrate by written documents that such information was in its possession prior to disclosure thereof in connection with this Agreement. If a party shall be required to make disclosure of any such information by operation of law, such party shall use all reasonable efforts to give the other parties prior notice of the making of such disclosure. In the event that the Merger shall not occur, each party shall immediately deliver, or cause to be delivered, to the party providing such information (without retaining any copies thereof) any and all documents, work papers and other materials obtained from the Company, Trinity or Subsidiary, as the case may be, that contain or are derived from confidential information of the Company, Trinity or Subsidiary. -47- 49 6. CONDITIONS TO CLOSING 6.1 Conditions to Obligations of Trinity and Subsidiary to Proceed with the Merger. Notwithstanding any other provision of this Agreement, each of the following shall be a condition to the obligation of Trinity and Subsidiary to consummate the Merger: (a) Continued Accuracy of Representations and Warranties. All representations and warranties of the Company contained herein (supplemented or amended as provided in Section 5.1(f) hereof) shall be true and correct at and as of the Closing Date (in all material respects with regard to representations and warranties that are not otherwise qualified with a materiality standard) with the same effect as though such representations and warranties were made at and as of such time, except that insofar as any of such representations and warranties relate solely to a particular date or period, in which case they shall be true and correct in all respects on the Closing Date (in all material respects with regard to representations and warranties that are not otherwise qualified with a materiality standard) with respect to such date or period; and the Company shall have performed and complied with all obligations, covenants and conditions required by this Agreement to have been performed or complied with by it prior to or on the Closing Date (in all material respects with regard to obligations, covenants and conditions that are not otherwise qualified with a materiality standard). (b) Certificate. Trinity shall have received a certificate from the Company dated as of the Closing Date and signed by its President and its principal financial officer certifying as to the fulfillment of the conditions set forth in the preceding paragraph (a) insofar as such conditions relate to the representations, warranties, obligations, covenants and conditions applicable to the Company. (c) Litigation. No preliminary or permanent injunction or other order by any federal or state court which prevents the consummation of the Merger shall have been issued and shall remain in effect and there shall not have been instituted or be pending any action or proceeding by any United States federal or state government or governmental agency or instrumentality (i) challenging or seeking to restrain or prohibit the consummation of the Merger or seeking -48- 50 material damages in connection with the Merger or (ii) seeking to prohibit Trinity's or the Surviving Corporation's ownership or operation of all or a material portion of Trinity's or the Company's business or assets. (d) Governmental Action. There shall not have been any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any United States federal or state government or governmental agency or instrumentality or court which would (i) prohibit Trinity's or the Surviving Corporation's ownership or operation of all or a material portion of the Company's business or assets, (ii) render Trinity or Subsidiary unable to consummate the Merger, or (iii) make such consummation illegal. (e) Material Adverse Change. Since the date hereof, there shall not have been any change (including any change disclosed in any supplement or amendment to any Schedule as provided for in Section 5.1(f) hereof) nor any event which has resulted or would result, so far as can be reasonably foreseen, in a change that has or is reasonably likely to have a Company Material Adverse Effect (other than as a result of change in conditions, including economic or political developments, applicable to the industries in which the Company operates). (f) Stockholder Approval. The Merger and this Agreement shall have been validly approved by the requisite vote of the Stockholders. (g) Certificate of Merger. The Delaware Certificate of Merger shall have been executed by the duly authorized officer(s) of the Company. (h) S-4 Registration Statement. The S-4 Registration Statement shall have become effective and no stop order suspending such effectiveness or proceedings for that purpose shall have been issued and remain in effect. (i) The Company's Documents. Trinity shall have received the following documents from the Company, all of which shall be in form and substance reasonably acceptable to Trinity: -49- 51 (i) certificate of the Secretary of State of the State of Delaware certifying the Certificate of Incorporation of the Company and all amendments thereof, dated not more than ten (10) days prior to the Closing Date; (ii) certificate of the Secretary or an Assistant Secretary of the Company dated as of the Closing Date certifying the Bylaws of the Company as then in effect; (iii) certificate of incumbency dated as of the Closing Date executed by the Secretary or an Assistant Secretary of the Company indicating the current officers and directors of the Company; (iv) certificate of good standing of the Company dated not more than ten (10) days prior to the Closing Date from the Secretary of State of the State of Delaware and a certificate of good standing as a foreign corporation dated not more than thirty (30) days prior to the Closing Date from the Secretary of State of each other state where the character of the property owned or leased by the Company or the nature of its activities makes such qualification necessary, except where the failure to be so qualified would not individually or in the aggregate have a Company Material Adverse Effect; and (v) certificate executed by the President and Chief Financial Officer of the Company substantially in the form attached hereto as Exhibit A. (j) Consents. Trinity shall have received copies of consents of all third parties necessary for the Company to execute, deliver and perform this Agreement and consummate the Merger. (k) HSR Filing. All applicable waiting periods under the HSR Act shall have expired. (l) Stock Options, etc. Trinity shall have received a certificate from the Company, dated as of the Closing Date, signed by its President and its principal financial officer certifying that, at and after the Closing Date, except for Stock Options granted under a Company Stock Plan or pursuant -50- 52 to an agreement identified on Schedule 3.6 of the Disclosure Schedule, there shall not exist any subscriptions, options, warrants, calls, conversion rights or other agreements, Claims or commitments of any nature whatsoever obligating the Company or any subsidiary of the Company to issue, transfer, deliver or sell, or to cause to be issued, transferred, delivered or sold, any shares of the capital stock of the Company or any subsidiary of the Company or obligating the Company or any subsidiary of the Company to grant, extend or enter into any of the foregoing. (m) Listing of Trinity Stock. The shares of Trinity Stock issuable to the Stockholders pursuant to this Agreement shall have been authorized for listing on the NYSE. (n) Minimum Stockholders' Equity. The Unaudited Interim Financial Statements of the Company at June 30, 1996 reflect "Stockholders' Equity" of at least Twenty-five Million Six Hundred Thousand Dollars ($25,600,000), provided that the Unaudited Interim Financial Statements of the Company at July 31, 1996 shall be utilized for purposes of the measurement of Stockholders' Equity if the Closing occurs after August 20, 1996. 6.2 Conditions to Obligations of the Company. Notwithstanding any other provisions of this Agreement, each of the following shall be a condition to the obligation of the Company to consummate the Merger: (a) Continued Accuracy of Representations and Warranties. All representations and warranties of Trinity and Subsidiary contained herein shall be true and correct at and as of the Closing Date (in all material respects with regard to representations and warranties that are not otherwise qualified with a materiality standard) with the same effect as though such representations and warranties were made at and as of such time, except that insofar as any of such representations and warranties relate solely to a particular date or period, in which case they shall be true and correct in all respects on the Closing Date (in all material respects with regard to representations and warranties that are not otherwise qualified with a materiality standard) with respect to such date or period; and Trinity and Subsidiary shall have performed and complied with all obligations, covenants and -51- 53 conditions required by this Agreement to have been performed or complied with by them prior to or on the Closing Date (in all material respects with regard to obligations, covenants and conditions that are not otherwise qualified with a materiality standard). (b) Certificate. Trinity and Subsidiary each shall have delivered a certificate dated as of the Closing Date and signed by the President or a Vice President of each of Trinity and Subsidiary respectively certifying as to the fulfillment of the conditions set forth in the preceding paragraph (a) insofar as such conditions relate to the representations, warranties, obligations, covenants and conditions applicable to Trinity or Subsidiary, as appropriate. (c) Tax Opinion. The Company shall have received an opinion from Skadden, Arps, Slate, Meagher & Flom, special counsel to the Company, in form and substance reasonably satisfactory to the Company, dated as of the Effective Time, substantially to the effect that, on the basis of certain facts, representations, and assumptions set forth in such opinion that are consistent with the state of facts existing at the Effective Time, the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. In rendering the opinion described in the preceding sentence, such counsel may require and rely upon representations contained in certificates of officers of Trinity, Subsidiary, the Company and others. (d) Opinion of Financial Advisor. The Company shall have received written opinions from Schroder Wertheim & Co. Incorporated, dated on or about the date of the Proxy Statement and the Closing Date, to the effect that the consideration to be received by the Stockholders pursuant to the Merger is fair to such Stockholders from a financial point of view. (e) Litigation. No preliminary or permanent injunction or other order by any federal or state court which prevents the consummation of the Merger shall have been issued and shall remain in effect and there shall not have been instituted or be pending any action or proceeding by any United States federal or state government or governmental agency or instrumentality (i) challenging or seeking to -52- 54 restrain or prohibit the consummation of the Merger or seeking material damages in connection with the Merger or (ii) seeking to prohibit Trinity's or the Surviving Corporation's ownership or operation of all or a material portion of Trinity's or the Company's business or assets. (f) Governmental Action. There shall not have been any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any United States federal or state government or governmental agency or instrumentality or court which would (i) prohibit Trinity's or the Surviving Corporation's ownership or operation of all or a material portion of Trinity or the Company's business assets, (ii) render the Company unable to consummate the Merger, or (iii) make such consummation illegal. (g) Stockholder Approval. The Merger and this Agreement shall have been validly approved by the requisite vote of the Stockholders. (h) Certificate of Merger. The Delaware Certificate of Merger shall have been executed by the duly authorized officer(s) of Subsidiary. (i) S-4 Registration Statement. The S-4 Registration Statement shall have become effective and no stop order suspending such effectiveness or proceedings for that purpose shall have been issued and remain in effect. (j) Trinity and Subsidiary Documents. The Company shall have received the following documents from Trinity and Subsidiary, all of which shall be in form and substance reasonably acceptable to the Company: (i) certificate of incumbency dated as of the Closing Date executed by the Secretary or an Assistant Secretary of Trinity indicating the current officers and directors of Trinity and Subsidiary; (ii) certificate of good standing for Trinity and Subsidiary from the Secretary of State of the State of Delaware, each dated not more than ten (10) days prior to the Closing Date; -53- 55 (iii) a copy of the effectiveness order with respect to the S-4 Registration Statement as filed by Trinity; (iv) a copy of the official notice from the NYSE confirming that the shares of Trinity Stock issuable in the Merger have been approved for listing on the NYSE; (v) instrument of assumption from Subsidiary to the extent required by the second sentence of Section 5.2(g) of this Agreement; and (vi) certificate executed by a Vice President of Trinity substantially in the form attached hereto as Exhibit B. (k) HSR Filing. All applicable waiting periods under the HSR Act shall have expired. (l) Listing of Trinity Stock. The shares of Trinity Stock issuable to the Stockholders pursuant to this Agreement shall have been authorized for listing on the NYSE. (m) Material Adverse Change. Since the date hereof, there shall not have been any change nor any event which has resulted or would result, so far as can be reasonably foreseen, in a change that has or is reasonably likely to have a Trinity Material Adverse Effect (other than as a result of changes in conditions, including economic or political developments, applicable to the industries in which Trinity operates). 7. TERMINATION 7.1 Termination by Mutual Consent. This Agreement may be terminated at any time prior to the Closing Date, whether before or after approval by the Stockholders, by mutual consent, in writing, of the Company and Trinity. 7.2 Termination by the Company. The Company may terminate this Agreement by written notice to Trinity and Subsidiary at any time prior to the Closing Date, whether before or after approval by the Stockholders, if (i) a condition to the performance of the Company under Section 6.2 hereof shall not be fulfilled on or -54- 56 before the time specified for the fulfillment thereof, (ii) the representations and warranties of Trinity and Subsidiary which are qualified with respect to materiality are not true and correct in all respects, or if the representations and warranties of Trinity and Subsidiary that are not so qualified are not true and correct in all material respects, or there has been a material breach of any of the covenants or agreements set forth in this Agreement on the part of Trinity or Subsidiary, but only if such breach of representation or warranty or breach of covenant is not curable or, if curable, is not cured within thirty (30) days after written notice of such breach is given by the Company to Trinity, (iii) any suit, action or other proceeding shall be pending or threatened that, in the Company's reasonable opinion, materially and adversely affects the prospects of the Merger, (iv) Trinity issues shares in a transaction requiring stockholder approval or (v) the Board of Directors of the Company has (a) withdrawn, or modified or changed in a manner adverse to Trinity or Subsidiary its approval or recommendation of this Agreement or the Merger in order to approve and permit the Company to execute a definitive agreement relating to an Acquisition Proposal, and (b) determined, based on a written opinion of outside legal counsel to the Company, that the failure to take such action as set forth in the preceding clause would result in a breach of the Board of Directors' fiduciary duties under applicable law, provided, however, that the Board of Directors of the Company shall have been advised in such written opinion of outside counsel that notwithstanding a binding commitment to consummate an agreement of the nature of this Agreement entered into in the proper exercise of their applicable fiduciary duties, such fiduciary duties would also require the directors to terminate this Agreement as a result of such Acquisition Proposal. The term "Acquisition Proposal" as used herein means any proposal to purchase or acquire any equity securities or (except in the ordinary course of business) assets of, or merge or combine with, the Company or any of its subsidiaries. 7.3 Termination by Trinity and Subsidiary. Trinity and Subsidiary may terminate this Agreement by written notice to the Company at any time prior to the Closing Date if (i) a condition to the performance of Trinity and Subsidiary under Section 6.1 hereof shall not be fulfilled on or before the time specified for the fulfillment thereof, (ii) the representations and warranties of the Company which are qualified with respect to materiality are not true and correct in all respects, or if the representations and -55- 57 warranties of the Company that are not so qualified are not true and correct in all material respects, or there has been a material breach of any of the covenants or agreements set forth in this Agreement on the part of the Company, but only if such breach of representation or warranty or breach of covenant is not curable or, if curable, is not cured within thirty (30) days after written notice of such breach is given by either Trinity or Subsidiary to the Company, or (iii) any suit, action or other proceeding shall be pending or threatened that, in Trinity's reasonable opinion, materially and adversely affects the prospects of the Merger. 7.4 Termination by Either Trinity or the Company. This Agreement may be terminated and the Merger may be abandoned by either Trinity or the Company if (a) the Merger shall not have been consummated before September 16, 1996; provided, however, that this Agreement may be extended by written notice of either Trinity or the Company to a date not later than October 15, 1996, if the Merger shall not have been consummated as a direct result of the conditions in Section 6.1(c), 6.1(d), 6.1(k), 6.2(e), 6.2(f), 6.2(g) or 6.2(k) hereof not having been satisfied by such date or (b) a United States federal or state court of competent jurisdiction or United States federal or state governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and non-appealable; provided, that the party seeking to terminate this Agreement pursuant to clause (a) shall not be in material violation of any of its repre sentations, warranties or covenants set forth in this Agreement, and the party seeking to terminate this Agreement pursuant to clause (b) shall have used all reasonable efforts to remove such injunction, order or decree. 7.5 Effect of Termination and Abandonment. In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Section 7, written notice thereof shall as promptly as practicable be given to the other parties to this Agreement and this Agreement shall terminate and the transactions contemplated hereby shall be abandoned, without further action by any of the parties hereto. If this Agreement is terminated as provided herein: (i) there shall be no liability or obligation on the part of Trinity, any subsidiary of Trinity, the Company or any subsidiary of the Company or their respective officers and -56- 58 directors, and all obligations of the parties shall terminate, except for the obligations of the parties pursuant to this Section 7.5, except for the provisions of Sections 3.15, 4.7, 5.3(g), 8.2, 8.3, 8.4, 8.6, 8.10 and 8.11 hereof and except that a party who is in material breach of its representations, warranties, covenants or agreements set forth in this Agreement shall be liable for damages occasioned by such breach, including, without limitation, any expenses incurred by the other party in connection with this Agreement and the transactions contemplated hereby, and (ii) all filings, applications and other submissions made pursuant to the transactions contemplated by this Agreement shall, to the extent practicable, be withdrawn from the agency or person to which made. In the event that any person shall have made an Acquisition Proposal for the Company and thereafter this Agreement is terminated by the Company (other than pursuant to the breach of this Agreement by Trinity), then the Company shall pay Trinity a fee equal to Two Million Two Hundred Twenty-eight Thousand Eighty-one Dollars ($2,228,081), which amount shall be payable by wire transfer of same day funds of Two Hundred Thousand Dollars ($200,000) on the date of such termination with the balance due on the date that the transaction contemplated by an Acquisition Proposal is consummated. The Company acknowledges that the agreements contained in this Section 7.5 are an integral part of the transactions contemplated in this Agreement, and that, without these agreements, Trinity and Subsidiary would not enter into this Agreement; accordingly, if the Company fails to promptly pay the amount due pursuant to this Section 7.5, and, in order to obtain such payment, Trinity or Subsidiary commences a suit which results in a judgment against the Company for the fee set forth in this Section 7.5, the Company shall pay to Trinity its costs and expenses (including attorneys' fees) in connection with such suit, together with interest on the amount of the fee at the rate of 12% per annum. In the event Trinity has received the fee payable under Section 7.5 hereof, it shall not (i) assert or pursue in any manner, directly or indirectly, any Claim or cause of action based in whole or in part upon alleged tortious or other interference with rights under this Agreement against any entity or person submitting an Acquisition Proposal or (ii) assert or pursue in any manner, directly or indirectly, any Claim or cause of action against the Company or any of its officers or directors based in whole or in part upon its or their receipt, consideration, recommendation, or approval of an Acquisition Proposal or the Company's exercise of its right of termination. -57- 59 7.6 Extension. At any time prior to the Closing Date, the parties hereto (Trinity and Subsidiary being considered one party for purposes of this Section 7.6) may (i) extend the time for the performance of any of the obligations or other acts of the other party hereto, (ii) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered by the other party pursuant hereto, or (iii) waive compliance by the other party with any of the representations, warranties, covenants and conditions contained herein. Any agreement on the part of any party hereto to any such extension or waiver shall be valid if set forth in an instrument in writing signed on behalf of such party. 8. MISCELLANEOUS 8.1 Notices. All notices, requests and other communications to any party hereunder shall be in writing and shall be given, -58- 60 (a) if to Trinity or Subsidiary, to: Trinity Industries, Inc. 2525 Stemmons Freeway Dallas, Texas 75207 Attention: Mr. F. Dean Phelps, Vice President Fax: (214) 589-8824 with a copy to: Charles C. Reeder, Esq. Locke Purnell Rain Harrell (A Professional Corporation) 2200 Ross Avenue, Suite 2200 Dallas, Texas 75201 Fax: (214) 740-8800 (b) if to the Company, to: Transcisco Industries, Inc. 601 California Street, Suite 1301 San Francisco, California 94108 Attention: Steven L. Pease, Chief Executive Officer Fax: (415) 788-0583 with a copy to: Theodore J. Kozloff, Esq. Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, NY 10022 Fax: (212) 735-2000 or such other address as such party may hereafter specify for the purpose by notice to the other parties hereto. Each such notice, request or other communication shall be effective if given by any other means, when delivered or transmitted via confirmed fax to the address specified in this Section. 8.2 Expenses. Except as set forth in Section 7.5 hereof, all costs and expenses related to the preparation, negotiation and performance of this Agreement (i) incurred by Trinity or Subsidiary shall be paid by Trinity, and (ii) incurred by the Company shall be -59- 61 paid by the Company. In no event will Trinity or Subsidiary pay any expenses of any Stockholder. 8.3 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, provided that neither the Company, Subsidiary nor Trinity may assign, delegate or otherwise transfer any of its respective rights or obligations under this Agreement without the written consent of the others. 8.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to the rules of conflict of laws of such or any other jurisdiction. Each of the Company, Trinity and Subsidiary hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of Delaware and the United States of America located in the State of Delaware (the "Delaware Courts") for any litigation arising out of or relating to this Agreement and the transactions contemplated hereby (and agreed not to commence any litigation relating thereto except in such courts), waives any objection to the laying of venue of any such litigation in the Delaware Courts and agreed not to plead or claim that such litigation brought in any Delaware Court has been brought in an inconvenient forum. 8.5 Counterparts: Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 8.6 Integration. This Agreement and those agreements referred to herein embody the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants, or undertakings other than those expressly set forth or referred to herein or therein. This Agreement and those agreements referred to herein supersede all prior agreements and the understandings between the parties with respect to such subject matter. 8.7 Amendment; Waiver. No waiver and no modification or amendment of any provision of this Agreement shall be effective unless specifically made in writing and duly signed by the parties -60- 62 to be bound thereby. Waiver by the party of any breach of or failure to comply with any of the provisions of this Agreement by any other party shall not be construed as, or constitute, a continuing waiver of, or a waiver of any other breach of, or failure to comply with, any other provision of this Agreement. 8.8 Nonsurvival of Representations and Warranties. No representations or warranties in this Agreement or in any instrument delivered pursuant to this Agreement, other than the representation and warranty contained in Section 4.16 hereof, shall survive beyond the Effective Time. This Section 8.8 shall not limit any covenant or agreement after the Effective Time. 8.9 Further Assurances. The parties hereto agree that each will execute and deliver to the other any and all documents in addition to those expressly provided for herein that may be necessary to carry out the provisions of this Agreement, whether before, at or after the Closing. 8.10 Publicity. Each of the parties hereto agrees that it will not issue any press release or otherwise make any public statement or respond to any press inquiry with respect to this Agreement or the transactions contemplated hereby without the prior approval of the other party (which approval will not be unreasonably withheld), except as may be required by applicable law. If a public statement is required by law, the disclosing party will use all reasonable efforts to give other party prior written notice of the disclosure to be made. 8.11 Severability; Validity; Parties in Interest. If any provision of this Agreement, or the application thereof to any person or circumstance or in any jurisdiction is held invalid or unenforceable, the remainder of this Agreement, and the application of such provision to other persons or circumstances or in any other jurisdictions, shall not be affected thereby, and to such end, the provisions of this Agreement are agreed to be severable. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. Nothing in this Agreement, express or implied, is intended to confer upon any person not a party to this Agreement any rights or remedies of any nature whatsoever under or by reason of this Agreement. -61- 63 8.12 Enforcement of Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any Delaware Court, this being in addition to any other remedy to which they may be entitled at law or in equity. 8.13 Certain Definitions. "To the knowledge", "to the best knowledge" or any similar phrase referring to the knowledge or awareness of a party shall be deemed to refer to the knowledge of (i) with regard to the Company and its subsidiaries, Steven L. Pease, Gregory S. Saunders, William F. Bryant, George A. Tedesco or Robert A. Jahnke and (ii) with regard to Trinity and Subsidiary, W. Ray Wallace, Timothy R. Wallace, John T. Sanford, F. Dean Phelps or John M. Lee. -62- 64 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. TRINITY INDUSTRIES, INC. By: /s/ John T. Sanford ---------------------------------- John T. Sanford Senior Vice President TRINITY Y, INC. By: /s/ John T. Sanford ---------------------------------- John T. Sanford Senior Vice President TRANSCISCO INDUSTRIES, INC. By: /s/ Steven L. Pease ---------------------------------- Steven L. Pease Chief Executive Officer -63- 65 EXHIBIT A TO AGREEMENT AND PLAN OF MERGER FORM OF COMPANY'S TAX CERTIFICATE (See attached form of tax certificate) A-1 66 [TRANSCISCO INDUSTRIES, INC. LETTERHEAD] [CLOSING DATE] Skadden, Arps, Slate Meagher & Flom 919 Third Avenue New York, New York 10022 Ladies and Gentlemen: The undersigned, a duly authorized officer of Transcisco Industries, Inc., a Delaware corporation (the "Company") and acting as such, in connection with the opinion to be delivered by Skadden, Arps, Slate, Meagher & Flom pursuant to Section 6.2(c) of the Agreement and Plan of Merger dated June 17, 1996 (the "Merger Agreement")1/ among Trinity Industries, Inc., a Delaware corporation ("Trinity"), Trinity Y, Inc., a Delaware corporation ("Subsidiary") and a wholly-owned subsidiary of Trinity, and the Company, and recognizing that you will rely on this certificate in delivering said opinion, and that Trinity may rely on this certificate for the purpose of determining the treatment of the contemplated merger (the "Merger") and filing returns required under federal, state, local or foreign tax laws, hereby certifies that, to the best knowledge and belief of the executive officers of the Company ("Company Management"), after due inquiry and investigation, the facts relating to the Merger of Subsidiary with and into the Company pursuant to the Merger Agreement, which facts are described in the Proxy Statement relating to the Merger and the S-4 Registration Statement relating to the Merger, insofar as such facts pertain to the Company, are true, correct and complete in all material respects and, insofar as such facts pertain to Trinity or Subsidiary, Company Management has no reason to believe that such facts are not true, correct and complete in all material respects. The undersigned further certifies, to the best knowledge and belief - -------- 1/ Unless otherwise defined herein, all capitalized terms used herein shall have the meanings specified in the Merger Agreement. A-2 67 Skadden, Arps, Slate Meagher & Flom [CLOSING DATE] Page 3 of Company Management, after due inquiry and investigation, as follows: 1. The ratio for the exchange of shares of Company Stock for Trinity Stock in the Merger was negotiated through arm's length bargaining. Schroder Wertheim & Co. Incorporated ("Schroder") delivered to the board of directors of the Company its written opinion dated June 13, 1996 that as of that date the Exchange Ratio was fair, from a financial point of view, to the Stockholders. This written opinion was reaffirmed by Schroder in letters dated [DATE] and [DATE]. Based on the arm's length negotiations and the fairness opinion of Schroder, the Company believes the fair market value of the shares of Trinity Stock to be received by each Stockholder (plus the cash, if any, to be received by such Stockholder in lieu of a fractional share of Trinity Stock) will be approximately equal to the fair market value of the Company Stock surrendered by such Stockholder in exchange therefor pursuant to the Merger as determined as of the date of the Merger Agreement. 2. Company Management knows of no plan or intention on the part of the holders of Company Stock to sell, exchange or otherwise dispose of a number of shares of Trinity stock received in the Merger, except for certain dispositions of shares of Trinity Stock having a value, as of the Effective Time, of no more than 20 percent of the value of all the Company Stock outstanding immediately preceding the Effective Time. For purposes of this representation, Company Stock to be exchanged for cash in lieu of fractional shares of Trinity Stock will be treated as outstanding immediately preceding the Effective Time. Moreover, Company Stock and shares of Trinity Stock held by the Company Stockholders and sold, redeemed or otherwise disposed of prior or subsequent to the Merger in connection with any overall plan of which the Merger is a part have been considered in making this representation. 3. Following the Merger, the Company will hold at least 90 percent of the fair market value of the net assets and at least 70 percent of the fair market value of the gross assets held by it immediately prior to the transfer. For purposes of this representation, amounts paid by the Company (a) for reorganization expenses incurred in connection with or in contemplation of the A-3 68 Skadden, Arps, Slate Meagher & Flom [CLOSING DATE] Page 4 Merger, (b) as redemptions and distributions in anticipation of or as part of the plan of reorganization of the Company, and (c) to repay indebtedness of the Company or any of its subsidiaries (except to the extent that any such repayment is funded through indebtedness incurred by the Company or any of its subsidiaries) shall be treated as assets held by the Company immediately prior to the Effective Time. 4. In the Merger, Company Stock representing control of the Company, as defined in Section 368(c) of the Internal Revenue Code of 1986, as amended (the "Code"), will be exchanged solely for shares of Trinity Stock. No shares of Company Stock will be exchanged for cash or other property originating with Trinity (except for cash, if any, paid in lieu of fractional shares of Trinity Stock). 5. The Company and its Stockholders have paid, or will pay, only their respective expenses incurred in connection with the Merger, except as provided in Section 7.5 of the Merger Agreement with respect to amounts payable on termination of the Merger Agreement and the abandonment of the Merger. 6. There is not, and has never been, any intercorporate indebtedness existing between Trinity and any of its affiliates, on the one hand, and the Company and any of its affiliates, on the other hand, or between Subsidiary and any of its affiliates, on the one hand, and the Company and any of its affiliates, on the other hand, that was issued, acquired or settled at a discount. 7. The payment of cash in lieu of fractional shares of Trinity Stock pursuant to the Merger will be solely for the purpose of avoiding the expense and inconvenience to Trinity of issuing fractional shares and will not represent separately bargained-for consideration. 8. The total cash consideration that will be paid in the Merger to the holders of Company Stock in lieu of issuing fractional shares of Trinity Stock will not exceed one percent of A-4 69 Skadden, Arps, Slate Meagher & Flom [CLOSING DATE] Page 5 the total consideration that will be delivered in the Merger to the holders of Company Stock in exchange for their Company Stock. 9. The Company will not have outstanding any warrants, options, convertible securities or any other type of right pursuant to which any person could acquire shares of capital stock of the Company that, if exercised or converted, would affect Trinity's acquisition or retention of control of the Company within the meaning of Section 368(c) of the Code. 10. Following the Merger the Company will continue its "historic business" or use a significant portion of its "historic business assets" in a business (as such terms are used in Treas. Reg. Section 1.368-1(d)). 11. The Company is not under the jurisdiction of any court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. 12. At the Effective Time, the fair market value of the assets of the Company will exceed the sum of its liabilities, plus (without duplication) the amount of liabilities, if any, to which the assets are subject. 13. None of the compensation received by any Stockholder-employee of the Company with respect to periods ending on or prior to the Effective Time will be separate consideration for, or allocable to, any of their Company Stock. Furthermore, none of the shares of Trinity Stock received by any Stockholder-employee of the Company in exchange for Company Stock will be separate consideration for, or allocable to, any employment or consulting agreement or similar arrangement. 14. The compensation paid to any Stockholder-employee of the Company with respect to periods ending on or prior to the Effective Time will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arms-length for similar services. A-5 70 Skadden, Arps, Slate Meagher & Flom [CLOSING DATE] Page 6 15. No liabilities of the Company guaranteed by Company Stockholders or liabilities of the Company's Stockholders will be assumed by Trinity, nor will any of the stock of the Surviving Corporation, immediately after the Merger, be subject to any liabilities that may have encumbered Company Stock immediately prior to the Merger. 16. The Company is not an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. We will promptly and timely notify Skadden, Arps, Slate, Meagher & Flom if we believe or have reason to believe that (i) any of the facts described herein or in the Proxy Statement and S-4 Registration Statement or (ii) any of the representations, information or covenants contained in this certificate, are untrue, incorrect or incomplete in any material respect. TRANSCISCO INDUSTRIES, INC. By: ------------------------------------ Print Name: ------------------------------------ Print Title: ------------------------------------ A-6 71 EXHIBIT B TO AGREEMENT AND PLAN OF MERGER FORM OF TRINITY'S TAX CERTIFICATE (See attached form of tax certificate) B-1 72 [TRINITY INDUSTRIES, INC. LETTERHEAD] [CLOSING DATE] Skadden, Arps, Slate Meagher & Flom 919 Third Avenue New York, New York 10022 Ladies and Gentlemen: The undersigned, a duly authorized officer of Trinity Industries, Inc., a Delaware corporation ("Trinity") and acting as such, in connection with the opinion to be delivered by Skadden, Arps, Slate, Meagher & Flom pursuant to Section 6.2(c) of the Agreement and Plan of Merger dated June 17, 1996 (the "Merger Agreement")1/ among Trinity, Trinity Y, Inc., a Delaware corporation ("Subsidiary") and a wholly-owned subsidiary of Trinity, and Transcisco Industries, Inc., a Delaware corporation (the "Company"), and recognizing that you will rely on this certificate in delivering said opinion, hereby certifies that, to the best knowledge and belief of the executive officers of Trinity ("Trinity Management"), after due inquiry and investigation, the facts relating to the Merger of Subsidiary with and into the Company pursuant to the Merger Agreement, which facts are described in the Proxy Statement relating to the Merger and the S-4 Registration Statement relating to the Merger, insofar as such facts pertain to Trinity or Subsidiary, are true, correct and complete in all material respects and, insofar as such facts pertain to the Company, Trinity Management has no reason to believe that such facts are not true, correct and complete in all material respects. The undersigned further certifies, to the best knowledge and belief of Trinity Management, after due inquiry and investigation, as follows: - -------- 1/ Unless otherwise defined herein, all capitalized terms used herein shall have the meanings specified in the Merger Agreement. B-2 73 Skadden, Arps, Slate Meagher & Flom [CLOSING DATE] Page 3 1. The ratio for the exchange of shares of Company Stock for Trinity Stock in the Merger was negotiated through arm's length bargaining. Schroder Wertheim & Co. Incorporated ("Schroder") delivered to the board of directors of the Company its written opinion dated June 13, 1996 that as of that date the Exchange Ratio was fair, from a financial point of view, to the Stockholders. This written opinion was reaffirmed by Schroder in letters dated [DATE] and [DATE]. Based on the arm's length negotiations and the fairness opinion of Schroder, Trinity believes the fair market value of the shares of Trinity Stock to be received by each Stockholder (plus the cash, if any, to be received by such Stockholder in lieu of a fractional share of Trinity Stock) will be approximately equal to the fair market value of the Company Stock surrendered by such Stockholder in exchange therefor pursuant to the Merger as determined as of the date of the Merger Agreement. 2. Following the Merger, the Company will hold at least 90 percent of the fair market value of Subsidiary's net assets and at least 70 percent of the fair market value of Subsidiary's gross assets held immediately prior to the Effective Time. 3. Immediately prior to the Merger, Trinity will be in control of Subsidiary within the meaning of Section 368(c) of the Internal Revenue Code of 1986, as amended (the "Code"). 4. Trinity has no plan or intention to cause the Company to issue additional shares of its stock that would result in Trinity losing control of the Company within the meaning of Section 368(c) of the Code. 5. Neither Trinity nor any of its affiliates (i) is under any obligation to, or has entered into any agreement to make any extraordinary distribution in respect of such shares of Trinity Stock or (ii) has any plan or intention to reacquire any shares of Trinity Stock to be issued in the Merger. Any open market purchases by Trinity of its stock will be motivated solely by business considerations independent of the Merger transaction. B-3 74 Skadden, Arps, Slate Meagher & Flom [CLOSING DATE] Page 4 6. Neither Trinity, nor any corporation affiliated with Trinity, has any plan or intention to liquidate the Company, to merge the Company or any subsidiary of the Company with or into another entity, to sell or otherwise dispose of any shares of capital stock of the Company or any subsidiary of the Company (except for transfers described in Section 368(a)(2)(C) of the Code at the time of transfer) or to cause the Company or any subsidiary of the Company to sell or otherwise dispose of in any manner any of its assets held prior to the Merger or any of the assets acquired from Subsidiary, except for dispositions made in the ordinary course of business, transfers by the Company or any of its subsidiaries of assets to a corporation controlled by the Company or such subsidiary within the meaning of Section 368(c) of the Code at the time of transfer or sales, mergers or other dispositions that would not, individually or in the aggregate, cause the Company and its subsidiaries taken as a whole, following the Merger, to fail to hold at least 90 percent of the fair market value of its net assets and at least 70 percent of the fair market value of its gross assets held immediately prior to the Effective Time (determined by treating the items set forth in clauses (a), (b) and (c) of paragraph 3 of the Company Tax Certificate as assets of the Company immediately prior to the Effective Time). 7. Subsidiary has no liabilities to be assumed by the Company, and will not transfer to the Company any assets subject to liabilities, in the Merger. 8. Following the Merger, Trinity will cause the Company to continue its "historic business" or to use a "significant portion" of its "historic business assets" in a business (as such terms are used in Treas. Reg. Section 1.368-1(d)). 9. Trinity has paid, or will pay, the expenses of only Trinity and Subsidiary incurred in connection with the Merger, except as provided in Section 7.5 of the Merger Agreement with respect to amounts payable on termination of the Merger Agreement and the abandonment of the Merger. B-4 75 Skadden, Arps, Slate Meagher & Flom [CLOSING DATE] Page 5 10. There is not, and has never been, any indebtedness existing between Trinity and any of its affiliates, on the one hand, and the Company and any of its affiliates, on the other hand, or between Subsidiary and any of its affiliates, on the one hand, and the Company and any of its affiliates, on the other hand, that was issued, acquired or settled at a discount. 11. Neither Trinity nor any of its affiliates owns beneficially or of record, nor has any of them have owned during the past five years, any capital stock or securities of the Company or any options or instruments giving the holder thereof the right to acquire any capital stock or securities of the Company. 12. The payment of cash in lieu of fractional shares of Trinity Stock pursuant to the Merger will be solely for the purpose of avoiding the expense and inconvenience to Trinity of issuing fractional shares and will not represent separately bargained-for consideration. 13. The total cash consideration that will be paid in the Merger to the holders of Company Stock in lieu of issuing fractional shares of Trinity Stock will not exceed one percent of the total consideration that will be delivered in the Merger to the holders of Company Stock in exchange for their Company Stock. 14. None of the compensation to be received by any Stockholder-employee of the Company with respect to periods beginning after the Effective Time will be separate consideration for, or allocable to, any of his Company Stock. Further, none of the shares of Trinity Stock to be received by any Stockholder-employee of the Company in exchange for Company Stock will be separate consideration for, or allocable to, any employment agreement or arrangement. 15. The compensation paid to any Stockholder-employee of the Company with respect to periods beginning after the Effective Time will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arm's length for similar services. B-5 76 Skadden, Arps, Slate Meagher & Flom [CLOSING DATE] Page 6 16. Trinity is not an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. 17. Subsidiary ia a recently formed corporation having no assets or liabilities other than assets transferred to it pursuant to the Merger, and Subsidiary has been created and maintained solely for purposes of effecting the Merger. We will promptly and timely notify Skadden, Arps, Slate, Meagher & Flom if we believe or have reason to believe that (i) any of the facts described herein or in the Proxy Statement and S-4 Registration Statement or (ii) any of the representations, information or covenants contained in this certificate, are untrue, incorrect or incomplete in any material respect. TRINITY INDUSTRIES, INC. By: ------------------------------------ Print Name: ------------------------------------ Print Title: ------------------------------------ B-6 77 EXHIBIT C TO AGREEMENT AND PLAN OF MERGER FORM OF AFFILIATE LETTER (See attached form of affiliate letter) C-1 78 Trinity Industries, Inc. 2525 Stemmons Freeway Dallas, Texas 75207-2401 Ladies and Gentlemen: I have been advised that as of the date of this letter I may be deemed to be an "affiliate" of Transcisco Industries, Inc., a Delaware corporation (the "Company"), as the term "affiliate" is defined for purposes of paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"). Pursuant to the terms of the Agreement and Plan of Merger, dated June 17, 1996 (the "Agreement") , among the Company, Trinity Industries, Inc., a Delaware corporation ("Trinity"), and Trinity Y, Inc., a Delaware corporation and a wholly-owned subsidiary of Trinity ("Merger Sub"), Merger Sub will be merged with and into the Company (the "Merger"). As a result of the Merger, I will receive shares of common stock, par value $1.00 per share, of Trinity (the "Trinity Stock") in exchange for shares owned by me of common stock, par value $.01 per share, of the Company. I represent, warrant, and covenant to Trinity that in the event I receive any Trinity Stock as a result of the Merger: I. I shall not make any sale, transfer, or other disposition of the Trinity Stock in violation of the Act or the Rules and Regulations. A. I have carefully read this letter and the Agreement and discussed the requirements of such documents and other applicable limitations upon my ability to sell, transfer, or otherwise dispose of the Trinity Stock to the extent I felt necessary, with my counsel or counsel for the Company. B. I have been advised that the issuance of the Trinity Stock to me pursuant to the Merger has been registered with the C-2 79 Commission under the Act on a Registration Statement on Form S-4. However, I have also been advised that, since at the time the Merger was submitted for a vote of the stockholders of the Company, I may be deemed to have been an affiliate of the Company and the distribution by me of the Trinity Stock has not been registered under the Act, I may not sell, transfer or otherwise dispose of the Trinity Stock issued to me in the Merger unless (i) such sale, transfer, or other disposition has been registered under the Act, (ii) such sale, transfer, or other disposition is made in conformity with Rule 145 promulgated by the Commission under the Act, or (iii) in the opinion of counsel reasonably acceptable to Trinity, or a "no action" letter obtained by the undersigned from the staff of the Commission, such sale, transfer, or other disposition is otherwise exempt from registration under the Act. C. I understand that Trinity is under no obligation to register the sale, transfer, or other disposition of the Trinity Stock by me or on my behalf under the Act or to take any other action necessary in order to make compliance with an exemption from such registration available. D. I also understand that stop transfer instructions will be given to Trinity's transfer agent with respect to the Trinity Stock and that there will be placed on the certificates for the Trinity Stock issued to me, or any substitutions therefor, a legend stating in substance: "THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED [ ] BETWEEN THE REGISTERED HOLDER HEREOF AND TRINITY INDUSTRIES, INC., A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF TRINITY INDUSTRIES, INC." E. I also understand that unless the transfer by me of my Trinity Stock has been registered under the Act or is a sale made in conformity with the provisions of Rule 145, Trinity reserves the right to put the following legend on the certificates issued to my transferee: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED C-3 80 FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933." It is understood and agreed that the legends set forth in paragraphs E and F above shall be removed by delivery of substitute certificates without such legend if such legend is not required for purposes of the Act or the Agreement. It is also understood and agreed that such legends and the stop orders referred to above will be removed if (i) two years shall have elapsed from the date the undersigned acquired the Trinity Stock received in the Merger and the provisions of Rule 145(d) (2) are then available to the undersigned, (ii) three years shall have elapsed from the date the undersigned acquired the Trinity Stock received in the Merger and the provisions of Rule 145(d) (3) are then applicable to the undersigned, or (iii) Trinity has received either an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to Trinity, or a "no action" letter obtained by the undersigned from the staff of the Commission, to the effect that the restrictions imposed by Rule 145 under the Act no longer apply to the undersigned. Execution of this letter should not be considered an admission on my part that I am an "affiliate" of the Company as described in the first paragraph of this letter or as a waiver of any rights I may have to object to any claim that I am such an affiliate on or after the date of this letter. Very truly yours, ------------------------------------------- Name: Accepted this ____ day of __________________, 1996 by C-4 81 Trinity Industries, Inc. By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- C-5 EX-10.18 5 EXHIBIT 10.18 1 EXHIBIT 10.18 AMENDMENT TO RIGHTS AGREEMENT AMENDMENT, dated as of June 17, 1996, to the Rights Agreement, dated as of September 5, 1995 (the "Agreement"), between Transcisco Industries, Inc., a Delaware corporation (the "Company"), and First Interstate Bank of California, a California banking corporation (now known as Wells Fargo Bank National Association) (the "Rights Agent"). WHEREAS, the Company and the Rights Agent entered into the Rights Agreement specifying the terms of the Rights (as defined therein); and WHEREAS, the Company and the Rights Agent desire to amend the Rights Agreement in accordance with Section 26 of the Rights Agreement; NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth in the Rights Agreement and this Amendment, the parties hereby agree as follows: 1. Section 1(a) is amended by adding the following at the end of said Section: ; provided, however, that none of Trinity Industries, Inc., a Delaware corporation ("Trinity"), Trinity Y, Inc., a Delaware corporation and a wholly-owned subsidiary of Trinity (the "Subsidiary"), and their Affiliates shall be deemed to be an Acquiring Person solely by virtue of (x) the execution of the Agreement and Plan of Merger, dated as of June 13, 1996 (the "Merger Agreement," which term shall include any amendments thereto) by and among the Company, Trinity and Subsidiary, or (y) the consummation of any of the transactions contemplated thereby, including, without limitation, the public or other announcement of the merger provided for by the Merger Agreement (the "Merger") or the consummation of the Merger. 2. Section 1(m) is amended by adding the following at the end of said Section: 2 ; provided, however, that the public announcement of (x) the Merger or (y) that Trinity, Subsidiary or any of their Affiliates has become the beneficial owner of 5% or more of the shares of Common Stock as a result of the consummation of the Merger, shall not constitute a Stock Acquisition Date. 3. Section 1(o) is amended by adding the following at the end of said Section: Notwithstanding anything to the contrary contained in this Agreement, the Merger shall not constitute a Triggering Event or an event described in 11(a)(ii) or Section 13. 4. The phrase in Section 11(a)(ii) that presently reads, "unless the event causing the 5% threshold to be crossed is a transaction set forth in Section 13(a) hereof or is an acquisition of shares of Common Stock pursuant to a tender offer or an exchange offer for all outstanding shares of Common Stock" is amended in its entirety to read as follows: "unless the event causing the 5% threshold to be crossed is the Merger, a transaction set forth in Section 13(a) hereof or is an acquisition of shares of Common Stock pursuant to a tender offer or an exchange offer for all outstanding shares of Common Stock" 5. The last sentence of Section 13(d) is amended in its entirety to read as follows:: Upon consummation of any such transaction contemplated by this Section 13(d) or the Merger, all Rights hereunder shall expire. 6. The term "Agreement" as used in the Rights Agreement shall be used to refer to the Rights Agreement as amended hereby. 2 3 7. The foregoing amendment shall be effective as of June 17, 1996, and except as set forth herein, the Rights Agreement shall remain in full force and effect and shall be otherwise unaffected hereby. 8. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed this 17th day of June 1996. TRANSISCO INDUSTRIES, INC. By: /s/ Steven L. Pease ---------------------- Name: Steven L. Pease Title: President and Chief Executive Officer WELLS FARGO BANK NATIONAL ASSOCIATION (FORMERLY FIRST INTERSTATE BANK OF CALIFORNIA) By: /s/ Patricia Dedrick ----------------------- Name: Patricia Dedrick Title: Assistant Vice President 3 EX-23.1 6 EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Transcisco Industries, Inc. We consent to the incorporation by reference in the Registration Statements (Form S-3 No. 33-65173 and Form S-8 No. 33-58389) of Transcisco Industries, Inc. and in the related Prospectuses of our report dated May 10, 1996, except Note 11, as to which the date is June 17, 1996, with respect to the consolidated financial statements of Transcisco Industries, Inc. included in this Annual Report (Form 10-K) for the year ended March 31, 1996. ERNST & YOUNG LLP San Francisco, California June 24, 1996 40 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR MAR-31-1996 APR-01-1995 MAR-31-1996 2,695 0 6,377 0 2,501 12,147 14,606 0 44,046 8,992 0 0 0 53 25,707 44,046 42,630 42,630 31,718 31,718 9,084 0 954 6,849 198 6,651 0 6,058 0 12,709 2.09 0
EX-99.1 8 EXHIBIT 99.1 1 Exhibit 99.1 "JSC SFAT" CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 WITH INDEPENDENT AUDITORS' REPORT THEREON 2 CORPORATE INFORMATION BOARD MEMBERS MARTYNCHUK, ANATOLY V. KUZIN, VLADIMIR I. PEASE, STEVEN L. ZABLOTSKY, ALEKSANDR G. HAPPONEN, PERTTI SECRETARY HELLEVIG, JON AUDITORS KPMG PRINCIPAL BANKERS INKOMBANK INTERNATIONAL MOSCOW BANK ZHELDORBANK BANK OF CYPRUS, LTD. BARCLAYS BANK PLC LEGAL ADVISORS LATHAM & WATKINS, ATTORNEY AT LAW MILBANK, TWEED, HADLEY & McCLOY 3 INDEPENDENT AUDITORS' REPORT THE BOARD OF DIRECTORS CLOSED JOINT STOCK COMPANY SFAT We have audited the accompanying consolidated balance sheets of the Closed Joint Stock Company, SFAT as of December 31, 1995, and 1994, and the related consolidated statements of income and cash flows for the years then ended on pages 4 to 14. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Accounting. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Closed Joint Stock Company, SFAT as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended in conformity with International Accounting Standards. Moscow, Russia May 24, 1996 4 JSC SFAT Consolidated Balance Sheets For the years ended December 31, 1995 and 1994
ASSETS 1995 1994 - ------ ---- ---- Current assets: Cash and cash equivalents $ 3,447,718 $ 11,513,081 Trade receivables (note 2) 41,203,681 20,342,138 Prepaid expenses 6,938,571 2,025,335 Investments 73,910 -- Other assets (note 3) 5,408,989 4,153,697 ------------ ------------ Total current assets 57,072,869 38,034,251 Long-term investments 475,747 -- Property, plant and equipment net (note 5) 79,048,745 65,414,031 ------------ ------------ 136,597,361 103,448,282 ============ ============ LIABILITIES and SHAREHOLDERS EQUITY Current Liabilities: Accounts payable and accrued expenses 43,900,582 34,469,511 Advances received from customers 933,199 1,984,706 Current potion of long-term debt (note 7) 1,500,000 2,704,341 Other current liabilities (note 6) 5,176,204 2,003,448 ------------ ------------ Total current liabilities 51,509,985 41,162,006 Long-term debt (note 7) 1,050,000 4,100,000 ------------ ------------ Total liabilities 52,559,985 45,262,006 Minority interest SFAT Ryazan (note 4) 4,211,976 4,271,276 Shareholders' Equity Contributed capital (note 8) 2,554,563 2,554,563 Restricted retained earnings (note 9) 16,595,668 16,595,668 Retained earnings 61,058,750 34,764,769 ------------ ------------ Total retained earnings 77,654,418 51,360,437 Treasury shares held (383,581) -- ------------ ------------ Total Shareholders' Equity 79,825,400 53,915,000 ------------ ------------ $136,597,361 $103,448,282 ============ ============
See accompanying notes to consolidated financial statements. 5 JSC SFAT Consolidated Statements of Income For the years ended December 31, 1995 and 1994
1995 1994 ---- ---- Revenue (note 12) $ 81,982,328 $ 27,337,069 Costs and expenses 25,296,401 -- Railcar production 7,518,360 2,908,477 Operations and support 5,425,305 4,452,799 Depreciation 14,040,907 7,535,269 General, selling and administration ------------ ------------ Total costs and expenses 52,280,973 14,896,545 ------------ ------------ Operating income 29,701,355 12,440,524 Other income (expenses): 775,144 116,693 Interest income 697,113 758,570 Other income (254,245) (328,059) Interest expense (529,606) (148,055) Other expenses (1,406,569) (2,896,400) Foreign currency exchange loss ------------ ------------ Income before profit tax 28,983,192 9,943,273 Taxation (note 11) (2,406,753) (1,018,773) ------------ ------------ Net income after tax 26,576,439 8,924,500 Minority interest in net profit of SFAT Ryazan 17,542 -- ------------ ------------ Consolidated net income after tax and minority interest 26,593,981 8,924,500 ============ ============ Retained earnings at beginning of year 51,360,437 42,735,937 Dividends paid -- (153,000) proposed (note 16) (300,000) (147,000) Consolidated net income 26,593,981 8,924,500 ------------ ------------ Retained earnings at end of year $ 77,654,418 $ 51,360,437 =========== ===========
See accompanying notes to consolidated financial statements. 6 JSC SFAT Consolidated Statements of Cash Flows For the years ended December 31, 1995 and 1994
1995 1994 ---- ---- Cash flows from operating activities Consolidated net income $ 26,593,981 $ 8,924,500 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 5,425,305 4,452,799 Changes in assets and liabilities: Increase in trade receivables (20,861,543) (15,951,850) Increase in prepaid expenses/other assets (6,168,528) (2,599,230) Increase in accounts payable and accrued expenses 9,431,071 31,711,314 Increase/(Decrease) in other liabilities 3,052,756 (1,307,921) ------------ ------------ Net cash provided by operating activities 17,473,042 25,229,612 ------------ ------------ Cash flows from investing activities Investments (549,657) Capital expenditures (19,060,019) (18,413,816) ------------ ------------ Net cash (used in) investing activities (19,609,676) (18,413,816) Cash flows from financing activities Increase/(Decrease) in minority interest (59,300) 1,210,598 Decrease in advances received from customers (1,051,507) (100,519) Repayment of long-term debt (4,254,341) (1,945,659) Treasury shares held (383,581) -- Dividends paid (180,000) (153,000) ------------ ------------ Net cash used in financing activities (5,928,729) (988,580) ------------ ------------ Net increase/(decrease) in cash (8,065,363) 5,827,216 Cash and cash equivalents at beginning of period 11,513,081 5,685,865 ------------ ------------ Cash and cash equivalents at end of period $ 3,447,718 $ 11,513,081 ============ ============ Supplementary information Taxes paid 2,312,890 1,607,581 Interest paid 246,016 285,541
See accompanying notes to consolidated financial statements. 7 JSC SFAT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 - -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) DESCRIPTION OF BUSINESS The Closed Joint Stock Company (SFAT or the Company) core business are tariff assessment and collection, railcar production, the provision of rail and marine transport services and tankcar repair and paint services. Rail transportation is mainly for viscous and solidified commodities, including oil and chemicals, vegetable oil, liquid soaps, and other similar products. Marine transportation is predominately oil products and is conducted through its subsidiary, "Transpetro Volga." SFAT operates in the Russian Federation, Finland, Estonia, Latvia, Lithuania, Poland and several Western European counties. SFAT also operates railcar tracking information services. Non-core business includes provision of vehicles for rental and horticulture. These activities are immaterial to the financial results of the entity. (b) LEGAL STRUCTURE SFAT re-registered from a joint venture to a closed joint stock company in May 1995. This re-registration was to comply with recent company legislation. SFAT is incorporated and registered as a Russian legal entity. The 1994 consolidated financial statements were produced under the old name "SFAT LIMITED." They are the same entity. (c) ACCOUNTS PREPARATION AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements are prepared in accordance with the historical cost convention. The financial statements include the financial statements of 8 JSC SFAT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 - -------------------------------------------------------------------------------- SFAT its three wholly-owned subsidiaries, Sovfinamtrans, Finland (SFAT Finland). Sovfinamtrans Estonia (SFAT Estonia), Transfat and its subsidiary SFAT Ryazan (51%). The SFAT Estonia group includes SFAT Estonia and its subsidiary Transwag which is registered in Cyprus. All significant intercompany balances and transactions have been eliminated in consolidation. Tariff revenue is shown net of tariff payments, however, tariff receivables and payables are shown gross due to SFAT's liability to the Ministry of Railways. (d) CASH AND CASH EQUIVALENTS Cash consists primarily of bank deposits denominated in US dollars. For purposes of the statements of cash flows and balance sheets, the Company considers all investments with an original maturity of three months or less to be cash equivalents. (e) PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are stated at cost less accumulated depreciation. Equipment acquired in Russia roubles, prior to 1992, was denominated in Russian roubles and has been translated using the official exchange rate which differed from market exchange rates. Because of government control of currency exchange rates prior to 1992, there are no reliable market rates for the acquisitions for this time period. The useful economic lives of the fixed assets was reviewed in 1995, and depreciation rates were changed to reflect the revised lives. Excluding work in progress, depreciation on plant and equipment is calculated on the straight line method over the useful lives of the assets as follows: 9 JSC SFAT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 - --------------------------------------------------------------------------------
1995 1994 ---- ---- $ $ Land and Building 2-5% 1.2% Equipment for Leasing 8% 6.4% Automobiles 20% 14.3% Other Fixed Assets 10 to 30% 10 to 30%
(f) INVENTORY Inventory is stated at the lower of cost or net realisable value. Inventory is composed predominately of materials and spare parts. (g) TRANSLATION TO REPORTING CURRENCY The Company's functional and reporting currency is the US dollar (US) as virtually all service revenues are billed and collect in US dollars. The Company uses the temporal method of translating transactions and balances denominated in a currency other than the reporting currency. Under this method: (i) monetary items are translated at the relevant exchange rates prevailing at the balance sheet dates; (ii) non-monetary items are translated at historic exchange rates; and (iii) revenue and expense (other than depreciation and amortization) are translated at official rates of exchange at the time the transaction occurs. 10 JSC SFAT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 - -------------------------------------------------------------------------------- (2) TRADE RECEIVABLES
1995 1994 ---- ---- $ $ Trade receivables 40,246,263 20,612,966 Amounts due from related companies 1,068,605 - Bad debt provision (111,187) (270,828) ------------ ----------- Total 41,203,681 20,342,138 ============ ===========
PRINCIPAL RECEIVABLES
1995 1994 ---- ---- $ $ Telf AG 8,473,944 1,532,985 IPCO 3,277,781 - LUKoil 3,202,281 - Novoil 3,130,978 1,528,782 Other 22,161,279 17,551,199 ---------- ---------- Total 40,246,263 20,612,966 ========== ==========
All trade receivables are due within a year. The bad debt provision is based on the payment records of the debtor and the assessed potential and probable risk of default. (3) OTHER ASSETS Other assets consists of the following:
1995 1994 ---- ---- $ $ VAT recoverable 3,226,757 2,793,589 Inventory 840,354 295,068 Other 1,341,878 1,065,040 --------- --------- Total 5,408,989 4,153,697 ========= =========
11 JSC SFAT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 - -------------------------------------------------------------------------------- (4) RYAZAN PAINT AND REPAIR FACILITY (SFAT RYAZAN) SFAT owns 51% of the SFAT Ryazan joint venture, the assets, liabilities, and results of the joint venture have been consolidated with SFAT. The Ryazan facility was established in 1993 as a joint venture with the Ryazan oil refinery and became fully operational in 1994. The Ryazan paint factory has recorded total contributions of $8,916,584 of which $4,645,308 was contributed by SFAT and $4,271,276 was contributed by the Ryazan Oil Refinery. The minority interest in SFAT Ryazan in 1995 decreased due to losses from 1994. SFAT has included in land and building and other equipment, assets with a cost of $5,520,301 which will be used in phase two of the Ryazan project. This work is ongoing and will increase the production capacity of the factory. Phase two will allow assembly of the railcars to be completed in the facility. See Note 14 for Ryazan's profits in 1995. (5) PROPERTY, PLANT AND EQUIPMENT
LAND AND EQUIPMENT OTHER BUILDINGS FOR LEASING AUTOMOBILES EQUIPMENT TOTAL --------- ----------- ----------- --------- ----- Cost $ $ $ $ $ Opening balance 7,974,030 61,159,129 502,356 6,732,068 76,357,583 Additions 6,930,160 5,388,476 395,455 6,433,763 19.147,854 Disposals (21,470) (57,730) (5,100) (47,326) (131,626) Transfers 148,744 - - (148,744) - ---------- ---------- ------- ---------- ---------- Closing balance 15,301,464 66,489,875 892,711 12,969,761 95,383,811 ========== ========== ======= ========== ==========
12 JSC SFAT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 - --------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION LAND AND EQUIPMENT OTHER BUILDINGS FOR LEASING AUTOMOBILES EQUIPMENT TOTAL --------- ----------- ----------- --------- ----- $ $ $ $ $ Opening balance 79,995 10,133,490 176,280 563,787 10,953,552 Charge for one year 188,219 4,646,028 88,834 502,224 5,425,305 Disposals (2,691) (13,382) (122) (27,586) (43,791) Transfers 4,462 - - (4,462) - ---------- ---------- ------- ---------- ---------- Closing balance 269,985 14,766,136 264,992 1,033,953 16,335,066 ========== ========== ======= ========== ========== NET BALANCE 1995 14,761,479 51,723,739 627,719 11,935,808 79,048,745 NET BALANCE 1994 7,894,035 51,025,639 326,076 6,168,281 65,414,031
Included in land and buildings is work in progress of $5,929,631. In other equipment work in progress is 7,029,979 (1994: $1,646,434). This relates mainly to construction projects and parts and equipment to be used in the production of railcars and is not depreciated. (6) OTHER CURRENT LIABILITIES Other current liabilities consists of the following:
1995 1994 $ $ Dividends 567,000 447,000 Repairs and maintenance 1,372,554 1,173,244 Taxation 2,494,001 197,960 Other 742,649 185,244 --------- --------- Total 5,176,294 2,003,448 ========= =========
13 JSC SFAT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 - -------------------------------------------------------------------------------- (6) OTHER CURRENT LIABILITIES Other current liabilities consists of the following:
1995 1994 ---- ---- $ $ Dividends 567,000 447,000 Repairs and maintenance 1,372,554 1,173,244 Taxation 2,494,001 197,960 Other 742,649 185,244 --------- --------- Total 5,176,294 2,003,448 ========= =========
(7) LONG-TERM DEBT Long-term debt consists of the following:
1995 1994 ---- ---- $ $ Postipankki Ltd. interest variable based on Libor plus 1% and payable $750,000 semi-annually, secured on real estate 2,250,000 3,750,000 Saratov long-term advance, no interest, principal repayable by July 2001 unsecured - 1,937,269 Ufimsky long-term advance, no interest, principal repayable by July 1998, unsecured 300,000 1,117,072 Less: Current portion (1,500,000) (2,704,341) --------- --------- Total 1,050,000 4,100,000 ========= =========
14 JSC SFAT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 - -------------------------------------------------------------------------------- With the exception of the loan from Postipankki Ltd., long-term debt represents long-term advances received from customer. The loan from Postipankki Ltd. represents a commercial loan. (8) CONTRIBUTED CAPITAL The following represents the shareholders and contributed capital:
HOLDING US AT 31 DECEMBER 1995 1994 ------------- ---- ---- $ $ Ministry of Railways of the Russian Federation 40% 1,021,638 1,021,638 Neftek Holdings 25% 638,525 638,525 Transcisco Trading Company 20% 510,819 510,819 Treasury Shares 15% 383,581 383,581 --------- --------- Total 2,554,563 2,554,563 ========= =========
All capital contributions were made in Russian roubles. The US equivalent is based on the official exchange rate at the time of the contribution. Because of government control of currency exchange rates in 1989, there is no reliable market exchange rate for the translation of the capital contributions. The shares are all ordinary shares and have equal voting rights. Treasury shares have been deducted from equity in 1995. contribution. 15 JSC SFAT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 - -------------------------------------------------------------------------------- Because of government control of currency exchange rates in 1989, there is no reliable market exchange rate for the translation of the capital contributions. The shares are all ordinary shares and have equal voting rights. Treasury shares have been deducted from equity in 1995. In 1994, Haka-Stroi Oy, a shareholder with 15% of the company, filed for bankruptcy under Finnish law and sold its shares to SFAT. These shares are currently held by Transwag, which is a subsidiary of the Estonia Group, pending their sale to a third party, and thus these shares are Treasury Stock of the SFAT Group at the balance sheet date. As mentioned in the accounting policies note, the company re-registered as a joint stock company in 1995. The rouble share capital was increased but the dollar and percentage ownership remained unchanged. The ministry of Railways which held the shares transferred the shares to "Zheldorraschet." The company is 100% owned by the Ministry of Railways and transfer is for internal ministry purposes only. During the year, VAO Neftekhimexport transferred its holding in SFAT to Neftek holdings. Neftek holdings is a private company. (9) RETAINED EARNINGS Prior to 1993. a portion of retained earnings was allocated to both capital and research and development funding. This amount is presently unavailable for distribution to shareholders. To release the funds for other purposes, a decision by the board of directors is required. At December 31, 1995, the Company had in the fund earnings of $16,595,668, (1994: $16,595,668). 16 JSC SFAT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 - -------------------------------------------------------------------------------- (10) RELATED PARTY TRANSACTION Under the terms of a sub-license agreement for certain patented Uni-Temp technology, SFAT was required to purchase half its requirements for railcar components incorporating the Uni-Temp technology from the sub-licensor, subject to minimum quantities. In exchange for a one-time payment of USD $5,000,000, SFAT acquired from the sub-licensor the right of the sub-licensor to require SFAT to purchase minimum quantities. Transcisco Trading Company provided SFAT services to the value of $218,886 (1994: $69,786). A director of SFAT was paid remuneration and consultancy fees to the value of $107,586 for services provided to the company above and beyond that of his director position. Two directors of a subsidiary company were paid similar fees to the value of $42,000. Two companies, Railcar Specialties Finland, Ltd., and FA Rail Services provided materials to the cumulate value of $1,032,813. Mr. Pertti Happoneon is a director of both of these companies in addition to being a director of Transwag and other subsidiaries. The Ministry of Railways charges users a tariff for the usage of the Russian Federation railway system. SFAT collects certain tariff's for the Ministry of Railways, who is one or its main shareholders. (11) TAXES
1995 1994 ---- ---- $ $ Profits taxation 2,296,753 1,018,773 Deferred taxation 110,000 - --------- --------- Total 2,406,753 1,018,773 ========= =========
17 JSC SFAT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 - -------------------------------------------------------------------------------- (12) BUSINESS AND CREDIT CONCENTRATIONS Virtually all of the Company's operations occur in Russian and the former Soviet Union. The top five customers of the Company comprise approximately 60% of revenues.
1995 1994 ---- ---- $ $ Railcar sales 30,749,520 Rail rental 24,679,037 23,545,005 Tariffs 23,918,563 3,267,340 Maine 1,376,000 - Other 1,259,208 524,724 ---------- ---------- Total 81,982,328 27,337,069 ========== ==========
(13) SUBSEQUENT EVENTS In January 1996, SFAT Finland and SFAT Estonia were sold to the company Finnish Russian Rail Services for $ 73,910. Effective control is maintained through an option to buy back these companies in the purchase agreement. A service agreement has been signed with Finnish Russian Rail Services whereby 85% of all profits from these companies are given to the SFAT group. In April 1996, the Company and the European Bank for Reconstruction and Development (EBRD) agreed to sell to the EBRD 10% of the share capital for $12,000,000 and to receive a loan for $30,000,000 for the construction of new railcars. (14) INVESTMENTS Significant parent Company investments which are eliminated on consolidation, and their contribution to group income for the year ended December 31, 1995 are: 18 JSC SFAT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 - --------------------------------------------------------------------------------
COST OF CONTRIBUTION INVESTMENTS % OWNERSHIP INVESTMENT TO INCOME ----------- ----------- ---------- ------------ $ $ SFAT Finland 100% 24,000 80,941 SFAT Estonia 100% 50,000 389,650 SFAT Ryazan 51% 4,645,308 35,800 Transfat 100% 17,953,030 (718,726) Transwag 100% 19,920 25,371,282
Note that Transwag, a subsidiary of SFAT Estonia, is disclosed here separately. (15) EMPLOYEES At year end 1995, the group had 363 employees. At year end 1994, the group had 164 employees. (16) DIVIDENDS Dividends proposed will be paid in 1996. They have not been paid at the approval date of the accounts.
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