-----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, HR58rhZ2LGMzVHrKccVsu8uyVV4bN9aFVo/ddZQERPTVnWh60UbtpfJwOXu5lRPm vlX3EhLGKRCTZf3Vz0m61A== 0000950152-00-000788.txt : 20000211 0000950152-00-000788.hdr.sgml : 20000211 ACCESSION NUMBER: 0000950152-00-000788 CONFORMED SUBMISSION TYPE: DEFS14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000306 FILED AS OF DATE: 20000210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEIST C H CORP CENTRAL INDEX KEY: 0000046653 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 160803301 STATE OF INCORPORATION: NY FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: DEFS14A SEC ACT: SEC FILE NUMBER: 001-10893 FILM NUMBER: 529867 BUSINESS ADDRESS: STREET 1: 810 NORTH BELCHER ROAD CITY: CLEARWATER STATE: FL ZIP: 34625 BUSINESS PHONE: 8134615656 MAIL ADDRESS: STREET 1: 45 ANDERSON ROAD CITY: BUFFALO STATE: NY ZIP: 14225 DEFS14A 1 C.H. HEIST CORP. DEFS 14A 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 14A (RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
C. H. HEIST CORP. (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) XXXXXXXXXXXXXXXX (NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: ....... (2) Aggregate number of securities to which transaction applies: .......... (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ............ (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ............................................... (2) Form, Schedule or Registration Statement No.: ......................... (3) Filing Party: ......................................................... (4) Date Filed: ........................................................... - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 C. H. HEIST CORP. 810 NORTH BELCHER ROAD CLEARWATER, FLORIDA 33765 February 10, 2000 Dear Shareholder: C. H. Heist Corp. (the "Company") will hold a special meeting of its shareholders on March 6, 2000, to consider and vote on proposals to approve the sale of its industrial maintenance business and to reincorporate in the State of Delaware. I have recommended these proposals to the Board of Directors, which has unanimously approved them. The Board and I recommend that you vote in favor of each proposal. We believe the timing is right for the sale of the industrial maintenance business. The sale will allow management to concentrate attention and financial resources on our growing staffing services business. We believe that this proposal will allow investors to better evaluate the staffing services business, enhancing the likelihood that it will achieve appropriate market recognition for its performance over time. Furthermore, we believe the sale could facilitate the expansion of the staffing services business by providing the Company with access to the capital markets and with a "pure-play" publicly-held stock to use in possible future acquisitions. We also believe that it is in the best interests of our shareholders to reincorporate the Company in Delaware. Currently, the Company is incorporated in New York. We believe that there are significant advantages to reincorporating in Delaware. These advantages are discussed in the accompanying proxy statement. Finally, as part of the reincorporation, the name of the Company will be changed to Ablest Inc. The special meeting will begin promptly at 10:00 a.m. at the Hyatt Regency Westshore, 6200 Courtney Campbell Causeway, Tampa, Florida 33607. The official notice of meeting, proxy statement and form of proxy are included with this letter. The vote of every shareholder is particularly important for this special meeting. Please sign, date and promptly mail your proxy. Your cooperation will be greatly appreciated. Sincerely, Charles H. Heist, Chairman 3 C. H. HEIST CORP. 810 NORTH BELCHER ROAD CLEARWATER, FLORIDA 33765 February 10, 2000 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS A special meeting of shareholders of C. H. Heist Corp. will be held at the Hyatt Regency Westshore, 6200 Courtney Campbell Causeway, Tampa, Florida 33607, on March 6, 2000, at 10:00 a.m., for the following purposes: 1. To consider and vote upon the proposed sale of the Company's industrial maintenance business; and 2. To consider and vote upon the proposed reincorporation of the Company in Delaware. Holders of record of common stock of the Company at the close of business on February 8, 2000, are entitled to notice of and to vote at the special meeting or any adjournment thereof. No business other than the above proposals will be considered at the special meeting or any adjournment thereof. By Order of the Board of Directors W. David Foster President YOUR VOTE IS IMPORTANT WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. 4 TABLE OF CONTENTS The Special Meeting......................................... 8 The Asset Sale Proposal..................................... 9 Pro Forma Condensed Consolidated Financial Information...... 17 The Reincorporation Proposal................................ 23 Stock Ownership............................................. 28 Market Information.......................................... 30 Independent Auditors........................................ 31 Shareholder Proposals....................................... 31 Available Information....................................... 31 Certain Historical Financial Information.................... 32
i 5 C. H. HEIST CORP. PROXY STATEMENT This proxy statement is being furnished to shareholders of C.H. Heist Corp. (the "Company") in connection with the solicitation of proxies on behalf of its Board of Directors to be used at a special meeting to be held on March 6, 2000, at 10:00 a.m. at the Hyatt Regency Westshore, 6200 Courtney Campbell Causeway, Tampa, Florida 33607 (the "Special Meeting") and any adjournment thereof. This proxy statement is being mailed to the Company's shareholders on or about February 10, 2000. Only shareholders of record as of the close of business on February 8, 2000, are entitled to notice of, and to vote at, the Special Meeting or any adjournment thereof. On January 31, 2000, the Company had 2,881,678 common shares outstanding. Each share is entitled to one vote. Shares cannot be voted at the Special Meeting unless the holder thereof is present or represented by proxy. Any shareholder executing the accompanying form of proxy has the power to revoke it at any time prior to its exercise. Such revocation may be made in person at the Special Meeting or by written notification to the Secretary of the Company. Every properly signed proxy will be voted unless previously revoked if the proxy is returned to the Company properly executed and in sufficient time to permit the necessary examination and tabulation before a vote is taken. At the Special Meeting, shareholders will be asked to vote on two proposals: 1. The proposed sale of the Company's industrial maintenance business; and 2. The proposed reincorporation of the Company in Delaware. The Company's address is 810 North Belcher Road, Clearwater, Florida 33765, and its telephone number is (727) 461-5656. 1 6 SUMMARY This summary is qualified by the more detailed information set forth elsewhere in this proxy statement, including the financial information set forth herein. THE SPECIAL MEETING Date, Time and Place. The Special Meeting of shareholders of the Company will be held at the Hyatt Regency Westshore, 6200 Courtney Campbell Causeway, Tampa, Florida 33607, on March 6, 2000, at 10:00 a.m. Purpose. The Special Meeting is being held to consider and vote on proposals to sell the Company's industrial maintenance business to Onyx Industrial Services, Inc. (the "Asset Sale") and to reincorporate in the State of Delaware and change the Company's name to Ablest Inc. following the sale of the industrial maintenance business (the "Reincorporation"). Recommendation of the Company's Board. The Board of Directors of the Company has unanimously approved the Asset Sale and the Reincorporation and recommends that shareholders vote FOR these proposals. For a description of the reasons for each proposal, see "The Asset Sale Proposal -- Reasons for the Asset Sale" and "The Reincorporation Proposal -- Reasons for Reincorporation." Record Date. February 8, 2000 (the "Special Meeting Record Date"). Voting. At the Special Meeting, each holder of record of common shares as of the Special Meeting Record Date will be entitled to one vote for each share held as of such date. The Company is seeking approval of each proposal by the holders of at least two-thirds of the outstanding common shares. Under New York law, it is not clear whether sale of the industrial maintenance business would constitute a sale of "substantially all assets" and thus require shareholder approval. Consequently, if the Asset Sale is approved by the holders of less than two-thirds of such shares, but is approved by the holders of a majority of such shares, the Company may request a court to rule that shareholder approval is not required and in such case will consummate the Asset Sale if a favorable ruling is obtained. As of January 31, 2000, Charles H. Heist, Chairman and Chief Executive Officer of the Company, owned 278,877 shares, representing approximately 9.6% of the outstanding common shares, and certain trusts of which Mr. Heist is a trustee owned 1,041,925 shares, representing approximately 36.5% of the outstanding common shares. Mr. Heist has informed the Company that he intends to vote such shares in favor of the Asset Sale and the Reincorporation and has entered into an agreement with Onyx Industrial Services on behalf of himself and the trusts to vote all of such shares in favor of the Asset Sale. THE ASSET SALE Assets to be Sold. The Company will sell substantially all assets related to its United States industrial maintenance business and all outstanding stock of its wholly-owned subsidiary C.H. Heist, Ltd., which operates the Company's industrial maintenance business in Canada. Purchaser. The purchaser of the Company's industrial maintenance business will be Onyx Industrial Services, Inc., a Delaware corporation ("Onyx") headquartered at 1980 North Highway 146, LaPorte, Texas 77571 (telephone number: (713) 307-2100). Onyx is engaged in the industrial maintenance business in the United States and Canada, and is a subsidiary of CGEA-Onyx, a French waste service company with worldwide operations. Sale Price. The Company will sell the assets of its U.S. industrial maintenance business to Onyx for $10,000,000 and the stock of C.H. Heist, Ltd. for $10,000,000. Onyx will assume approximately $2,600,000 of liabilities related to the U.S. industrial maintenance business. Reasons for the Asset Sale. The Company has limited resources and each of the industries that it is engaged in (industrial maintenance and staffing services) is highly competitive and in a consolidating mode. The sale of the industrial maintenance business will allow management to concentrate attention and financial resources on its 2 7 staffing services business. The Company believes that of its two businesses the staffing services business offers more promise for the future and more opportunities for growth. Possible Escrow of Funds. If the Company is unable to obtain the consent of E. I. du Pont de Nemours and Company ("DuPont") to the assignment of the master service contract between the Company and DuPont prior to the Closing, the Company will place $6,000,000 of the Purchase Price in escrow for one year. All or part of the escrow will be released to the Company at the end of the year depending on the ability of Onyx to retain business with DuPont at locations where Heist and Onyx performed services for DuPont in fiscal 1999. Similarly, if the Company is unable to obtain, prior to the Closing, the consent of C&K Industrial Services, Inc. ("C&K") to the assignment of the Company's service contract with C&K, the Company will place $300,000 of the Purchase Price in escrow for one year, to be released to the Company in whole or in part depending on the ability of Onyx to retain business with C&K comparable to that experienced by Heist in fiscal 1999. In addition to the foregoing, in the event that the Company is unable to obtain, prior to the Closing, consents of customers (other than DuPont and C&K) with contracts representing $2 million or less in revenues for fiscal 1999, the Company will place up to $700,000 in escrow for one year, to be released in whole or in part depending on the ability of Onyx to retain business with such customers comparable to that experienced by the Company in fiscal 1999. The Company believes that it will be able to obtain the DuPont consent and all other customer consents with the possible exception of C&K's consent. Retention of Certain Liabilities. The Company will retain all liabilities arising out of or relating to the conduct of the United States industrial maintenance business prior to the closing, other than the specific liabilities to be assumed by Onyx. The Company does not expect any of the retained liabilities to have a material adverse effect on its future results of operation or financial condition. Certain Environmental Matters. The Company has agreed to pay for certain environmental studies and possible remediation at three of its sites in the United States and three of its sites in Canada. All of these sites will be sold to Onyx. The Company's maximum obligation to Onyx for the Canadian sites is $1,000,000. The Company cannot estimate at this time the potential costs of the remediation of the Canadian sites, but based on studies performed to date by Onyx's environmental consultant, these costs could be in the range of $600,000. There is no limit to the Company's obligation to remediate the sites in the United States, but the Company believes that the costs involved will not be material. Non-Competition Agreements. In connection with the Asset Sale, the Company and two of its senior executive officers will agree not to compete with Onyx in the industrial maintenance business in the United States and Canada for a period of five years after the closing. Representations, Warranties and Covenants. The agreement governing the Asset Sale (the "Sale Agreement") contains representations, warranties and covenants of the Company and Onyx customary in transactions similar to the Asset Sale. Conditions to Closing. The Sale Agreement contains conditions to closing customary in transactions similar to the Asset Sale, including approval of the shareholders of the Company. Termination of Sale. The Company and Onyx each have the right to terminate the Sale Agreement under certain circumstances customary to transactions similar to the Asset Sale. Indemnification. Under the Sale Agreement, the Company and Onyx have agreed to indemnify each other with respect to breaches in their respective representations, warranties and agreements. The Company has also agreed to indemnify Onyx with respect to any matters pending at or arising after the closing relating to the operation of the industrial maintenance business in the United States and Canada prior to the closing, including certain pending litigation. The Company believes that the costs involved in indemnifying Onyx in connection with currently pending litigation will not be material to the Company's results of operations or financial condition following the closing. The Company does not expect that any of the other matters for which it has agreed to indemnify Onyx will have a material adverse effect on the Company's results of operations or financial condition following the closing. 3 8 Accounting Treatment. The Asset Sale will be accounted for as a discontinued operation as primarily specified in Opinion No. 30 of the Accounting Principles Board. U.S. Tax Consequences. The Company does not expect that there will be any material tax consequence to it as a result of the Asset Sale. Governing Law. The Sale Agreement and the Asset Sale are governed by the laws of the State of New York. Closing. The closing of the sale will take place as soon as practicable following the Special Meeting provided that the Asset Sale is approved by the shareholders. Possible Appraisal Rights. Shareholders of the Company who do not vote for the Asset Sale and who comply with the procedures required by the New York Business Corporation Law may have the right to receive payment for the fair value of their shares. THE REINCORPORATION Reincorporation. The Reincorporation will be effected by having the Company merge into Ablest Inc., a Delaware corporation formed for the Reincorporation. The Company and Ablest have entered into an Agreement and Plan of Merger dated as of February 4, 2000, (the "Merger Agreement") to effect the Reincorporation. As a result of the Reincorporation, the Company's name will be changed to Ablest Inc. Business of the Company following Reincorporation. Following the Reincorporation, the Company will be engaged in the staffing services business through its wholly-owned subsidiary Ablest Service Corp. The Reincorporation will effect no change in the nature of this business. Reasons for Reincorporation. Delaware has long been the leading state in implementing comprehensive and flexible corporate laws in response to the legal and business needs of corporations. The Company believes that reincorporation in Delaware will give it greater certainty regarding how its affairs should be conducted in order to comply with applicable laws as well as comfort resulting from the responsiveness of Delaware's legislature and courts to the needs of corporations organized in Delaware. See "The Reincorporation Proposal -- Reasons for Reincorporation." New Charter and Bylaws. Following the Reincorporation, the Company will be governed by a new charter and new bylaws. Approval of the Reincorporation will constitute approval of the new charter and the new bylaws. The principal differences between the new charter and bylaws and the Company's existing charter and bylaws are discussed at "The Reincorporation Proposal -- Comparison of Charters and Bylaws." New Governing Law. Following the Reincorporation, the Company will be governed by Delaware corporation law. New York corporation law, which currently governs the Company's corporate affairs, differs in a number of respects from Delaware corporation law. The principal differences between the two laws are discussed in "The Reincorporation Proposal -- Comparison of Rights of Shareholders Under New York and Delaware Corporation Laws." Anti-Takeover Implications. There are certain anti-takeover implications to the Reincorporation. For a discussion of those implications, see "The Reincorporation Proposal -- Anti-Takeover Implications." Appraisal Rights. Under New York law, shareholders who vote against the Reincorporation shall not be entitled to appraisal rights. Certain Tax Consequences. The Reincorporation will constitute a tax-free reorganization of the Company under federal tax law. No gain or loss will be recognized by the holders of common shares of the Company pursuant to the Reincorporation for federal tax purposes, nor will the Company recognize gain or loss for federal tax purposes as a result of the Reincorporation. See "The Reincorporation Proposal -- Certain Federal Income Tax Consequences of the Reincorporation." 4 9 Stock Certificates. No exchange of stock certificates will be required in connection with the Reincorporation. After the Reincorporation, the Company's outstanding stock certificates will remain outstanding and will represent shares of common stock of the Company as reincorporated in Delaware under the name Ablest Inc. Market for Stock. After the Asset Sale and the Reincorporation, the common shares will continue to be traded on the American Stock Exchange (the "Exchange") under the symbol "HST" until the shares receive a new symbol. The Company has applied to the Exchange for the new symbol "ABI". FORWARD LOOKING INFORMATION This proxy statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Pro forma information contained within this proxy statement, to the extent it is predictive of financial condition and results of operations that would have occurred on the basis of certain stated assumptions, may also be characterized as forward-looking statements. Although forward-looking statements are based on assumptions made and information believed by management to be reasonable, no assurance can be given that such statements will prove to be correct. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those results anticipated, estimated, projected or expected. CERTAIN RECENT DEVELOPMENTS Fourth Quarter Charge. On December 29, 1999, the Company announced that it had re-evaluated certain intangible assets and as a result would take a one-time charge of up to $5.5 million for the fourth quarter of fiscal 1999, subject to final evaluation. The charge relates to goodwill and other intangible assets attributable to previous acquisitions of information technology staffing services businesses. The Company has determined that these assets have diminished in value and that the projected growth rate used in evaluating these acquisitions has not been achieved. Additionally, the Company believes that there is not a strong likelihood of achieving projected cash flows from the acquired businesses in future periods. The re-evaluation of goodwill falls within the Company's historical policy of evaluating events and circumstances which have occurred that indicate the carrying value of intangible assets may warrant revisions. The re-evaluation is consistent with the approach used in Financial Accounting Standards Board Rule 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company is evaluating the value and the life of the intangible assets and anticipates making the necessary revisions in its fiscal 1999 financial statements. The one-time, pre-tax charge will be reflected as an "impairment of assets" in the fourth-quarter and full-year statements of operations for fiscal 1999. Resignation of Executive. On December 31, 1999, John L. Rowley, Vice President and Chief Financial Officer of the Company, resigned to pursue other endeavors. Charles H. Heist, Chairman and Chief Executive Officer, has assumed the duties of Chief Financial Officer. Administrative Relocation. In conjunction with the sale of its industrial maintenance business, the Company is relocating its administrative and support offices, currently located in Buffalo, New York, to the Tampa, Florida area. The Tampa area is currently the location of the Company's executive and human resources offices, and the relocation is designed to bring all support services of the Company together in one location. The Company has signed a new six year lease for office space that should be available in the second quarter of the current year and intends to sell its current executive office building and not renew its existing lease for its human resource offices. Liquidation of Insulation Business. The Company is liquidating its commercial insulation business, which is headquartered in Charlotte, North Carolina. The Company does not expect the liquidation to have a material adverse effect on its financial condition or results of operations. 5 10 SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION SELECTED HISTORICAL FINANCIAL DATA The following is a summary of certain consolidated financial information that has been derived from the consolidated financial statements of C.H. Heist Corp and subsidiaries. This summary should be read in conjunction with the related consolidated financial statements and notes thereto included elsewhere in this proxy statement. See "Certain Historical Financial Information". C.H. HEIST CORP. AND SUBSIDIARIES (In thousands, except share data)
THIRTY-NINE WEEKS ENDED YEAR ENDED SEPT. 26, 1999 DEC. 27, 1998 -------------- ------------- SELECTED INCOME STATEMENT DATA: Net service revenue........................................ $111,218 135,647 Operating income........................................... 259 2,429 Net earnings (loss)........................................ (4) 1,294 Basic and diluted net earnings (loss) per common share..... -- .45
SEPT. 26, 1999 -------------- SELECTED BALANCE SHEET DATA: Working capital............................................ $ 18,341 Total assets............................................... 55,856 Long-term debt............................................. 16,873
PRO FORMA CONSOLIDATED (UNAUDITED) FINANCIAL DATA The following pro forma consolidated (unaudited) financial information should be read in conjunction with the Pro Forma Consolidated (Unaudited) Financial Information included elsewhere herein, including the assumptions for such presentation, and the separate historical financial statements of C.H. Heist Corp. and subsidiaries and notes thereto included elsewhere in this proxy statement. See "Certain Historical Financial Information". The pro forma consolidated (unaudited) financial data are not necessarily indicative of the operating results that would have been achieved had the Asset Sale and discontinuation of industrial maintenance operations been effective during the periods presented or the results that may be obtained in the future. Nonrecurring charges resulting directly from the Asset Sale and discontinuation of industrial maintenance operations and other nonrecurring fourth quarter charges as noted under "Certain Recent Developments" are excluded from the Pro Forma Selected Income Statement Data. 6 11 SUMMARY PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (In thousands)
YEAR THIRTY-NINE ENDED WEEKS ENDED DEC. 27, SEPT. 26, 1999 1998 -------------- -------- SELECTED INCOME STATEMENT DATA: Net service revenue............................. $ 70,376 78,471 Operating income................................ 1,153 1,893 Net earnings.................................... 761 1,265
SEPT. 26, 1999 -------------- SELECTED BALANCE SHEET DATA: Working capital................................. $ 9,620 Total assets.................................... 33,720 Long-term debt.................................. -- Total shareholders' equity...................... 24,621
COMPARATIVE PER SHARE DATA The following table sets forth certain historical per share data of C.H. Heist Corp. and subsidiaries and per share data on a pro forma basis after giving effect to the Asset Sale and discontinuation of industrial maintenance operations. Nonrecurring charges resulting directly from the Asset Sale and discontinuation of industrial maintenance operations and other nonrecurring fourth quarter charges, as noted under "Certain Recent Developments", are excluded from the pro forma earnings and per share amounts.
YEAR THIRTY-NINE ENDED WEEKS ENDED DEC. 27, SEPT. 26, 1999 1998 -------------- -------- C. H. HEIST CORP. -- HISTORICAL: Basic and diluted net earnings (loss) per common share......................................... $ -- .45 Book value per common share..................... 9.93 9.78 PRO FORMA: Basic and diluted net earnings per common share......................................... $ .26 .44 Book value per common share..................... 8.55 N/A
7 12 THE SPECIAL MEETING PURPOSE The Special Meeting is being held to consider and vote on the Asset Sale and the Reincorporation. The Board of Directors of the Company has unanimously approved the Asset Sale and the Reincorporation and recommends that shareholders vote FOR each of these transactions. For a description of the reasons for the Asset Sale, see "The Asset Sale Proposal -- Reasons for the Asset Sale." For a description of the reasons for the Reincorporation, see "The Reincorporation Proposal -- Reasons for Reincorporation". VOTING INFORMATION AND REQUIREMENTS Only holders of record of common shares at the close of business on the Special Meeting Record Date will be entitled to notice of and to vote at the Special Meeting or any adjournment thereof. As of the Special Meeting Record Date, there were 2,881,678 common shares outstanding. Holders of such shares are entitled to one vote per share on each proposal. The Company believes that under New York law a vote of shareholders is not required in connection with the Asset Sale. New York law requires the approval of the holders of at least two-thirds of a corporation's outstanding voting shares for a sale, lease, exchange or other disposition of all or substantially all of the assets of a corporation. The Company believes that the Asset Sale is not a sale, lease, exchange or other disposition of all or substantially all of its assets. Although the Company believes that shareholder approval is not required, the Company is seeking such approval because the issue of what constitutes "substantially all" assets has not been settled under New York law. Thus, the Company is seeking approval of the Asset Sale by the holders of at least two-thirds of the outstanding common shares. If the Asset Sale is approved by the holders of less than two-thirds of such outstanding shares, but is approved by the holders of a majority of such shares, the Company may request a court to rule that shareholder approval of the Asset Sale is not required. In such event, if such a favorable ruling is obtained, the Company will consummate the Asset Sale. As of January 31, 2000, Charles H. Heist, Chairman and Chief Executive Officer of the Company, owned 278,877 shares, representing approximately 9.6% of the outstanding common shares. As of such date, certain trusts of which Mr. Heist is a trustee owned 1,041,925 shares, representing approximately 36.5% of the outstanding common shares. Mr. Heist has informed the Company that he intends to vote such shares in favor of the Asset Sale and the Reincorporation and has entered into an agreement with Onyx Industrial Services to vote such shares in favor of the Asset Sale. Under New York law, the affirmative vote of the holders of at least two-thirds of the Company's outstanding shares is required to approve the Reincorporation. Abstentions and broker non-votes will be counted as shares present for determination of a quorum at the Special Meeting. For purposes of determining whether the Asset Sale and the Reincorporation are approved, abstentions and broker non-votes will have the same effect as votes against such proposals. All shares that are represented by properly executed proxies received before or at the Special Meeting and not revoked will be voted in accordance with the instructions indicated on such proxies. If no instructions are indicated on the executed proxies, shares represented by such proxies will be voted FOR approval of each proposal. No other matters will be considered at the Special Meeting or any adjournment thereof. Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. Such revocation may be made in person at the Special Meeting or by written notification to the Secretary of the Company. The Company will pay the cost of all proxy solicitation. The Company may retain the services of CIC Corp. to solicit proxies from shareholders. In such event, the Company will pay a service fee of $5,000 to CIC Corp. and a solicitation fee of $4.00 per shareholder contacted. The Company will also reimburse CIC Corp. for the reasonable expenses it incurs in connection with the proxy solicitation. Officers and other employees of the Company may solicit proxies by personal interview or by telephone or facsimile equipment, in addition to the use 8 13 of the mails. None of these individuals will receive special compensation for such services, which will be performed in addition to their regular duties, and some of them may not necessarily solicit proxies. The Company has also made arrangements with brokerage firms, banks, nominees and other fiduciaries to forward proxy solicitation materials for shares held of record by them to the beneficial owners of such shares. The Company will reimburse these record holders for their reasonable out-of-pocket expenses. THE ASSET SALE PROPOSAL BACKGROUND OF THE ASSET SALE Over the past several years, the industrial maintenance industry in the United States has undergone a wave of consolidation with the number of smaller companies declining as a number of regional and national companies have acquired larger market shares. The industrial maintenance industry has also seen a trend among customers to demand cost controls, competitive pricing, and extensive training, safety and employee retention programs. There is also an increasing need to invest in highly automated equipment to achieve efficiencies as a result of customer demands. Additionally, the industry has recently experienced a trend toward the formation of national strategic alliances between service providers and their customers, particularly larger customers such as British Petroleum, DuPont, Stelco Steel, Bayer, and Motiva. These large companies have adopted sophisticated bid processes or single or dual preferred provider systems that give preference to industrial maintenance companies that have offices and equipment in numerous geographic locations throughout the United States. Many of these companies will not entertain bids from companies that cannot service all of their geographic locations. Furthermore, the industrial maintenance business is highly capital intensive, with capital needed to open new offices in geographic areas to serve regional or national-based customers, and to purchase new automated equipment to service customer locations. As a consequence of the foregoing, the industrial maintenance industry has become extremely competitive in the pricing of services as larger regional and national companies have put significant pressure on service providers to achieve greater efficiencies and reduce prices. Given these forces and trends in the industry, the Company has come to the conclusion that in order for it to remain competitive, it would have to grow its industrial maintenance business to a significant extent internally or through acquisition. Such growth would require substantial additional resources and investment in new equipment and new offices. Moreover, the Company would have to invest in expanding training, safety and employee retention programs. The Company does not believe that it has the financial or human resources to implement the expansion that would be required to compete with ever larger companies which have and will continue to have greater resources than the Company. At the same time the Company is faced with these challenges in the industrial maintenance business, its staffing services business faces similar challenges. The staffing services industry has grown and changed substantially in the past several years in the United States, also undergoing a wave of consolidation. Moreover, the industry has also experienced the formation of strategic alliances among regional or national service providers and large, geographically diverse customers such as IBM, Texas Instruments, American Express, Nortel, and DuPont. While it has those things in common with the industrial maintenance industry, the staffing services industry is not as capital intensive or as risk-related as the industrial maintenance industry. While revenues of the Company's staffing services business have been increasing over the past five years, those of its industrial maintenance business have remained relatively flat over that period. Moreover, over the past five years, the Company's industrial maintenance business has not been as profitable as its staffing services business. Considering the trends in the two industries and the Company's operating results in each, the Company has concluded that it does not have sufficient financial and human resources to remain in both businesses. Consequently, the Company has decided to sell the industrial maintenance business and focus on the staffing services business, where it believes it can be more successful in achieving growth and maintaining profitability. The possible sale of the industrial maintenance business was discussed by the Company's Board at various meetings held between late 1998 and early 2000. The Company engaged its financial advisor in the fourth quarter of 1998 and authorized it to search for a party interested in acquiring the industrial maintenance business in the United States and Canada. This search yielded two interested parties, one of which was Onyx Industrial Services. 9 14 After reviewing proposals from each party, on October 20, 1999, the Board authorized management to negotiate exclusively with Onyx for the sale of the industrial maintenance business. The Board rejected the proposal of the other bidder for a number of reasons, including the lower purchase price offered by this bidder, certain costs that this bidder's proposal would have imposed on the Company that the proposal of Onyx Industrial Services did not include, and the unwillingness of this bidder to assume certain of the Company's collective bargaining agreements. Subsequent to the Board's action on October 20, 1999, and following further discussions and negotiations, the Company and Onyx entered into a letter of intent, and the Company announced the proposed sale of the business to Onyx on November 2, 1999. Following more detailed negotiations and additional due diligence by Onyx, on January 18, 2000, the Company's Board of Directors reviewed the definitive agreement for the sale of the business and authorized management to finalize and execute it. The parties then entered into a definitive purchase and sale agreement on January 21, 2000. REASONS FOR THE ASSET SALE The Board of Directors of the Company believes that it is in the best interests of the Company and its shareholders to sell the industrial maintenance business and focus the operations of the Company solely on its staffing services business, which the Company believes has more potential for growth. The Board's belief is based on a number of factors, such as the lack of growth in the Company's industrial maintenance business over the past five years, the operating losses experienced by such business over the past five years, and the intense competition and customer pricing pressure within the industrial maintenance industry that have resulted in reductions in profit margins. In reaching a decision to recommend the Asset Sale to the Company's shareholders, the Board considered, among other factors, the following: (i) the respective financial condition, results of operations, capital resources, capital requirements, risk profiles, management teams, growth, and prospects of the industrial maintenance business and the staffing services business; (ii) the economic and competitive environments in which the two businesses operate; (iii) conditions and trends in the industrial maintenance industry and the staffing services industry; (iv) the fact that the Asset Sale will enable the Company to operate as a focused, pure-play company; (v) the possibility that the Asset Sale could facilitate the expansion of the Company's staffing services business by providing it with access to the capital markets and with a pure-play publicly-held stock to use in possible future acquisitions; (vi) the fact that the Asset Sale will improve the ability of the Company to offer stock plans and other such incentives to its staffing services executives and employees that are tied more directly to the results of their efforts and are unaffected by the performance of the industrial maintenance business; and (vii) the potential beneficial effect of the Asset Sale on investors' ability to evaluate the performance and investment characteristics of the Company. SALE AGREEMENT General Information. The Board of Directors has approved the sale of the Company's industrial maintenance services business to Onyx Industrial Services pursuant to the Sale Agreement. The consummation of the Asset Sale (the "Closing") is expected to occur as soon as practicable after approval by the shareholders at the Special Meeting. Sale Price. On January 18, 2000, the Company's Board of Directors approved the Asset Sale, and on January 21, 2000, the parties executed the Sale Agreement. Pursuant to the Sale Agreement, the Company will sell the assets of the U.S. industrial maintenance business and the stock of C. H. Heist, Ltd. to Onyx, and Onyx will assume and agree to pay, perform or discharge when due certain obligations and liabilities of the Company relating to the U.S. industrial maintenance business. Onyx will, at the Closing, pay to the Company a total of $20 million for such assets and stock (subject to certain possible escrow requirements described below) and assume approximately $2.6 million in liabilities, based on a balance sheet date of August 22, 1999. Assets. The assets to be sold to Onyx include real and personal property, inventory, machinery, equipment, furnishings, motor vehicles, accounts receivable, licenses and permits, intellectual property, other intangible 10 15 assets, the name "C.H. Heist Corp.", customer service contracts, leases, and the stock of C.H. Heist, Ltd. The Company will retain certain assets, including books and records, insurance policies, bonds and reserves, and certain leasehold interests in real property. Assumed Liabilities. Onyx will assume customer service contracts, certain leases, and certain collective bargaining agreements. Onyx will also assume accounts payable, accrued wages and related payroll taxes, and accrued real estate and personal property taxes of the U.S. operations, all of which approximate $2.6 million in the aggregate, based on a balance sheet date of August 22, 1999. Retained Liabilities. The Company will retain liabilities arising out of or relating to the conduct of the industrial maintenance business prior to the Closing other than those liabilities assumed by Onyx. The Company will remain responsible for all litigation or claims pending at or arising after the Closing relating to operation of the industrial maintenance business in the United States and Canada prior to the Closing. Noncompetition. The Company has agreed that it will not compete with Onyx in the industrial maintenance business in the United States or Canada for a period of five years after the Closing. Charles H. Heist III, Chairman and Chief Executive Officer of the Company, and W. David Foster, President and Chief Operating Officer of the Company, have also agreed to enter into agreements with Onyx prohibiting their competition in the industrial maintenance business in the United States or Canada for a period of five years after the Closing. Neither Mr. Heist nor Mr. Foster is receiving separate consideration for his agreement not to compete. Uncollected Accounts Receivable. All accounts receivable not collected by Onyx within the 180-day period following the Closing will be reassigned to the Company in return for the Company's payment to Onyx of the face amount of such receivables. The Company does not believe that it will be required to repurchase a material amount (if any) of such receivables. Use of Sale Proceeds. After payment of expenses related to the Asset Sale, the Company intends to use the proceeds of the Asset Sale for working capital and general corporate purposes, including the reduction of outstanding indebtedness. Possible Escrow of Funds. If the Company is unable to obtain the consent of DuPont to the assignment of the master service contract between the Company and DuPont prior to the Closing, the Company will place $6,000,000 of the Purchase Price in escrow for one year. All or part of the escrow will be released to the Company at the end of the year depending on the ability of Onyx to retain business with DuPont at locations where Heist and Onyx performed services for DuPont in fiscal 1999. Similarly, if the Company is unable to obtain prior to the Closing the consent of C&K Industrial Services, Inc. ("C&K") to the assignment of the Company's service contract with C&K, the Company will place $300,000 of the Purchase Price in escrow for one year, to be released to the Company in whole or in part depending on the ability of Onyx to retain business with C&K comparable to that experienced by Heist in fiscal 1999. In addition to the foregoing, in the event that the Company is unable to obtain prior to the Closing consents of customers (other than DuPont and C&K) with contracts representing $2 million or less in revenues for fiscal 1999, the Company will place up to $700,000 in escrow for one year, to be released in whole or in part depending on the ability of Onyx to retain business with such customers comparable to that experienced by the Company in fiscal 1999. The Company believes that it will be able to obtain the DuPont consent and all other customer consents with the possible exception of C&K's consent. Representations and Warranties. The Sale Agreement contains representations and warranties of the Company and Onyx customary for transactions of the type contemplated by the Asset Sale, including representations and warranties concerning such matters as necessary consents and approvals, title to and condition of assets, content of financial statements, absence of material adverse changes in the business, environmental matters pertaining to real property owned or leased, condition of inventories, collectability of accounts receivables, warranty claims, relations with customers and suppliers, and employee and employee benefit matters. 11 16 Covenants. The Sale Agreement contains covenants of the Company and Onyx customary for transactions of the type contemplated by the Asset Sale, including the covenant of the Company to carry on the industrial maintenance business in the ordinary course consistent with past practice through the Closing Date. Company's Indemnification Obligations. The Company has agreed to indemnify Onyx with respect to any breach of its representations or warranties (subject to a $100,000 deductible) or any breach of any covenant of the Company contained in the Sale Agreement. The Company has also agreed to indemnify Onyx with respect to claims or actions pending at or arising after the Closing Date that relate to the operation of the industrial maintenance business prior to that date, that relate to any condition existing on that date or that relate to the ownership by Heist Canada of certain real estate sold during 1999. Buyer's Indemnification Obligations. Onyx has agreed to indemnify the Company with respect to any breach of its representations or warranties (subject to a $100,000 deductible) or any breach of any covenant of Onyx contained in the Sale Agreement. Closing Contingencies. The consummation of the Asset Sale is subject to certain conditions, including consents to assignment of substantially all customer service contracts, accuracy in all material respects of representations and warranties, performance in all material respects of covenants and other obligations, delivery of customary closing documents, and approval of the shareholders of the Company. Termination and Amendment. The Sale Agreement may be amended or terminated by the mutual consent of the Company and Onyx at any time. In addition, if the Closing has not occurred on or before May 31, 2000, or if the failure to close results from a default by the Company or Onyx, then the nondefaulting party may terminate its obligations under the Sale Agreement. Thus, the Board of Directors has rights under certain circumstances to terminate the Asset Sale after approval of the transaction by the Company's shareholders. "No-Shop" Provision. Under the Sale Agreement, the Company is not permitted to initiate, solicit, negotiate, or encourage any proposal or offer to acquire all or any substantial part of the industrial maintenance business, whether by merger, purchase of assets, tender offer or otherwise. Dilution. The consideration to be received by the Company from Onyx is less than the net book value of the assets being sold and liabilities being assumed. Consequently, shareholders of the Company will experience dilution of $1.35 per share in the book value of their shares. CERTAIN TAX CONSEQUENCES OF ASSET SALE U.S. Tax Consequences. Although the Asset Sale is a taxable transaction, the Company does not expect to incur any material additional tax in the year of the Asset Sale as a result of the Asset Sale. Shareholder Tax Consequences. The holders of common shares of the Company will not recognize any gain or loss on the Asset Sale. OPINION OF FINANCIAL ADVISOR The Company has retained McDonald Investments Inc., a KeyCorp Company, to act as exclusive financial advisor in the sale of its industrial maintenance business (the "Industrial Maintenance Segment") and in the event of a sale to deliver an opinion to the Board of Directors as to the fairness, from a financial point of view, to the shareholders of the Company, of the consideration to be received in connection with such a transaction (the "Opinion"). As set forth in its Opinion, McDonald assumed and relied upon, without independent verification, the accuracy and completeness of the information reviewed by it for the purposes of its Opinion. On January 24, 2000, McDonald rendered its written opinion to the Board to the effect that, as of that date, the acquisition consideration was fair, from a financial point of view, to the shareholders of Heist. McDonald's written opinion is attached as Appendix 1 to this proxy statement and is incorporated herein by reference. The description of the opinion set forth herein is qualified in its entirety by reference to Appendix 1. Shareholders are 12 17 urged to read the opinion in its entirety for a description of the procedures followed, assumptions and qualifications made, matters considered, and limitations undertaken by McDonald. MCDONALD'S OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF THE COMPANY AND ADDRESSES ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO THE COMPANY SHAREHOLDERS OF THE ACQUISITION CONSIDERATION. THE OPINION WAS PROVIDED SOLELY FOR THE INFORMATION AND ASSISTANCE OF THE BOARD OF DIRECTORS IN CONNECTION WITH ITS CONSIDERATION OF THE TRANSACTION CONTEMPLATED BY THE SALE AGREEMENT. THE OPINION DOES NOT CONSTITUTE A RECOMMENDATION AS TO HOW THE COMPANY 'S SHAREHOLDERS SHOULD VOTE WITH RESPECT TO THE ASSET SALE. In connection with the opinion, McDonald reviewed, among other things, the following: - The Sale Agreement, including the exhibits and schedules to the Sale Agreement; - Publicly available information concerning the Company, including its annual reports to shareholders and Form 10-Ks for each of the last four fiscal years and its Form 10-Qs for the past four quarters; - Other internal information, primarily financial in nature, including management's projections, concerning the business and operations of the Industrial Maintenance Segment; - Publicly-available information with respect to certain other companies that McDonald believes to be comparable to the Industrial Maintenance Segment and the trading markets for such other companies' securities; and - Publicly available information concerning the nature and terms of certain other transactions that McDonald considered relevant to its inquiry. McDonald also held discussions with the Company's officers and employees regarding the rationale for the Asset Sale and the Industrial Maintenance Segment's past and current business operations, financial condition and future prospects. In preparing its Opinion, McDonald performed a variety of financial and comparative analyses and made assumptions in conjunction with the Company with respect to assets, financial conditions and other matters, many of which are beyond the Company 's control. McDonald's estimates of value are based on these analyses. The valuation results determined from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, and are inherently subject to substantial uncertainty. The following paragraphs summarize the analyses performed by McDonald in arriving at its Opinion. Selected Comparable Public Company Analysis. The comparable public company analysis involves an analysis of publicly traded companies considered by McDonald to be comparable to the Industrial Maintenance Segment with regard to industry, operations, performance and/or markets served. This analysis is predicated on the theory that the market value of a company can be estimated by deriving market multiples from publicly-traded companies that relate their stock prices to earnings, cash flows or other measures of the target company. No company used as a comparison in this analysis is identical to the Industrial Maintenance Segment. After screening applicable SIC codes and other relevant criteria, McDonald selected public companies that in its estimation were reasonably similar in scope of operations. These comparable companies included Matrix Service Company, MPW Industrial Services, Safety-Kleen Corp., and Shaw Group Inc. This group includes companies with market capitalizations of $56 million to $673 million. The data and ratios McDonald compared included, among other things: - enterprise value to latest twelve months EBITDA; - equity market value to estimated fiscal year 2000 earnings per share, and - equity market value to book value. Enterprise value is defined as current stock price multiplied by shares outstanding, plus debt and preferred securities, less cash. Equity market value is defined as current stock price multiplied by shares outstanding. An analysis of enterprise value to latest twelve months EBITDA yielded a range of (10.1x) to 9.8x with a mean, excluding the high and low, of 6.5x and a median of 6.5x. An analysis of equity market value to estimated 13 18 fiscal year 2000 earnings per share yielded a range of 4.6x to 12.4x with a mean, excluding the high and low, of 6.1x and a median of 7.7x. An analysis of equity market value to book value yielded a range of 0.5x to 2.1x with a median, excluding the high and low, of 1.0x and a median of 1.3x. McDonald applied the valuation multiples, reflecting the average of the comparable companies mean, excluding the high and low, and median multiples. This method implied an enterprise value of $18.8 million, as compared to the sale price of $20 million. Discounted Cash Flow Analysis. McDonald performed a discounted cash flow analysis to calculate the Industrial Maintenance Segment's implied present value based on management's projections through fiscal year 2001, and projections for fiscal years 2002 through 2004 derived by McDonald in association with the Company management following discussions regarding the future business prospects of the Industrial Maintenance Segment. Using this information, McDonald calculated the free cash flows the Industrial Maintenance Segment could generate through fiscal year 2004. McDonald also calculated an estimated terminal value of the Industrial Maintenance Segment at the end of year 2004 based on a 6.0x EBIT multiple. These future cash flows and terminal values were discounted using a discount rate of 13%. In deriving the discount rate, McDonald calculated a weighted average cost of capital for the Industrial Maintenance Segment utilizing the Capital Asset Pricing Model. McDonald also reviewed management's projections and the assumptions on which they were based and analyzed future cash flows and the risks associated with the achievement of such future cash flows. The sum of the present value of the free cash flows and terminal value less outstanding debt plus existing cash as of November 30, 1999, yielded an implied enterprise value of $19.2 million, as compared to the sale price of $20 million. Inherent in any discounted cash flow valuation are the use of a number of assumptions, including the accuracy of management's projections, and the subjective determination of an appropriate terminal value and discount rate to apply to the projected cash flows of the entity under examination. Variations in any of these assumptions or judgments could significantly alter the results of a discounted cash flow analysis. Comparable Merger and Acquisition Analysis. McDonald analyzed information related to the selected acquisition transactions for which public information was available. This analysis was conducted to determine relevant valuation multiples for transactions considered similar to the Asset Sale. After screening applicable SIC codes and other relevant criteria, McDonald selected recent transactions that in its estimation were reasonably similar in scope of operations. These comparable transactions included Laidlaw Environmental Services' purchase of Safety-Kleen Corp. on March 16, 1998 and HydroChem Industrial Services Inc.'s purchase of Valley Systems Inc. on January 5, 1999. No transaction used as a comparison in this analysis is identical to the Asset Sale. McDonald identified transactions of companies and industries related to the Industrial Maintenance Segment, including providers of industrial maintenance services and recycling and waste services. After review of the transactions where financial information was available, McDonald applied an average of the transactions' multiples to the Industrial Maintenance Segment LTM EBITDA figures to derive a valuation for the Industrial Maintenance Segment. A range of 8.2x to 10.3x latest twelve months EBITDA with an average of 9.2x was used to calculate an implied value for the Industrial Maintenance Segment. This methodology implied an enterprise value of $20.8 million, as compared to the sale price of $20 million. Leveraged Buyout Analysis. McDonald analyzed a leveraged buyout transaction to determine the price a typical leveraged buyer could afford to pay under prevailing market conditions. For purposes of this analysis, McDonald used management's financial projections for fiscal years 2000 and 2001, and projections for fiscal years 2002 through 2004 derived by McDonald in association with the Company Management following discussions regarding the future business prospects of the Industrial Maintenance Segment, and McDonald's judgment with regard to capitalization. The analysis was based on the following assumptions: - market rates of interest on senior and subordinated debt of 8.75%; - senior debt of approximately 7.0 times latest twelve months EBITDA; and - expected internal rates of return of approximately 30% to 40% or greater for equity investors; This methodology implied an enterprise value of $18.3 million, as compared to the sale price of $20 million. 14 19 Solicitation Process. In rendering its opinion, McDonald also considered the results of a process in which interest in acquiring the company was solicited from 59 potential strategic and financial buyers that McDonald and the Board determined could reasonably be expected to have an interest in acquiring the Industrial Maintenance Segment. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary, without considering the whole analysis, could create an incomplete view of the processes underlying the Opinion. In arriving at its fairness determination, McDonald considered the results of all of these analyses and did not attribute particular weight to any analysis or factor considered by it. Rather, McDonald made its determination as to the fairness on the basis of its experience and professional judgment after considering the results of all such analyses. No company or transaction used in the above analyses as a comparison is identical to the Industrial Maintenance Segment or the contemplated transaction. The analyses were prepared solely for the purposes of McDonald providing its Opinion to the Board of Directors as to the fairness of the sale price, from a financial point of view, to the Company's shareholders. As such, these analyses do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by such analyses. Because such analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, neither the Company nor McDonald or any other person assumes responsibility if future results are materially different from those forecasted. The Opinion was one of many factors taken into consideration by the Board of Directors in making its determination to approve the Sale Agreement and Asset Sale. McDonald, as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. The Company selected McDonald as its financial advisor because McDonald is a nationally recognized investment banking firm that has substantial experience in transactions similar to the merger. McDonald provides a full range of financial, advisory and brokerage services and in the course of its normal trading activities may from time to time effect transactions and hold positions in the securities of the Company or Vivendi, Onyx's ultimate parent company, for its own account or for the accounts of customers. Pursuant to a letter agreement dated October 9, 1998, the Company's Board of Directors engaged McDonald as its exclusive financial advisor in the sale of the Industrial Maintenance Segment and in the event of a sale to undertake a study to enable it to render its Opinion to the Board of Directors as to the fairness, from a financial point of view, of the consideration to be received by the Company's shareholders pursuant to the Agreement. As consideration for its services, the Company paid McDonald $50,000 upon execution of the engagement letter and agreed to pay McDonald a fee of $250,000 for its Opinion, which was to be paid at the time McDonald rendered its Opinion. McDonald is also entitled to receive a fee of approximately $218,000, contingent upon completion of the transaction. The Company also has agreed to indemnify McDonald against certain expenses and liabilities, including liabilities under the federal securities laws, relating to or arising out of services performed by McDonald as financial advisor to Heist. APPRAISAL RIGHTS If, under New York law, the Asset Sale constitutes a sale, lease, exchange or other disposition of all or substantially all of the assets of the Company, shareholders of the Company who fulfill the requirements of Section 623 of the New York Business Corporation Law will be entitled to dissent from the Asset Sale and receive payment for the fair value of their common shares on the terms and conditions described below. As indicated, the Company does not believe that the Asset Sale is a sale, lease, exchange or other disposition of all or substantially all of the assets of the Company under New York law and, accordingly, does not believe that dissenters' rights to payment arise by reason of the Asset Sale. If, contrary to the Company's belief, such rights of dissent and payment are available, Section 623 sets forth the rights of shareholders of the Company who 15 20 object to the Asset Sale. Any shareholder of the Company who does not vote in favor of the Asset Sale may be able to obtain payment in cash of the fair value of his or her shares by complying with the requirements of Section 623. The dissenting shareholder must file with the Company, before shareholders vote on the Asset Sale, a written objection including a notice of election to dissent, the dissenting shareholder's name and residence address, the number of Company shares as to which the objection applies and a demand for payment of the fair value of such shares if the Asset Sale is effected. Such objection is not required from any shareholder to whom the Company did not give proper notice of the Special Meeting. Within 10 days after the vote of shareholders approving the Asset Sale, the Company must give written notice of such authorization to each such dissenting shareholder who filed written objection or from whom written objection was not required and who did not vote in favor of the Asset Sale. Within 20 days after the giving of such notice, any shareholder from whom written objection was not required and who elects to dissent from the proposed Asset Sale must file with the Company a written notice of such election, stating the dissenting shareholder's name and residence address, the number of shares of the Company as to which the notice applies and a demand for payment of the fair value of such shares. Shareholders may not dissent as to less than all of their shares. A nominee or fiduciary may not dissent on behalf of any beneficial owner as to less than all of the shares of such owner as to which such nominee or fiduciary has a right to dissent that are held of record by such nominee or fiduciary. At the time of filing the notice of election to dissent, or within one month thereafter, the shareholder must submit the certificates representing the shares to the Company or its transfer agent for notation thereon of the election to dissent, after which the certificates will be returned to the shareholder. Failure to submit the certificates for notation may result in the loss of dissenters' rights. Within 15 days after the expiration of the period within which shareholders may file their election to dissent, or within 15 days after consummation of the Asset Sale, whichever is later (but not later than 90 days after the shareholders' vote authorizing the Asset Sale), the Company must make a written offer (which, if the Asset Sale has not been consummated, may be conditioned upon such consummation) to each shareholder who has filed such notice of election to pay for the Company shares at a specified price which the Company considers to be their fair value. The dissenting shareholder has a period of 30 days within which to accept such written offer. A shareholder may withdraw the notice of election to dissent at any time before accepting in writing the Company's offer, but in no case more than 60 days after the later of the date of the consummation of the Asset Sale and the date the Company makes its written offer (as described above). Thereafter, withdrawal will require the written consent of the Company. The Company may request a court to determine the rights of dissenting shareholders and to fix the fair value of their Company shares. If the Company does not institute such a proceeding, any dissenting shareholder may do so. The foregoing summary does not purport to be a complete statement of the provisions of Sections 910 and 623 of the New York Business Corporation Law and is qualified in its entirety by reference to those Sections, copies of which are attached as Appendix 2 hereto. BOARD RECOMMENDATION The Board of Directors has evaluated the terms of the Asset Sale and has determined they are fair to the Company and its shareholders. The Board's determination is based primarily upon the present condition of and prospects for the industrial maintenance business, the book value and earning power of the assets of the industrial maintenance business, the price for which the Board believes the assets could be sold if the industrial maintenance business were discontinued and such assets sold separately, and the opinion of its financial advisor. The Board believes that the Asset Sale is fair to and in the best interests of the Company and its shareholders and unanimously recommends that shareholders vote FOR the Asset Sale. 16 21 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET As of September 26, 1999 The following unaudited pro forma condensed consolidated balance sheet gives effect to the proposed Asset Sale and discontinuation of industrial maintenance operations of C.H. Heist Corp. and subsidiaries assuming the Asset Sale and discontinuation of industrial maintenance operations was consummated as of September 26, 1999. The pro forma data reflects an allocation of the purchase price of $10,000,000 to the sale of the common stock of C. H. Heist, Ltd., $10,000,000 to the sale of selective assets of C. H. Heist Corp. and the assumption of certain liabilities of C. H. Heist Corp. The pro forma adjustments described in the accompanying notes to the pro forma condensed consolidated balance sheet should be read in conjunction with the pro forma condensed consolidated balance sheet. The pro forma statement should also be read in conjunction with C.H. Heist Corp. and subsidiaries consolidated financial statements and notes set forth elsewhere herein. See "Certain Historical Financial Information". Nonrecurring charges resulting directly from the Asset Sale and discontinuation of industrial maintenance operations and other nonrecurring fourth quarter charges, as noted under "Certain Recent Developments," are excluded from the pro forma condensed consolidated balance sheet. The following pro forma condensed consolidated balance sheet information is presented for illustrative purposes only and is not necessarily indicative of the financial position that would have been reported had the Asset Sale and discontinuation of industrial maintenance operations been consummated as of September 26, 1999 or of the future financial position of C.H. Heist Corp. and subsidiaries which will result from consummation of the Asset Sale and discontinuation of industrial maintenance operations. 17 22 C.H. HEIST CORP. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 26, 1999 -- UNAUDITED (In thousands)
BUSINESS SOLD/ PRO FORMA CONSOLIDATED DISCONTINUED ADJUSTMENTS PRO FORMA ASSETS ------------ ------------ ----------- --------- Current assets: Cash and cash equivalents................ $ 2,512 (2,055) 3,677(1) 4,134 Receivables.............................. 20,768 (8,466) 12,302 Services in progress..................... 1,303 (1,296) 7 Income taxes receivable.................. 371 170(2) 541 Parts and supplies....................... 1,109 (1,109) -- Prepaid and other expenses............... 768 (436) 332 Deferred income taxes.................... 628 (345) 283 ------- ------- ------- ------ Total current assets............. 27,459 (13,707) 3,847 17,599 Net property, plant and equipment.......... 17,992 (15,666) 2,326 Deferred income taxes...................... 152 (152) 519(3) 519 Intangible assets, net..................... 10,147 (14) 10,133 Other assets............................... 106 (62) 44 Net assets of discontinued operations...... 2,125 974(3) 3,099 ------- ------- ------- ------ $55,856 (27,476) 5,340 33,720 ======= ======= ======= ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term debt... $ 255 (255) -- Accounts payable......................... 2,428 (2,145) 283 Accrued expenses......................... 6,435 (803) 2,064(3) 7,696 Income taxes payable..................... -- (170) 170(2) -- ------- ------- ------- ------ Total current liabilities........ 9,118 (3,373) 2,234 7,979 Long-term debt, excluding current installments............................. 16,873 (773) (16,100)(1) -- Deferred incentive compensation............ 1,120 1,120 Deferred income taxes...................... 137 (137)(3) -- ------- ------- ------- ------ Total liabilities................ 27,248 (4,146) (14,003) 9,099 ------- ------- ------- ------ Stockholders' equity: Common stock............................. 158 158 Additional paid-in capital............... 4,284 4,284 Retained earnings........................ 27,172 (5,770)(3) 21,402 Accumulated other comprehensive losses... (1,783) 1,783(3) -- Less cost of common stock in treasury.... (1,223) (1,223) ------- ------- ------- ------ Total stockholders' equity....... 28,608 -- (3,884) 24,621 ------- ------- ------- ------ $55,856 (4,146) (17,887) 33,720 ======= ======= ======= ======
See notes to pro forma condensed consolidated balance sheet. 18 23 Notes to the Pro Forma Condensed Consolidated Balance Sheets (Unaudited) The following adjustments have been made to reflect the pro forma effect of the Asset Sale and discontinuation of industrial maintenance operations as if those transactions were consummated as of the September 26, 1999 pro forma balance sheet date (in thousands): 1. To reflect the net proceeds from the sale and its use to pay off the Company's long-term debt as follows: Purchase price.............................................. $ 20,000 Plus: Cash on hand -- C.H. Heist, Ltd....................... 2,047 Less: Net worth adjustment.................................. (1,070) Estimated escrow....................................... (300) Transaction costs...................................... (900) -------- Net proceeds................................................ 19,777 Payment of long-term debt................................... (16,100) -------- $ 3,677 ========
2. To reflect the reclassification of income taxes receivable for financial statement presentation purposes as a result of the net tax loss from the transaction. 3. To reflect the net loss on the sale and its related tax effect as follows: Net proceeds................................................ $ 19,777 Less: Net book value of assets/liabilities.................. (23,230) Elimination of accumulated other comprehensive losses.................................................... (1,783) Reserves recorded...................................... (2,064) -------- Pre-tax loss................................................ (7,241) Deferred income tax benefit................................. 1,630 -------- Net loss.................................................... $ (5,770) ========
19 24 PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Thirty-Nine Week Period Ended September 26, 1999 and the Year Ended December 27, 1998 (Unaudited) The following unaudited pro forma condensed consolidated statements of operations give effect to the proposed Asset Sale and discontinuation of industrial maintenance operations of C.H. Heist Corp. and subsidiaries assuming the Asset Sale and discontinuation of industrial maintenance operations was consummated as of December 29, 1997. The pro forma data reflects an allocation of the purchase price of $10,000,000 to the sale of the common stock of C. H. Heist, Ltd., $10,000,000 to the sale of selective assets of C. H. Heist Corp. and the assumption of certain liabilities of C. H. Heist Corp. The following unaudited pro forma condensed consolidated statements of operations include pro forma adjustments to the audited consolidated statements of operations contained elsewhere herein and to the unaudited consolidated statement of operations contained elsewhere herein, of a recurring nature which give effect to the consummation on or prior to the Closing as if it had occurred on December 29, 1997. The pro forma adjustments are described in the accompanying notes to the pro forma condensed consolidated statements of operations and should be read in conjunction with such pro forma condensed consolidated statements of operations. Such pro forma statements should also be read in conjunction with C.H. Heist Corp. and subsidiaries consolidated financial statements and notes set forth elsewhere herein. Nonrecurring charges resulting directly from the Asset Sale and discontinuation of industrial maintenance operations and other nonrecurring fourth quarter charges as noted under "Certain Recent Developments" are excluded from the pro forma condensed consolidated statements of operations. See "Certain Historical Financial Information". The following pro forma condensed consolidated statements of operations do not purport to be indicative of the actual results that would have occurred had the transaction been consummated December 29, 1997 or of future results of operations which will be obtained as a result of the consummation of the transaction. C.H. HEIST CORP. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 1999 -- UNAUDITED (In thousands, except share data)
BUSINESS SOLD/ PRO FORMA CONSOLIDATED DISCONTINUED ADJUSTMENTS PRO FORMA ------------ ------------ ----------- --------- Net service revenues....................... $111,218 40,842 70,376 Cost of services........................... 81,713 27,401 54,312 -------- ------ ----- ------ Gross profit........................ 29,505 13,441 -- 16,064 Selling, general and administrative expenses................................. 28,698 14,853 523(1) 14,368 Amortization of intangible assets.......... 548 5 543 -------- ------ ----- ------ Operating income (loss)............. 259 (1,417) (523) 1,153 -------- ------ ----- ------ Other income (expense): Interest income.......................... 51 51 63(2) 63 Interest expense......................... (848) (409) 439(2) -- Gain (loss) on disposal of property, plant and equipment, net.............. 11 (17) (6) Miscellaneous, net....................... 504 336 168 -------- ------ ----- ------ Total other income (expense), net............................ (282) (5) 502 225 -------- ------ ----- ------ Earnings (loss) before income taxes............................ (23) (1,422) (21) 1,378 Income taxes (benefit)..................... (19) (644) (8)(3) 617 -------- ------ ----- ------ Net earnings (loss)................. $ (4) (778) (13) 761 ======== ====== ===== ====== Basic and diluted net earnings (loss) per share $ -- (.27) -- .26 ======== ====== ===== ======
See notes to pro forma condensed consolidated statements of operations. 20 25 C.H. HEIST CORP. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDING DECEMBER 27, 1998 -- UNAUDITED (In thousands, except share data)
BUSINESS SOLD/ PRO FORMA CONSOLIDATED DISCONTINUED ADJUSTMENTS PRO FORMA ------------ ------------ ----------- --------- Net service revenues....................... $135,647 57,176 78,471 Cost of services........................... 97,658 37,599 60,059 -------- ------ ----- ------ Gross profit........................ 37,989 19,577 -- 18,412 Selling, general and administrative expenses................................. 35,036 19,909 886(1) 16,013 Amortization of intangible assets.......... 524 18 506 -------- ------ ----- ------ Operating income (loss)............. 2,429 (350) (886) 1,893 -------- ------ ----- ------ Other income (expense): Interest income.......................... 85 83 200(2) 202 Interest expense......................... (892) (442) 450(2) -- Gain (loss) on disposal of property, plant and equipment, net.............. 24 19 5 Miscellaneous, net....................... 491 341 150 -------- ------ ----- ------ Total other income (expense), net............................ (292) 1 650 357 -------- ------ ----- ------ Earnings (loss) before income taxes............................ 2,137 (349) (236) 2,250 Income taxes (benefit)..................... 843 (236) (94)(3) 985 -------- ------ ----- ------ Net earnings (loss)................. $ 1,294 (113) (142) 1,265 ======== ====== ===== ====== Basic and diluted net earnings (loss) per share.................................... $ .45 (.04) (.05) .44 ======== ====== ===== ======
See notes to pro forma condensed consolidated statements of operations. 21 26 Notes to the Pro Forma Condensed Consolidated Statements of Operations (Unaudited) The following adjustments have been made to reflect the pro forma recurring effect of the transaction directly attributable to the Asset Sale and discontinuation of industrial maintenance operations as if the transaction were consummated on December 29, 1997 (in thousands). 1. To reflect expenses allocated to the business segment sold that would not have been eliminated as a result of the sale.
THIRTY-NINE WEEKS ENDED SEPT. 26, YEAR ENDED 1999 DEC. 27, 1998 ----------- ------------- Information technology systems.................... $142 274 Executive costs................................... 147 360 Other overhead costs.............................. 234 252 ---- --- $523 886 ==== ===
2. To reflect the reduction of interest expense incurred and recognize interest income earned as a result of the use of net proceeds to pay off outstanding long-term debt and the short-term investment of any excess funds at an interest rate of 4% for the thirty-nine week period ended September 26, 1999 and for the year ended December 27, 1998. Each 1/8% change in the interest rate will not have a material effect on net earnings. 3. To reflect the estimated income tax effects of the expense items noted in footnotes 1 and 2 above. 22 27 THE REINCORPORATION PROPOSAL The Board of Directors believes that the best interests of the Company and its shareholders will be served by changing the Company's state of incorporation from New York to Delaware (the "Reincorporation"). Shareholders are urged to read carefully the following sections of this proxy statement, including the related appendices, before voting on the Reincorporation. Throughout this proxy statement, the term "Company" refers to the existing New York corporation and the term "Delaware Company" refers to Ablest Inc., a newly formed Delaware corporation, which is a wholly-owned subsidiary of the Company. The Delaware Company has been formed by the Company for the purpose of the Reincorporation. The Reincorporation will be effected by merging the Company into the Delaware Company (the "Merger"), in accordance with the terms of an Agreement and Plan of Merger (the "Merger Agreement"). Upon completion of the Merger, (i) the Company will cease to exist, (ii) the Delaware Company will continue to operate the business of the Company under the name "Ablest Inc.," (iii) the shareholders of the Company will automatically become the stockholders of the Delaware Company, (iv) the shareholders will have rights as stockholders of the Delaware Company and no longer as shareholders of the Company and will be governed by Delaware law and the Delaware Company's charter and bylaws rather than by New York law and the existing charter and bylaws of the Company, (v) options to purchase common shares of the Company automatically will be converted into options to acquire an equal number of shares of the Delaware Company's common stock, and (vi) no change will occur in the physical location, business, management, assets, liabilities or net worth of the Company as such exist immediately following consummation of the Asset Sale. The shareholders' approval of the Reincorporation will constitute their approval of all of the provisions of the Delaware Company's charter and bylaws. Each outstanding common share of the Company, $.05 par value, automatically will be converted pro-rata into one share of the Delaware Company common stock, $.05 par value, when the Merger becomes effective. Each stock certificate representing issued and outstanding common shares of the Company will represent after the Merger the same number of shares of common stock of the Delaware Company. It will not be necessary for shareholders to exchange their existing Company stock certificates for stock certificates of the Delaware Company. The Reincorporation has been approved unanimously by the Company's Board of Directors. If approved by the shareholders, the Reincorporation will become effective upon the filing of the Merger Agreement and related documentation in Delaware and New York (the "Effective Date"). The Board of Directors intends that the Reincorporation be consummated as soon as practicable following the Special Meeting and the consummation of the Asset Sale. Nonetheless, the Merger Agreement allows for the Board of Directors to abandon or postpone the Reincorporation or to amend the Merger Agreement (except that the principal terms may not be amended without shareholder approval) either before or after the shareholders' approval has been obtained and before the Effective Date, if circumstances arise causing the Board of Directors to deem either action advisable. REASONS FOR REINCORPORATION The Company believes that reincorporation in the State of Delaware has many distinct advantages. For many years, Delaware has followed a policy of encouraging incorporation under its jurisdiction. In furtherance of that policy, Delaware has long been the leading state in adopting, construing and implementing comprehensive and flexible corporate laws in response to the legal and business needs of corporations. As a result, Delaware's General Corporation Law has become widely regarded as the most extensive and well-defined body of corporate law in the United States. Because of Delaware's prominence as the state of incorporation for many major corporations, both the legislature and courts in Delaware have demonstrated an ability and a willingness to act quickly and effectively to meet changing business needs. Moreover, the Delaware courts have rendered a substantial number of decisions interpreting and explaining Delaware law. The Reincorporation accordingly will be beneficial to the Company in that it will give the Company a greater degree of predictability and certainty regarding how the Company's affairs should be conducted in order to comply with applicable laws and the comfort and security resulting from the Company's awareness of the responsiveness of Delaware's Secretary of State and its legislature and courts to the needs of corporations organized under Delaware's jurisdiction. For these 23 28 reasons, many American corporations that have initially chosen their home state for their state of incorporation have subsequently changed their corporate domicile to Delaware. For the foregoing reasons, the Company's Board of Directors believes that it is in the best interests of the Company and its shareholders to reincorporate in Delaware. ANTI-TAKEOVER IMPLICATIONS Delaware, like many other states, permits a corporation to adopt a number of measures designed to reduce a corporation's vulnerability to unsolicited takeover attempts. The Board of Directors believes that unsolicited takeover attempts may be unfair or disadvantageous to the Company and its shareholders because: (a) a non-negotiated takeover bid may be timed to take advantage of temporarily depressed stock prices; (b) a non-negotiated takeover bid may be designed to foreclose or minimize the possibility of more favorable competing bids; and (c) a non-negotiated takeover bid may involve the acquisition of only a controlling interest in the Company's stock, without affording all shareholders the opportunity to receive the same economic benefits. By contrast, in a transaction in which an acquirer must negotiate with an independent board of directors, that board can and should take account of the underlying and long-term values of the Company's assets, the possibilities for alternative transactions on more favorable terms, the possible advantages of a tax-free reorganization, the anticipated favorable developments in the Company's business not yet reflected in the stock price, and the equality of treatment of all the Company's shareholders. Although the Reincorporation proposal is not being proposed in order to prevent any known attempt by any party to acquire control of the Company, obtain representation on the Board of Directors or take any significant action affecting the Company, the Company believes that the added flexibility afforded under Delaware law to adopt anti-takeover measures could enhance the ability of the Board of Directors to negotiate with an unsolicited bidder. Although "anti-takeover" measures may be implemented under New York law that are comparable to those that may be implemented under Delaware law, the Company believes that substantially more judicial precedents exist in the Delaware courts than in the New York courts as to the legal principles applicable to defensive measures and as to the conduct of the Board of Directors under the business judgment rule with respect to unsolicited takeover attempts. In the context of any future unsolicited takeover event, the Company believes that such precedents will give the Board of Directors greater assurance and confidence that the defensive strategies and conduct of the Board of Directors are in full compliance with applicable laws and will be effective under the circumstances. The Reincorporation may be disadvantageous to the extent that it has the effect of discouraging a future takeover attempt that is not approved by the Board of Directors but may be deemed by shareholders to be in their best interests (because, for example, the possible takeover could cause shareholders to receive a substantial premium for their shares over their then current market value or over the shareholders' cost basis in such shares). As a result of such effects of the Reincorporation, shareholders who might wish to participate in a tender offer may not have an opportunity to do so. In addition, to the extent that the Reincorporation will enable the Board of Directors to better resist a takeover or a change in control of the Company, the Reincorporation could make it more difficult to change the existing Board of Directors and management. As a result of the Reincorporation, the Company's charter and bylaws will be replaced with a new charter and new bylaws that will contain various provisions which could be used to frustrate or avert a potential takeover, including prohibition of cumulative voting for directors; a provision permitting the removal of directors only for cause; limits on the calling of special meetings; and authorization of preferred stock. The Company's current charter prohibits cumulative voting for directors and does not permit removal of directors without cause. See "Asset Sale Proposal -- Comparison of Charters and Bylaws". Management does not have any knowledge of any specific effort to accumulate the Company's stock or to obtain control of the Company by means of a merger, tender offer, solicitation in opposition to management, or otherwise. Certain members of the family of the founder of the Company currently hold in the aggregate approximately 58% of the outstanding common shares. As long as these shares are controlled directly or through trusts by 24 29 Charles H. Heist, Chairman and Chief Executive Officer of the Company, and family members, any future takeover attempt of the Company would require the support of the Heist family regardless of the state of incorporation of the Company. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION The Reincorporation will constitute a tax-free reorganization under federal tax laws. No gain or loss will be recognized by holders of common shares pursuant to the Reincorporation. The tax basis of the common stock of the Delaware Company held by each shareholder will be the same as the aggregate tax basis of the common shares of the Company held by such shareholder at the time of the Reincorporation. The holding period of the common stock of the Delaware Company held by such shareholder will include the period for which such shareholder held the common shares of the Company, provided that the Company's common shares were held by such shareholder as a capital asset at the time of the Reincorporation. Each shareholder is urged to consult his or her own tax advisor as to the specific tax consequences of the Reincorporation with respect to such shareholder, including the applicability of federal, state, local or foreign tax laws. State, local or foreign income tax consequences to shareholders may vary from the federal tax consequences described above. The Company should not recognize gain or loss for federal tax purposes as a result of the Reincorporation, and the Delaware Company should succeed, without adjustment, to the federal income tax attributes of the Company. SHAREHOLDERS' RIGHTS OF APPRAISAL Under New York Law, shareholders of the Company who oppose the Reincorporation will not be entitled to appraisal rights in connection with the Reincorporation. COMPARISON OF RIGHTS OF SHAREHOLDERS UNDER NEW YORK AND DELAWARE CORPORATION LAWS As a result of the Reincorporation, shareholders of the Company, whose rights are governed by New York law, will have their rights governed by Delaware law. The statutes and court decisions with respect to rights of shareholders of New York and Delaware corporations reflect various differences. The following discussion is intended only to highlight certain statutory differences between the rights of shareholders of New York corporations and those of shareholders of Delaware corporations. The discussion does not purport to constitute a detailed comparison of the provisions of New York law and Delaware law. Shareholders are referred to those laws for further information. Shareholder Vote for Mergers. Corporations incorporated under Delaware law must obtain the affirmative vote (except as indicated below) of the holders of a majority of the outstanding shares of the corporation entitled to vote thereon to approve a merger of the corporation into another corporation, the sale of substantially all of the corporation's assets or the voluntary dissolution of the corporation. In the same situations, New York law requires the approval of two-thirds of the outstanding shares entitled to vote thereon. Delaware law does not require a shareholder vote of the surviving corporation in a merger if (i) the merger agreement does not amend the existing charter, (ii) each outstanding share of the surviving corporation before the merger is unchanged, and (iii) the number of shares to be issued in the merger does not exceed 20% of the shares outstanding immediately prior to such issuance. New York law has none of these exceptions. Appraisal Rights. Generally, New York law gives appraisal rights in more situations than does Delaware law. Both Delaware law and New York law provide such rights to shareholders entitled to vote in merger transactions (except as indicated below). New York law also provides for such rights in a sale of assets requiring shareholder approval, whereas Delaware law does not. Subject to certain exceptions, Delaware law does not recognize dissenters' rights of appraisal in a merger or consolidation if the shares of the corporation are either listed on a national securities exchange or held of record by more than 2,000 stockholders unless stockholders are required to accept for their shares in the merger or consolidation anything other than common stock of the 25 30 surviving or resulting corporation or of another corporation that is so listed or held. If the corporation is the surviving corporation and no vote of its stockholders is required, Delaware law does not provide for dissenter's rights of appraisal. Inspection of Shareholders' List. New York law and Delaware law allow any stockholder of record to inspect the stockholders' list and the books of the corporation for a purpose reasonably related to such person's interest as a stockholder. Payment of Dividends. Under New York law dividends can only be paid out of surplus, while under Delaware law a corporation may pay dividends out of the corporation's net profits for the fiscal year in which the dividend is declared or for the preceding fiscal year, even if the corporation has no available surplus. Loans to Directors. New York law prohibits loans to directors unless authorized by shareholder vote. Delaware law permits the Board of Directors, without stockholder approval, to authorize loans to corporate directors who are also officers or employees. Corporate Action Without a Shareholders' Meeting. A shareholders' meeting to authorize corporate action may be dispensed with by a New York corporation only upon the written consent of all shareholders. Delaware law permits corporate action without a meeting of stockholders upon the written consent of the holders of that number of shares necessary to authorize the proposed corporate action, unless the charter expressly provides otherwise. The charter and bylaws of the Company after the Reincorporation will prohibit action by written consent. Rights and Options. New York law requires shareholder approval of any plan pursuant to which rights or options are to be granted to directors, officers or employees. Delaware law does not require stockholder approval of such plans although various other applicable legal requirements may make stockholder approval of rights or option plans necessary or desirable. Consideration for Shares. New York law provides that obligations of a subscriber for future payments or future services shall not constitute payment or part payment for shares of a corporation. Furthermore, under New York law certificates for shares may not be issued until the full amount of the consideration therefor has been paid. Delaware law provides that shares of stock may be issued, and shall be deemed to be fully paid and nonassessable, if the corporation receives consideration having a value not less than the par value of such shares and the corporation receives a binding obligation of the subscriber to pay the balance of the subscription price. Regulation of Business Combinations. New York Law contains certain anti-takeover provisions that prohibit any "business combination" between a "domestic corporation" and an "interested shareholder" for five years after the date that the interested shareholder became an interested shareholder unless prior to that date the board of directors of the domestic corporation approved the business combination or the transaction that resulted in the interested shareholder becoming an interested shareholder. After five years, such a business combination is permitted only if (i) it is approved by a majority of the shares not owned by, or by an affiliate of, the interested shareholder or (ii) certain statutory fair price requirements are met. New York Law defines "domestic corporation" as any corporation that (x) is incorporated in New York, (y) has its principal executive offices and significant business operations in New York or has at least 250 or 25% of its employees in New York (including employees of its 80% subsidiaries) and (z) has at least 10% of its stock beneficially owned by New York residents. The Company believes it is currently a New York "domestic corporation" under this definition. An "interested shareholder" is any person who beneficially owns, directly or indirectly 20% or more of the outstanding voting stock of the corporation. Delaware Law contains certain anti-takeover provisions that prohibit any business combination between a Delaware corporation and an "interested shareholder" for three years following the date that the interested shareholder became an interested shareholder unless (i) prior to that date the board approved the business combination or the transaction that resulted in the interested shareholder becoming an interested shareholder, (ii) upon consummation of the transaction that resulted in the interested shareholder becoming an interested 26 31 shareholder, the interested shareholder held at least 85% of the outstanding voting stock of the corporation (not counting shares owned by officers and directors), or (iii) on or subsequent to such date the business combination is approved by the board and at least two-thirds of the outstanding shares of voting stock not owned by the interested shareholder. The Delaware statute defines "interested shareholder" as any person who beneficially owns, directly or indirectly, 15% or more of the outstanding voting stock of the corporation. Unlike New York, Delaware does not require that the corporation's principal executive offices or significant operations or employees be located in Delaware in order to enjoy the protection of the law. Regulation of a Corporation's Stock Repurchases. Under New York law, a corporation may not pay more than market value to any shareholder for the repurchase of more than 10% of the corporation's stock without board and shareholder approval. Delaware has no similar statutory restriction but its courts have imposed certain restrictions on stock repurchases. COMPARISON OF CHARTERS AND BYLAWS As a result of the Reincorporation, the Company will be governed by a new charter and new bylaws. The material differences between the Company's charter and bylaws and the new charter and new bylaws are described below. Certain changes altering the rights of shareholders and powers of management could be implemented in the future by amendment to the charter following shareholder approval, and certain of such changes could be implemented by amendment of the bylaws of the Delaware Company without shareholder approval. For a discussion of such changes, see "Comparison of Rights of Shareholders Under New York and Delaware Corporation Laws." The new charter and the new bylaws are attached as Appendix 3 and Appendix 4, respectively. Authorized Capital Stock. The new charter will authorize the issuance of 7,500,000 shares of common stock and 500,000 shares of preferred stock. The Company's current charter authorizes the issuance of 8,000,000 common shares and no preferred shares. The new charter will authorize the Board of Directors to establish series of preferred stock and to determine, with respect to any such series, among other things, the dividend rates, liquidation and dividend preferences, provisions respecting redemptions, conversion rights, and voting rights. Preferred Stock. The new charter authorizes 500,000 shares of preferred stock, while the current charter does not authorize any preferred stock. Preferred stock may be issued by the Company following the Reincorporation for a variety of purposes, including raising capital. Authorizing preferred shares may have the effect of making more difficult or of discouraging a merger, tender offer, or proxy contest, the assumption of control by a holder of a large block of the Company's stock, or the removal of incumbent management, even if these transactions were favorable to the interests of stockholders. For example, preferred shares could be issued in a private placement transaction to a third party whom the Board of Directors of the Company favors in the event competing bidders are seeking to acquire control of the Company. Cumulative Voting. The current charter does not provide for cumulative voting. Likewise, the new charter will not provide for cumulative voting. As a result, the holder or holders of a majority of the shares entitled to vote in an election of directors will be able to elect all directors then being elected, and holders of a substantial minority of the outstanding shares may not have enough voting power to elect any directors. Election of Directors. All of the Company's directors are and will continue to be elected annually. Special Meetings of Shareholders. The current bylaws of the Company provide that a special meeting of shareholders may be called at any time by the President, a majority of the members of the Board of Directors or the holders of one-third or more of the outstanding common shares. The new bylaws will provide that a special meeting of stockholders may be called only by the Chairman of the Board or the President or at the request of a majority of the Board of Directors. Shareholder Consent to Action Without Meeting. Any action currently required or permitted to be taken at a meeting of shareholders of the Company may be taken without a meeting, but only with the written consent of all 27 32 shareholders entitled to vote with respect to the subject matter thereof. The new charter will prohibit stockholder consent to action without a meeting. Advance Notice Provisions. The current bylaws contain no advance notice provisions if a shareholder intends to propose business or make a nomination for the election of directors at an annual meeting. The new bylaws will provide, in general, that if a stockholder intends to propose business or make a nomination for the election of directors at an annual meeting, the Company must receive written notice of such intention not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year's annual meeting. The notice must include all information relating to the proposed nominee required by law to be disclosed in solicitations of proxies for election of directors, or, in the case of a proposal, a brief description of the proposal, and why it should be raised at the meeting, and any material interest of the stockholder or beneficial owner, if any, in the proposal. The notice also must include the name and address of both the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made and the class and number of shares that are owned beneficially and of record by such stockholder and beneficial owner. Amendments to Bylaws. Under the current charter, the Board of Directors by majority vote or the holders of a majority of outstanding shares may amend or repeal the bylaws of the Company. Under the new charter, the Board of Directors will be able to amend or repeal the bylaws of the Company by a majority vote. Under the new charter, stockholders would need the affirmative vote of the holders of not less than two-thirds of the total number of voting shares to amend or repeal the new bylaws. Directors' Liability. Under the current and new charters, a director of the Company shall not be personally liable to the Company or its stockholders for monetary damages for any breach of fiduciary duty as a director. Indemnification Rights. Indemnification and expense advancement rights of directors and officers under the new charter will be substantially the same as those under the current charter. Evaluation of Tender Offers. The new charter, unlike the current charter, will provide that the directors, when evaluating any tender or exchange offer or offer of merger or consolidation or acquisition of substantially all assets of the Company, shall give consideration to the effect that such transaction would have on the integrity, character and quality of the Company's operations, to the long-term as well as short-term interests of the Company and its stockholders, and to the social, legal and economic effects on the Company's employees, customers, suppliers and creditors and on the communities and geographical areas in which the Company operates. Removal of Directors. Under the current and new charters, directors may not be removed from office without cause. RECOMMENDATION OF THE BOARD The Board of Directors unanimously recommends a vote FOR the proposal to change the state of incorporation of the Company from New York to Delaware by means of a merger of the Company with and into a wholly-owned Delaware subsidiary. Unless marked to the contrary, proxies received from stockholders will be voted in favor of this proposal. STOCK OWNERSHIP SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth certain information with respect to beneficial owners of five percent or more of the outstanding common shares of the Company as of January 31, 2000. For purposes of this proxy statement, beneficial ownership has the meaning given under the rules of the Securities and Exchange Commission and does 28 33 not necessarily indicate economic interest. The information presented in the table is based upon information furnished by each person or contained in filings made with the Securities and Exchange Commission.
AMOUNT AND NATURE PERCENT NAME AND ADDRESS OF BENEFICIAL OWNERSHIP OF CLASS - ---------------- ----------------------- -------- C.H. Heist Trust............................................ 657,445(1) 22.8% c/o Isadore Snitzer, Charles H. Heist and Clydis D. Heist, Trustees 710 Statler Building Buffalo, New York 14202 Charles H. Heist............................................ 313,037(2) 10.7% c/o C.H. Heist Corp. 810 North Belcher Road Clearwater, Florida 34625 Heist Grandchildren Trusts.................................. 384,480(3) 13.4% c/o Charles H. Heist 810 North Belcher Road Clearwater, Florida 34625 Victoria Hall............................................... 190,543(3)(4) 6.6% c/o C.H. Heist Corp. 810 North Belcher Road Clearwater, Florida 34625 Dixie Lea Clark............................................. 177,520(3)(4) 6.2% c/o C.H. Heist Corp. 810 North Belcher Road Clearwater, Florida 34625 The Burton Partnership...................................... 272,500(5) 9.5% Post Office Box 4643 Jackson, Wyoming 83001
- --------------- (1) The shares indicated are held of record in a trust created by the founder of the Company, Mr. C.H. Heist, for the benefit of his family prior to his death in February 1983. The three trustees of the trust are his wife, Clydis D. Heist, his son, Charles H. Heist, who is Chairman and Chief Executive Officer of the Company, and Isadore Snitzer, Esq. Each of the trustees may be deemed to be the beneficial owner of the shares held in the trust. The trust will continue until the death of Mrs. Heist and the children of Mr. and Mrs. Heist. Mr. Snitzer is also the beneficial and record owner of 2,022 shares (less than 1%). Mr. Heist and Mr. Snitzer disclaim beneficial ownership of the shares held by the Trust. (2) The shares indicated are owned directly by Mr. Heist, except for 7,803 shares owned by Mr. Heist's wife. Mr. Heist disclaims beneficial ownership of the shares owned by his wife. The shares shown in the table also include 26,357 shares underlying presently exercisable options. (3) The Trusts indicated were created for the benefit of the children of Charles H. Heist and his sisters, Victoria Hall and Dixie Lea Clark. Mr. Heist and his sisters are trustees of the trusts. Each of the trustees disclaims beneficial ownership of such shares. (4) The shares indicated are owned directly and do not include the shares owned by the C.H. Heist Trust or the shares of the trusts for the grandchildren. (5) The Burton Partnership is a limited partnership controlled by Donald W. Burton, who is deemed to be the beneficial owner of the shares held by this partnership. 29 34 SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS As of January 31, 2000, the directors, individually, and all directors and officers of the Company, as a group, owned beneficially the following amounts of the outstanding common shares of the Company:
AMOUNT AND NATURE OF NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS ------------------------ -------------------- ---------------- Charles H. Heist.......................................... 313,037(1)(2)(3) 10.7% W. David Foster........................................... 56,093(3)(4) 1.1% Charles E. Scharlau....................................... 305 (5) Ronald K. Leirvik......................................... 100 (5) Richard W. Roberson....................................... 500 (5) Donna R. Moore............................................ -0- -0- All officers and directors (10 persons)................... 1,485,822(6) 48.9%
- --------------- (1) Does not include 657,445 shares held by the C.H. Heist Trust. Includes 26,357 shares underlying presently exercisable options. (2) Does not include 386,480 shares held in various trusts for grandchildren. (3) Executive officer of the Company. (4) Amount indicated includes 55,123 shares underlying presently exercisable options. (5) Represents less than 1%. (6) Includes 154,219 shares underlying presently exercisable options and 657,445 shares and 386,480 shares held in the trusts described above. MARKET INFORMATION The Company's common shares are traded on the American Stock Exchange under the symbol "HST." The Company has applied to the Exchange for the new symbol "ABI". The prices at which common shares trade after the Asset Sale and the Reincorporation will be determined by the marketplace and may be influenced by many factors, including, among others, investor perception of the effects of the Asset Sale, future results of operations and financial condition, and general economic and market conditions. As of January 31, 2000, the number of shareholders of record was 570. The following table sets forth, for the fiscal periods indicated, the high and low sale prices per share of the Company's common shares as reported on the American Stock Exchange.
FISCAL YEAR HIGH LOW ----------- ---- --- 1997: First Quarter................................... 7 3/4 6 3/4 Second Quarter.................................. 7 3/8 6 3/4 Third Quarter................................... 7 3/8 6 1/2 Fourth Quarter.................................. 8 6 15/16 1998: First Quarter................................... 8 5/8 6 1/2 Second Quarter.................................. 8 1/2 6 7/8 Third Quarter................................... 7 5/8 6 3/4 Fourth Quarter.................................. 6 15/16 6 1/4 1999: First Quarter................................... 7 1/4 6 1/4 Second Quarter.................................. 6 3/4 6 3/8 Third Quarter................................... 6 5/8 6 1/8 Fourth Quarter.................................. 6 5/8 5 5/8
30 35 On October 29, 1999, the last day on which the Company's common shares were traded before the announcement of the proposed Asset Sale, the high and low sale prices of a common share were $5 3/4 and $5 5/8, respectively. On January 25, 2000, the date the Company announced execution of the Sale Agreement, the high and low sale prices of a common share were $5 3/4 and $5 3/4, respectively. On February 4, 2000, the high and low sale prices of a common share were $6 and $6, respectively. The Company did not declare any dividends on its common shares during fiscal 1998 or 1999. Under its credit agreement, the Company is not permitted to pay cash dividends for any fiscal year in excess of $1 million in the aggregate. INDEPENDENT AUDITORS The consolidated financial statements and financial statement schedules of the Company and its subsidiaries included or incorporated by reference in the Company's Annual Report on Form 10-K for the year ended December 27, 1998, have been audited by KPMG LLP, independent auditors, for the periods indicated in their reports thereon. Representatives of KPMG LLP are not expected to be present at the Special Meeting. SHAREHOLDER PROPOSALS Any shareholder proposal intended to be presented at the Company's 2000 annual meeting should have been received by the Company at its principal executive offices by the close of business on December 3, 1999, in order to be included in the Company's proxy statement and form of proxy for that meeting. If a shareholder intends to raise at the Company's 2000 annual meeting, a proposal that he or she has not sought to have included in the Company's proxy statement, the shareholder must notify the Company of the proposal on or before February 15, 2000. If the shareholder fails to notify the Company, the Company's proxies will be permitted to use their discretionary voting authority with respect to such proposal when and if it is raised at such annual meeting, whether or not there is any discussion of such proposal in the proxy statement for such meeting. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission. Reports, proxy statements and other information filed by the Company may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Regional Offices thereof at 7 World Trade Center, Suite 1300, New York, New York and at Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago, Illinois. Copies of such information can be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N. W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a Web site at http:\\www.sec.gov containing reports, proxy and information statements and other information regarding registrants, including the Company, that file electronically. Reports and other information concerning the Company can also be inspected at the offices of the American Stock Exchange or at the Company's Web site at http:\\www.Heist.com. 31 36 CERTAIN HISTORICAL FINANCIAL INFORMATION C.H. HEIST CORP. AND SUBSIDIARIES INDEX Interim Financial Information Condensed Consolidated Balance Sheets - September 26, 1999 -- (Unaudited) and December 27, 1998.............. F-1 Condensed Consolidated Statements of Operations and Comprehensive Income -- (Unaudited) Thirteen and thirty-nine week periods ended September 26, 1999 and September 27, 1998..................................... F-2 Condensed Consolidated Statements of Cash Flows -(Unaudited) Thirty-nine week periods ended September 26, 1999 and September 27, 1998........................ F-3 Notes to Condensed Consolidated Financial Statements...... F-4 Independent Auditors' Review Report....................... F-7 Management's Discussion and Analysis of Results of Operations and Financial Condition for the Thirteen and thirty-nine week periods ended September 26, 1999 and September 27, 1998..................................... F-8 Audited Financial Information Summary of Selected Financial Data........................ F-11 Management's Discussion and Analysis of Results of Operations and Financial Condition for Fiscal Years Ended December 27, 1998, December 28, 1997 and December 29, 1996............................................... F-12 Financial Statements: Consolidated Balance Sheets as of December 27, 1998 and December 28, 1997...................................... F-16 Consolidated Statements of Earnings and Comprehensive Income for the years ended December 27, 1998, December 28, 1997 and December 29, 1996......................... F-17 Consolidated Statements of Stockholders' Equity for the years ended December 27, 1998, December 28, 1997 and December 29, 1996...................................... F-18 Consolidated Statements of Cash Flows for the years ended December 27, 1998, December 28, 1997 and December 29, 1996................................................... F-19 Notes to Consolidated Financial Statements................ F-20 Independent Auditor's Report.............................. F-32 Quarterly Financial Data.................................. F-33
32 37 C.H. HEIST CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
SEPTEMBER 26, DECEMBER 27, 1999 1998 ------------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 2,512 3,147 Receivables............................................... 20,768 19,653 Services in progress...................................... 1,303 1,017 Parts and supplies........................................ 1,109 1,174 Prepaid and other expenses................................ 1,139 317 Deferred income taxes..................................... 628 626 ------- ------ Total current assets.............................. 27,459 25,934 ------- ------ Property, plant and equipment, at cost...................... 60,510 56,350 Less accumulated depreciation............................. 42,518 38,996 ------- ------ Net property, plant and equipment................. 17,992 17,354 ------- ------ Deferred income taxes....................................... 152 144 Intangible assets, net...................................... 10,147 10,471 Other assets................................................ 106 118 ------- ------ $55,856 54,021 ======= ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term debt.................... $ 255 5 Accounts payable.......................................... 2,428 3,030 Accrued expenses.......................................... 6,435 5,788 Income taxes payable...................................... -- 1 ------- ------ Total current liabilities......................... 9,118 8,824 Long-term debt, excluding current installments.............. 16,873 16,050 Deferred incentive compensation............................. 1,120 869 Deferred income taxes....................................... 137 137 ------- ------ Total liabilities................................. 27,248 25,880 ------- ------ Stockholders' equity (note 3): Common stock of $.05 par value. Authorized 8,000,000 shares; issued 3,167,092 shares........................ 158 158 Additional paid-in capital................................ 4,284 4,278 Retained earnings......................................... 27,172 27,176 Accumulated other comprehensive losses.................... (1,783) (2,235) ------- ------ 29,831 29,377 Less cost of common stock in treasury: 285,804 and 288,754 shares for 1999 and 1998, respectively................. (1,223) (1,236) ------- ------ Total stockholders' equity........................ 28,608 28,141 ------- ------ $55,856 54,021 ======= ======
See accompanying notes to condensed consolidated financial statements. F-1 38 C.H. HEIST CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) (In thousands, except share and per share data)
THIRTEEN THIRTEEN THIRTY-NINE THIRTY-NINE WEEK PERIOD WEEK PERIOD WEEK PERIOD WEEK PERIOD ENDED ENDED ENDED ENDED SEPT. 26, SEPT. 27, SEPT. 26, SEPT. 27, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Net service revenues...................... $ 38,431 35,881 111,218 98,185 Cost of services.......................... 28,437 25,722 81,713 70,355 ---------- ---------- ---------- ---------- Gross profit.................... 9,994 10,159 29,505 27,830 Selling, general and administrative expenses................................ 9,445 8,730 28,698 25,542 Amortization of intangible assets......... 183 149 548 367 ---------- ---------- ---------- ---------- Operating income................ 366 1,280 259 1,921 ---------- ---------- ---------- ---------- Other income (expense): Interest income...................... 15 17 51 64 Interest expense..................... (310) (259) (848) (643) Gain (loss) on disposal of property, plant and equipment, net........... (2) 69 11 33 Miscellaneous, net................... 466 295 504 410 ---------- ---------- ---------- ---------- Total other income (expense), net........................... 169 122 (282) (136) ---------- ---------- ---------- ---------- Earnings (loss) before income taxes......................... 535 1,402 (23) 1,785 Income tax expense (benefit).............. 313 644 (19) 817 ---------- ---------- ---------- ---------- Net earnings (loss)............. 222 758 (4) 968 ========== ========== ========== ========== Basic and diluted net earnings per share................................... $ .08 .26 -- .34 ========== ========== ========== ========== Weighted average number of common shares outstanding............................. 2,881,133 2,877,988 2,880,717 2,877,900 ========== ========== ========== ========== Net earnings (loss)............. $ 222 758 (4) 968 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments.......................... (35) (247) 452 (440) ---------- ---------- ---------- ---------- Comprehensive income............ $ 187 511 448 528 ========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements. F-2 39 C. H. HEIST CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
THIRTY-NINE WEEK THIRTY-NINE WEEK PERIOD ENDED PERIOD ENDED SEPT. 26, 1999 SEPT. 27, 1998 ---------------- ---------------- Cash flows from operating activities: Net earnings (loss)....................................... $ (4) 968 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation of plant and equipment.................... 3,726 3,646 Amortization of intangible assets...................... 548 367 Gain on disposal of property, plant and equipment, net.................................................. (11) (33) Stock compensation awards.............................. 19 9 Changes in assets and liabilities (see below).......... (655) 25 -------- -------- Net cash provided by operating activities............ 3,623 4,982 -------- -------- Cash flows from investing activities: Additions to property, plant and equipment................ (3,021) (4,318) Proceeds from disposal of property, plant and equipment... 54 506 Acquisitions and earnout payments, net of cash acquired... (1,310) (6,257) -------- -------- Net cash used in investing activities................ (4,277) (10,069) -------- -------- Cash flows from financing activities: Proceeds from bank line of credit borrowings.............. 19,250 19,250 Repayment of bank line of credit borrowings............... (19,200) (14,047) Repayment of other long-term debt......................... (124) (28) -------- -------- Net cash provided (used) by financing activities..... (74) 5,175 -------- -------- Effect of exchange rate changes on cash and cash equivalents............................................... 93 (112) -------- -------- Net decrease in cash and cash equivalents................... (635) (24) Cash and cash equivalents at beginning of period............ 3,147 2,948 -------- -------- Cash and cash equivalents at end of period.................. $ 2,512 2,924 ======== ======== Changes in assets and liabilities providing (using) cash: Receivables............................................... $ (949) (1,661) Services in progress...................................... (275) (730) Income taxes receivable/payable, net...................... (375) (249) Parts and supplies........................................ 69 117 Prepaid expenses.......................................... (448) (56) Other assets.............................................. 12 4 Accounts payable.......................................... (644) 535 Accrued expenses.......................................... 1,708 1,930 Deferred incentive compensation........................... 247 135 -------- -------- Total............................................. $ (655) 25 ======== ======== Supplemental schedule of non-cash investing and financing activities: Leases capitalized..................................... $ 1,148 -- ======== ========
See accompanying notes to condensed consolidated financial statements F-3 40 C. H. HEIST CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. In the opinion of management of C. H. Heist Corp. and Subsidiaries (the "Company"), the accompanying condensed consolidated financial statements contain all normal recurring adjustments necessary to fairly present the Company's consolidated financial position as of September 26, 1999 and the results of its operations for the thirteen and thirty-nine week periods ended September 26, 1999 and September 27, 1998 and cash flows for the thirty-nine week periods ended September 26, 1999 and September 27, 1998. The financial statements have been prepared using the same accounting policies used in preparation of the December 27, 1998 statements. The financial statements included herein should be read in conjunction with those statements and notes thereto. 2. The results of operations for the thirteen and thirty-nine week periods ended September 26, 1999 are not necessarily indicative of the results to be expected for the full year. 3. The changes in stockholders' equity for the thirty-nine week period ended September 26, 1999 are summarized as follows (in thousands, except shares):
ACCUMULATED ADDITIONAL OTHER TOTAL COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY STOCK STOCKHOLDERS' STOCK CAPITAL EARNINGS LOSSES SHARES AMOUNT EQUITY ------ ---------- -------- ------------- -------- ------- ------------- Balance at December 27, 1998.................... $158 $4,278 $27,176 $(2,235) 288,754 $(1,236) $28,141 Net loss.................. -- -- (4) -- -- -- (4) Foreign currency translation adjustment.............. -- -- -- 452 -- -- 452 Stock compensation awards.................. -- 6 -- -- (2,950) 13 19 ---- ------ ------- ------- ------- ------- ------- Balance at September 26, 1999.................... $158 $4,284 $27,172 $(1,783) 285,804 $(1,223) $28,608 ==== ====== ======= ======= ======= ======= =======
Accumulated other comprehensive losses consist solely of equity adjustments from foreign currency translation. 4. For the thirty-nine week period ended September 26, 1999, 74,117 additional stock options were granted and 3,812 options expired. As of September 26, 1999, the Company had exercisable options outstanding to employees to purchase 162,276 common shares at prices ranging from $6.94 to $10.13 per share. 5. In 1999, the Company announced its intention to terminate and settle the obligations of its qualified noncontributory defined benefit pension plans covering substantially all of its non-bargaining unit personnel in the United States, and as such has frozen benefits. The Company has recognized pre tax curtailment gains of $281,000 which are included in the accompanying statement of operations for the thirteen and thirty-nine week periods ended September 26, 1999. The actual settlement of the obligations is not expected to be complete before the end of the current fiscal year. The net assets of the plans will be allocated, as prescribed by ERISA and its related regulations. At this time management does not foresee that the plans' settlements will have a material adverse effect on the Company's financial condition or liquidity. 6. The Company has two professional service segments: staffing and industrial maintenance services. Staffing services are provided on a temporary and contract basis to businesses in clerical, light industrial and technology professional sectors throughout the eastern United States and select southwestern U.S. markets. Industrial maintenance services a wide range of industries by providing hydroblasting, painting, sandblasting, F-4 41 C. H. HEIST CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED and vacuuming of industrial wastes throughout the eastern United States and Canada. Operating segment data is as follows (in thousands):
THIRTEEN THIRTEEN THIRTY-NINE THIRTY-NINE WEEK PERIOD WEEK PERIOD WEEK PERIOD WEEK PERIOD ENDED ENDED ENDED ENDED SEPT. 26, SEPT. 27, SEPT. 26, SEPT. 27, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Staffing services: Net revenues.......................... $25,432 21,381 70,376 55,879 Intersegment revenues................. 31 28 92 8 ------- ------- -------- ------- Total revenues................ 25,463 21,409 70,468 55,961 Cost of services...................... 19,573 16,386 54,312 42,893 Selling, general & administrative: Operations......................... 3,966 3,110 11,431 8,513 Allocated overhead................. 838 765 2,413 2,396 ------- ------- -------- ------- Total selling general & administrative.............. 4,804 3,875 13,844 10,909 Amortization.......................... 181 148 543 351 Operating income...................... 874 972 1,677 1,726 Depreciation.......................... 178 115 497 304 Assets................................ 26,079 23,068 26,079 23,068 Capital expenditures and acquisitions....................... 146 143 2,034 6,751 ======= ======= ======== ======= Industrial maintenance services: Net revenues.......................... $12,999 14,500 40,842 42,306 Cost of services...................... 8,864 9,336 27,401 27,462 Selling, general & administrative: Operations......................... 3,237 3,489 10,337 10,200 Overhead........................... 1,404 1,366 4,517 4,433 ------- ------- -------- ------- Total selling general & administrative.............. 4,641 4,855 14,854 14,633 Amortization.......................... 2 1 5 16 Operating income (loss)............... (508) 308 (1,418) 195 Depreciation.......................... 1,016 929 3,229 3,342 Assets................................ 28,763 28,637 28,763 28,637 Capital expenditures.................. $ 364 973 2,297 3,824 ======= ======= ======== ======= Corporate assets........................ $ 1,014 1,317 1,014 1,317 ======= ======= ======== ======= Consolidated: Net revenues.......................... $38,431 35,881 111,218 98,185 Cost of services...................... 28,437 25,722 81,713 70,355 Selling, general & administrative..... 9,445 8,730 28,698 25,542 Amortization.......................... 183 149 548 367 Operating income...................... 366 1,280 259 1,921 Other expense, net.................... 169 122 (282) (136) Earnings (loss) before income taxes... 535 1,402 (23) 1,785 Depreciation.......................... 1,194 1,044 3,726 3,646 Assets................................ 55,856 53,022 55,856 53,022 Capital expenditures and acquisitions....................... $ 510 1,116 4,331 10,575 ======= ======= ======== =======
F-5 42 C. H. HEIST CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 7. On April 13, 1998, Ablest Service Corp., a wholly owned subsidiary of C. H. Heist Corp. acquired one hundred percent of the stock of Milestone Technologies, Inc. ("Milestone") for approximately $6.6 million paid in cash to the shareholders at closing and agreed to pay additional consideration based on the achievement of certain pre-established earning targets for 1998. Milestone provides information technology staffing services in the Phoenix, Arizona metropolitan area and had fiscal 1997 revenues of approximately $9.0 million. The purchase price was determined through negotiations and has been assigned to the fair value of the assets and liabilities acquired with the excess being assigned to goodwill. Pro Forma Condensed Combined Financial Information -- (Unaudited) thirteen and thirty-nine week periods ended September 27, 1998. The unaudited pro forma condensed combined financial information reflects the pro forma results of operations of the Company for the thirteen and thirty-nine week periods ended September 27, 1998 assuming the acquisition of Milestone had been consummated as of the beginning of the periods presented. Management believes that the assumptions used in preparing this unaudited pro forma condensed combined financial information provide a reasonable basis of presenting all of the significant effects of the acquisition of Milestone. The pro forma condensed combined financial information does not purport to be indicative of the actual results that would have occurred had the acquisition been consummated on or as of the date assumed, and are not necessarily indicative of the future results of operations which will be obtained as a result of the acquisition.
THIRTEEN THIRTY-NINE WEEK PERIOD WEEK PERIOD ENDED ENDED SEPT. 27, SEPT. 27, 1998 1998 ----------- ----------- Net service revenues........................................ $35,881 101,024 Net earnings................................................ 758 1,028 Basic and diluted earnings per share........................ $ .26 .36
8. Subsequent Events. On November 2, 1999, the Company announced that it had entered into a letter of intent to sell its industrial maintenance business to Onyx Industrial Services, Inc., a subsidiary of CGEA-Onyx, a French waste service company with worldwide operations. Management expects to fully analyze and account for this segment as a discontinued operation in its fourth fiscal quarter. Since the letter of intent is non-binding, no assurances can be given that a sale will be consummated. In 2000, the Company intends to relocate its Buffalo, New York administrative offices to the Tampa, Florida area, the current location of its executive and human resources offices. In the fourth quarter the Company will complete an assessment of the cost of relocation, including the costs of any employee programs. F-6 43 INDEPENDENT AUDITORS' REVIEW REPORT The Board of Directors and Stockholders C. H. Heist Corp: We have reviewed the condensed consolidated balance sheet of C.H. Heist Corp. and subsidiaries as of September 26, 1999 and the related condensed consolidated statements of operations and comprehensive income and cash flows for the thirteen and thirty-nine week periods ended September 26, 1999 and September 27, 1998. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of C.H. Heist Corp. and subsidiaries as of December 27, 1998, and the related consolidated statements of earnings and comprehensive income, stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated February 12, 1999, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 27, 1998, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. KPMG LLP Buffalo, New York October 22, 1999 F-7 44 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS: Net service revenue increased by $2.5 million or 7.1% to $38.4 million from $35.9 million and by $13.0 million or 13.3% to $111.2 million from $98.2 million for the current fiscal quarter and year to date periods, respectively. Net service revenue in the Company's staffing services segment, Ablest Service Corp., increased by $4.0 million or 18.9% to $25.4 million from $21.4 million during the current fiscal quarter and by $14.5 million or 25.9% to $70.4 million from $55.9 million during the current year to date period. Net service revenue in this segment's commercial staffing division increased in the current quarter by $4.4 million or 27.9% and for the year to date period by $10.4 million or 24.3%. Increased revenue from existing customers, greater market penetration in established offices and new office openings in the current and prior fiscal year, all contributed to this increase. Net service revenue in this segment's information technology staffing (IT) division declined by $374,000 or 6.8% for the current fiscal quarter while still showing an increase of $4.1 million or 31.6% for the current fiscal year to date period. The decline in IT in the current fiscal quarter is the result of an industry trend where customers are delaying the development of new projects until the second quarter of next year because of Y2K concerns. The increase in the year to date revenues for this division is due to revenues generated for a full year from acquisitions, which were included for only part of the prior fiscal year. Net service revenues in the Company's industrial maintenance segment declined by $1.5 million or 10.3% to $13.0 million from $14.5 million and by $1.5 million or 3.5% to $40.8 million from $42.3 million for the current fiscal quarter and year to date periods, respectively. The decline in service revenue for both the current fiscal quarter and year to date periods resulted from lower service revenues being generated from turnaround services as compared to the prior fiscal year. Many refineries have postponed plant turnarounds and major maintenance projects due to the strong demand and higher prices for gasoline and other petroleum based products. Also contributing to this decline in service revenues is a drop in revenues from this segment's insulation services division. These declines are partially offset by increased revenue being generated by conventional high-pressure water cleaning services and through the opening of new service locations in the current and prior fiscal years. Gross profit on a consolidated basis declined by $165,000 or 1.6% and increased by $1.7 million or 6.0% for the current fiscal quarter and year to date periods, respectively. Gross profit as a percentage of service revenue for the current fiscal quarter declined to 26.0% from 28.3% and for year to date period to 26.5% from 28.3%. Gross profit dollars in the staffing services segment increased by $867,000 or 17.3% and by $3.1 million or 23.6% for the current fiscal quarter and year to date periods, respectively. Gross profit as a percentage of staffing service revenues declined to 23.0% from 23.4% for the current quarter and to 22.8% from 23.2% for year to date period. The increase in gross profit dollars is the result of the increased service revenues coupled with the consistent margins in the commercial staffing division. The decrease in percentage is due to the decline in gross profit margin in the information technology staffing division which is caused by competitive pressures on pricing. Gross profit dollars in the Company's industrial maintenance segment declined by $1.0 million or 19.9% and by $1.4 million or 9.5% for the fiscal quarter and year to date periods, respectively. As a percentage of service revenues, gross profit declined to 31.8% from 35.6% and to 32.9% from 35.1% for the same respective periods. Contributing to this decline in both gross profit dollars and percentages is an increase in direct labor costs associated with the performance of our services, including related payroll taxes and employee welfare funds. Selling, general and administrative expenses, including amortization expenses, increased on a consolidated basis by $749,000 or 8.4% and by $3.3 million or 12.9% for the current fiscal quarter and year to date periods, respectively. Selling, general and administrative expenses in the Company's staffing service segment increased by $962,000 or 23.9% and by $3.1 million or 27.8% for the current fiscal quarter and year to date periods, F-8 45 respectively. Contributing to this increase were costs and amortization expense associated with prior year acquisitions and cost associated with new office openings. Selling, general and administrative expenses in the Company's industrial maintenance segment decreased by $213,000 or 4.4% for the current fiscal quarter and increased by $210,000 or 1.4% for the current fiscal year to date period. The decline in the current fiscal quarter was primarily the result of the closing of one branch office and three sub-offices in the current and prior fiscal years. The increase in selling, general and administrative expenses for the current year to date period is predominately due to the hiring of additional sales and marketing associates in both the United States and Canada. Contributing to the increase in other income for the current quarter and partially offsetting other expense for the year to date period was a gain of approximately $213,000 recognized on the final distribution of insurance proceeds related to a 1998 fire at the Company's Rouyn-Noranda, Quebec facility. In addition to the above, the Company has recognized a pre-tax gain of approximately $281,000 related to the curtailment of its qualified non- contributory defined benefit pension plans for all its non-bargaining unit personnel in the United States. Reference is made to Footnote 5 of the Notes to Condensed Consolidated Financial Statements, included herein. These increases in other income were partially offset by an increase in interest expense of $51,000 and $205,000 for the current fiscal quarter and year to date periods, respectively. These increases were the result of the higher level of borrowing associated with prior year acquisitions. The effective tax rate for the current fiscal quarter is 58.5% and for the fiscal year to date period is a benefit of 82.6%. The effective tax rate is the result of the consolidation of effective tax rates from the various taxing jurisdictions of the Company. Also affecting these effective rates is the impact of the non-deductibility of certain intangible assets associated with acquisitions that occurred in prior years. FINANCIAL CONDITION: The quick ratio held constant at 2.7 to 1 and the current ratio improved to 3.0 to 1 from 2.9 to 1 at September 26, 1999 and December 27, 1998, respectively. Net working capital improved by $1.2 million of which $1.4 million is attributable to an increase in accounts receivable and services in progress, income taxes receivable of $371,000 and a decrease in accounts payable of $602,000. These increases in working capital were partially offset by a decline of $635,000 in cash and cash equivalents and an increase in accrued expenses of $647,000. The increase in trade accounts receivable and services in progress were primarily the result of the increased service revenue noted previously in the staffing services segment while the increase in accrued expenses is predominately payroll and incentive compensation related. Reference should be made to the statement of cash flows, which details the sources and uses of cash. Open credit commitments as of September 26, 1999 were approximately $8.9 million. The Company also has approximately $340,000 (the US dollar equivalent) available for C. H. Heist, Ltd., the Company's Canadian subsidiary. Capital expenditures for the current fiscal quarter were $679,000, including $160,000 in capital leases. Of this amount, $227,000 was for additions to the mobile equipment fleet, $182,000 was for computer software, hardware, office automation and communication systems, $25,000 was for furniture and fixtures, $33,000 was for new facilities and the remainder was for other equipment. IMPACT OF YEAR 2000 READINESS: Items disclosed herein constitute "Y-2000 Readiness Disclosures" under the Year 2000 Information Readiness Disclosure Act. Throughout the past two years, the Company has undertaken an extensive review of its internal systems and has completed an applications upgrade to its integrated accounting programs and office automation systems that make them Y2K ready. The term "Y2K ready" as used in this document means that the relevant hardware, software, embedded chips or interfaces referenced herein will correctly process, provide and receive date sensitive data within and between the 20th and 21st centuries. The Company is also in the final phase of assessing F-9 46 and upgrading where necessary the operating systems at all of its remote locations. The cost of the upgrades and/or equipment replacements have not had a material impact on the financial position of the Company as they were part of the normal maintenance and support fees that are incurred on an ongoing basis. The Company is also in the final phase of assessing external and third party compliance for those supplies of critical services that the Company relies on. SUBSEQUENT EVENTS: On November 2, 1999, the Company announced that it had entered into a letter of intent to sell its industrial maintenance business to Onyx Industrial Services, Inc., a subsidiary of CGEA-Onyx, a French waste service company with worldwide operations. Management expects to fully analyze and account for this segment as a discontinued operation in its fourth fiscal quarter. Since the letter of intent is non-binding, no assurances can be given that a sale will be consummated. In 2000, the Company intends to relocate its Buffalo, New York administrative offices to the Tampa, Florida area, the current location of its executive and human resources offices. In the fourth quarter the Company will complete an assessment of the cost of relocation, including the costs of any employee programs. F-10 47 C. H. HEIST CORP. & SUBSIDIARIES SUMMARY OF SELECTED FINANCIAL DATA (In thousands, except per share earnings and percentages)
FISCAL YEAR ENDED DECEMBER ---------------------------------------------------- 1998 1997 1996 1995 1994 -------- ------- ------- ------- ------- Net service revenues................... $135,647 119,516 106,515 102,659 102,572 Cost of service revenues............... 97,658 85,290 76,045 75,530 79,897 -------- ------- ------- ------- ------- Gross Profit......................... 37,989 34,226 30,470 27,129 22,675 Selling, general & administrative expense.............................. 35,560 31,400 28,354 23,843 21,399 -------- ------- ------- ------- ------- Operating income..................... 2,429 2,826 2,116 3,286 1,276 Interest expense....................... (892) (729) (643) (541) (396) Other income (expense)................. 600 (93) 36 166 172 -------- ------- ------- ------- ------- Earnings before taxes................ 2,137 2,004 1,509 2,911 1,052 Income taxes........................... 843 1,106 819 1,305 734 -------- ------- ------- ------- ------- Net earnings......................... $ 1,294 898 690 1,606 318 ======== ======= ======= ======= ======= Effective tax rate..................... 39.4% 55.2% 54.3% 44.8% 69.8% Net earnings per share................. $ 0.45 0.31 0.24 0.56 0.11 ======== ======= ======= ======= ======= Canadian operations (U.S. $): Net service revenues................. $ 16,149 16,300 14,877 14,483 12,673 Operating income..................... 612 1,525 923 1,118 549 Total assets................. $ 9,830 10,570 9,316 10,093 9,451 ======== ======= ======= ======= ======= Other data: Working capital...................... $ 17,110 16,559 14,661 15,738 14,356 Property, plant & equipment, net..... 17,354 16,839 17,406 17,642 14,964 Capital expenditures, including acquisitions...................... 13,361 6,708 5,859 7,091 3,957 Depreciation and amortization........ 5,310 5,357 4,905 4,530 4,433 Cash flows from operations (1)....... 6,604 6,255 5,595 6,135 4,751 Total assets................. 54,021 44,086 40,797 39,548 36,756 Long-term debt....................... 16,050 8,755 6,492 6,980 5,121 Stockholders' equity................. $ 28,141 27,488 27,074 26,368 24,513 Return on beginning stockholders' equity............................ 4.7% 3.3% 2.6% 6.6% 1.3% Weighted average number of shares outstanding....................... 2,878 2,877 2,873 2,872 2,872 ======== ======= ======= ======= =======
- --------------- (1) Defined as net earnings plus depreciation and amortization. F-11 48 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION For the fiscal year ended December 27, 1998 compared to December 28, 1997 RESULTS OF OPERATIONS Service revenues for the current fiscal year increased by $16.1 million or 13.5% to $135.6 million from $119.5 million. Service revenues in the Company's staffing services segment, Ablest Service Corp. (Ablest), increased by $15.2 million or 24.0% to $78.5 million from $63.3 million over the prior fiscal year. Internal growth accounted for 9.9% of this increase in service revenues with the remainder resulting from two acquisitions in the Information Technology staffing field: Milestone Technologies, Inc. in April and SoftWorks International Consulting, Inc. in November of the current fiscal year. Service revenues for information technology services accounted for 23.8% of total staffing service revenues for the current fiscal year. Service revenues in the Company's industrial maintenance service segment increased by approximately $1 million or 1.6% to $57.2 million from $56.2 million during the current fiscal year. Service revenues in this segment's United States industrial maintenance operation increased by $1.0 million over the prior year, fueled by a new office opening and increased market penetration predominately in the southern region. Partially offsetting this increase was a decrease in service revenue at this segments Canadian subsidiary, C. H. Heist, Ltd. Service revenues for the Canadian operation actually increased by $1.5 million or 6.4% over the prior fiscal year when measured in its domestic, Canadian currency. Upon conversion, due to the declining value of the Canadian dollar in relationship to the United States dollar, the revenues decreased by 0.9%, period to period. Gross profit on a consolidated basis increased by $3.8 million or 11.0% to $38.0 million from $34.2 million, one year earlier. For the same period gross profit as a percentage of service revenues decreased to 28.0% from 28.6%. Year to year gross profit percentage for the Company's staffing services segment increased to 23.5% from 23.0%, one year earlier. Contributing to this increase were improved margins in commercial staffing services and growth in this segment's information technology staffing services. Gross profit dollars in the Company's industrial maintenance segment decreased by $121,000 or 0.6% and as a percentage of sales decreased to 34.2% from 35.0%, year to year. The decrease in gross margin dollars and percentage was the result of reduced margins on painting and paint-related services in the Company's Canadian subsidiary. Also contributing to this decline in gross profit dollars is the impact of the decline in value of the Canadian dollar, as noted above. Starting in fiscal 1998, the Company reclassified branch expenses that are not directly attributable to the services it performs from cost of services to selling, general and administrative expense. Management believes that its current presentation is generally consistent with industry practices. Selling, general and administrative expenses, inclusive of amortization expenses, increased by $4.2 million or 13.2% over the prior fiscal year. Selling, general and administrative expense for the staffing services segment increased by $2.5 million or 18.7% for the current fiscal year compared to one year ago. Contributing to this increase are costs associated with new office openings and acquisitions including increased amortization expense of intangible assets. Partially offsetting this increase in costs was a reduction in bad debt expenses of approximately $518,000 as compared to the prior fiscal year. This relates directly to three large customer write-offs that were made during 1997. Selling, general and administrative expense for the Company's industrial maintenance segment increased by $1.7 million or 9.4% over the prior fiscal year. Contributing to this increase is this segment's ongoing strategic sales and marketing planning initiative including the hiring of territorial sales representatives. Also contributing to the increase is our continuing investment in information technology and other support personnel in order to provide our customers with more accurate and timely information. These increases were partially offset by the F-12 49 allocation of proceeds received from the settlement of litigation in the Company's Canadian division. See the heading "Litigation Settlement" below. Other expense, net decreased by approximately $530,000 or 64.5% during the current fiscal year, compared to one year ago. This improvement was primarily attributable to costs associated with the planned spin-off and initial public offering of Ablest, which were written off during the first fiscal quarter of 1997, and not repeated in the current year. The Company's Board of Directors subsequently called off the spin-off and initial public offering. Also having a major impact during the current fiscal year was the settlement of litigation in the Company's Canadian subsidiary. See the heading "Litigation Settlement" below. Partially offsetting these decreases in other expense, net was an increase in interest expense due to the higher level of borrowing utilized to fund acquisitions during 1998. The effective tax rate for the current fiscal year is 39.4% as compared to 55.2% for the prior fiscal year. The reduced effective tax rate is the result of a reallocation of various corporate expenses between reporting segments. This reallocation resulted in the utilization of certain state tax net operating loss carry-forwards which had been fully offset by a valuation allowance. Refer to Footnote 8 of the Company's financial statements for a further explanation of income taxes. FINANCIAL CONDITION: The quick ratio at December 27, 1998 was 2.7 to 1 as compared to 3.1 to 1 at December 28, 1997, and the current ratio was 2.9 to 1 as compared to 3.4 to 1, for the respective periods. Net working capital increased by $551,000 during fiscal 1998. The increase in net working capital is attributable to increases in cash and cash equivalents, accounts receivable and a decrease in income taxes payable. These were partially offset by a decrease in prepaid expenses and increases in accounts payable and accrued expenses. The increase in cash and cash equivalents, as well as, the increase in accounts receivable are primarily in the staffing services segment. These increases are predominately the result of acquisitions made during 1998 and the strong sales growth that this segment has achieved. Reference should be made to the Consolidated Statement of Cash Flows, which details the sources and uses of cash. Open credit commitments at the end of fiscal 1998 were approximately $9.0 million. The Company also has approximately $322,000 (the U. S. dollar equivalent) available for C. H. Heist, Ltd., the Company's Canadian subsidiary. Capital expenditures (excluding acquisitions) were approximately $6.1 million. Of this amount, $3.6 million was for additions to the mobile equipment fleet, $1.2 million was for computer hardware, software, office automation and communication systems, $344,000 was for new facilities and the balance was for other equipment. Open commitments at December 27, 1998 were $434,000, of which $308,000 is for new mobile equipment and the rest for other equipment. It is anticipated that existing internally available funds, cash flows from operations and available borrowings will be sufficient to cover working capital and capital expenditure requirements in fiscal 1999. ACQUISITIONS On April 13, 1998, Ablest purchased 100% of the common stock of Milestone Technologies, Inc., (Milestone) an information technology staffing provider in the Phoenix, Arizona Metropolitan area. On November 17, 1998, Ablest purchased certain assets from SoftWorks International Consulting, Inc., (SoftWorks), an information technology staffing services provider in the Denver, Colorado Metropolitan area. Reference should be made to the Company's April 24, 1998 form 8-K filing for Milestone and December 1, 1998, form 8-K filing for SoftWorks. LITIGATION SETTLEMENT During fiscal 1998, the Company's Canadian subsidiary successfully negotiated a settlement of an outstanding lawsuit, which it had brought against an international bridge authority in Sarnia, Ontario Canada. The F-13 50 suit alleged that the bridge authority and its engineering firm misrepresented the total volume of steel that was to be sandblasted and painted on the structure in fiscal 1993 and 1994. The settlement reached was for $661,000 in Canadian dollars (approximately $430,000 in U. S. dollars). The allocation of the proceeds from this settlement was first used to pay off an outstanding receivable, and then to offset expenses incurred for legal and engineering services utilized to prepare and present our case. The balance of approximately $235,000 (U. S. dollars) was credited to miscellaneous other income and included in fiscal 1998. IMPACT OF YEAR 2000 READINESS Items disclosed herein constitute "Y-2000 Readiness Disclosures" under the Year 2000 Information and Readiness Disclosure Act. Year 2000 problems, defined as computer programs and hardware have date-sensitive software which may recognize a date using "00" as the year 1900 rather than the year 2000 (Y2K), this could result in a systems failure or miscalculation causing disruptions of certain day to day accounting and information handling systems. The Company has undertaken an extensive review of its internal systems and has recently completed an applications upgrade to its integrated accounting programs that make them Y2K ready. The term "Y2K ready" as used throughout this document means that the relevant hardware, software, embedded chips or interfaces specifically referenced herein will correctly process, provide and receive date data within and between the 20th and 21st centuries. The Company is currently upgrading operating systems at all of its remote locations and anticipates being materially Y2K ready by the end of the first quarter of 1999. The next phase of our plan is to assess external and third party reliance for those suppliers of critical services that the Company relies upon. It is anticipated that this final phase will be completed in the first half of 1999. The upgrade to the various applications, which the Company has undertaken, did not result in additional expense, as they were part of the normal maintenance and support fees that are incurred on an ongoing basis. The total cost associated with the Company's Y2K readiness program is not material to the Company's operations. Although there can be no assurances, the Company does not anticipate any foreseeable problems regarding date-sensitive computer hardware or software applications that would have a material adverse effect on the Company. For the fiscal year ended December 28, 1997 compared to December 29, 1996 RESULTS OF OPERATIONS Service revenues (net sales) for the current fiscal year increased by $13.0 million or 12.2% to $119.5 million from $106.5 million. Service revenues in the Company's growing staffing services segment, Ablest Service Corp. (Ablest), increased by $13.8 million or 27.8%, over the prior year. Ablest now represents 53% of the Company's consolidated service revenues. Started in 1978, Ablest service revenues have grown at a compound annual growth rate of 21.6% since 1990. Between September '96 and June '97, three acquisitions of information technology (IT) staffing companies were consummated adding $8.0 million in service revenues. Revenues from these acquisitions represented 11.5% of total service revenues for this segment in 1997. The commercial staffing division of Ablest grew at approximately 15%, which is slightly above the industry growth rate. Service revenues in the Company's industrial maintenance segment, long the bulwark of the Company, declined by $753,000 or 1.3% compared to the prior year. After a slow first quarter in which service revenues were down by $3.2 million, this segment showed solid growth with increases in three consecutive quarters. Of particular note, service revenues increased in the fourth quarter by $1.7 million or 12.8%, over the same period of the prior year. Service revenue increases, in the fourth quarter, were achieved in field service repair, equipment related services, chemical cleaning, wet and dry vacuuming and waste management services. The Company's Canadian industrial maintenance subsidiary had increased service revenues for the year of $1.4 million, contributing significantly to the service revenue improvement during the last 9 months of 1997. Gross profit on a consolidated basis increased by $2.8 million, or 17.6%, to $18.8 million from $16.0 million, one year earlier. Gross profit as a percentage of service revenues increased to 15.8% from 15.0% in the prior fiscal year. Gross profit percentage for the Company's staffing services segment decreased to 16.8% from 17.4%, one year earlier. Costs associated with new office openings, staffing existing offices to accommodate increased service revenues and the increased competitive pressures on pricing within the staffing industry F-14 51 contributed to this decline. Gross profit percentage for the industrial maintenance segment improved to 14.6% in 1997 from 13.1% during the prior year. The improvement in gross profit percentage was due to improved pricing in the Company's industrial maintenance segment and reductions in insurance reserves due to decreased claims for workers' compensation and the settlement of two liability claims pending against the Company for less-than-reserved amounts. The Company attributes the decreased workers' compensation claim level to continued improvements in the Company's safety -- risk management program. Selling, general and administrative expenses on a consolidated basis increased by approximately $2.0 million or 14.3% in fiscal 1997, as compared to fiscal 1996. Selling, general and administrative expenses for the staffing services segment increased by $2.4 million or 46.2% for the current fiscal year, compared with 1996. This increase is the result of costs associated with new office openings and information technology staffing company acquisitions. Additional increases were incurred to improve and expand support structures and field operations to accommodate the growth that Ablest has achieved and to position it for future growth. During the current year Ablest wrote-off approximately $218,000 in accounts receivable for one customer over disputed invoices on a short-term commercial staffing project. Additional write-offs were made for two customers who have filed for protection under Chapter 11 of the bankruptcy code. Selling, general and administrative expenses for the industrial maintenance segment decreased by approximately $400,000 or 4.7% during 1997. The decrease is primarily the result of streamlining and consolidations that were made in the Company's support functions. Over the past two years the Company has made a major investment in information technology hardware, software and personnel, which also contributed to the increase in selling, general and administrative expense. This investment was made to provide management, and ultimately our customers, with more timely and accurate information. The Company has wide- and local- area networks for real-time communications throughout the geographically dispersed operating offices, which makes timely and reliable dissemination of information possible. Other expenses, net increased approximately $345,000, or 47.7%, during the current fiscal year, as compared to 1996. Amortization of goodwill and other assets associated with the technology staffing acquisitions contributed to this increase. The three acquisitions completed in the past fifteen months were financed by borrowing on the Company's line-of-credit and through long-term earnouts with previous owners. This increased the level of borrowing, and thus increased interest expense. Long-term debt reached $11.4 million during the year and at year-end was $8.75 million. The acquisitions were accretive to earnings and generated positive cash flow, which was used to reduce debt. During the fourth quarter of 1997, the Company consolidated and increased its line-of-credit facility to a total availability of $25 million under more favorable terms and conditions than were in effect prior to the termination of separate credit facilities for the industrial maintenance services and staffing services segments. Also contributing to the increase in other expenses was the write-off of costs associated with the preparation of documents for the proposed spin-off and initial public offering of Ablest Service Corp., which was terminated by the Company's Board of Directors in the third quarter of 1997. The effective tax rate for the current fiscal year was 55.2%. The effective rates are affected by the multiple taxing jurisdictions in which the Company operates, including higher foreign rates on earnings of the Company's Canadian subsidiary. Please refer to Footnote 8 of the Company's financial statements for a further explanation of income taxes. F-15 52 C. H. HEIST CORP. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
YEAR ENDED ------------------------------ DEC. 27, 1998 DEC. 28, 1997 ------------- ------------- ASSETS Current assets: Cash and cash equivalents................................. $ 3,147 2,948 Receivables, less allowance for doubtful receivables of $430 and $416 in 1998 and 1997, respectively........... 19,653 16,621 Services in progress...................................... 1,017 1,357 Parts and supplies........................................ 1,174 1,254 Prepaid expenses.......................................... 317 539 Deferred income taxes (note 8)............................ 626 806 ------- ------- Total current assets.............................. 25,934 23,525 ------- ------- Property, plant and equipment, at cost (note 2)............. 56,350 52,677 Less accumulated depreciation............................. 38,996 35,838 ------- ------- Net property, plant and equipment................. 17,354 16,839 Deferred income taxes (note 8).............................. 144 176 Intangible assets, net (note 3)............................. 10,471 3,386 Other....................................................... 118 160 ------- ------- $54,021 44,086 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term debt (note 5)........... $ 5 38 Accounts payable.......................................... 3,030 2,660 Accrued expenses (note 4)................................. 5,788 3,814 Income taxes payable...................................... 1 454 ------- ------- Total current liabilities......................... 8,824 6,966 Long-term debt, excluding current installments (note 5)..... 16,050 8,755 Deferred incentive compensation (note 6).................... 869 479 Deferred income taxes (note 8).............................. 137 398 ------- ------- Total liabilities................................. 25,880 16,598 ------- ------- Stockholders' equity (notes 5, 7 and 8): Common stock of $.05 par value. Authorized 8,000,000 shares; issued 3,167,092 shares for 1998 and 1997, respectively........................................... 158 158 Additional paid-in capital................................ 4,278 4,274 Retained earnings......................................... 27,176 25,882 Accumulated other comprehensive losses.................... (2,235) (1,583) ------- ------- 29,377 28,731 Less cost of common shares in treasury -- 288,754 and 290,269 shares for 1998 and 1997, respectively......... (1,236) (1,243) ------- ------- Total stockholders' equity........................ 28,141 27,488 ------- ------- Commitments and contingencies (notes 9, 12, 13 and 14).... -- -- ------- ------- $54,021 44,086 ======= =======
See accompanying notes to consolidated financial statements. F-16 53 C. H. HEIST CORP. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (In thousands, except share and per share data)
YEAR ENDED ----------------------------------------------- DEC. 27, 1998 DEC. 28, 1997 DEC. 29, 1996 ------------- ------------- ------------- Net service revenues................................. $ 135,647 119,516 106,515 Cost of services..................................... 97,658 85,290 76,045 ---------- --------- --------- Gross profit....................................... 37,989 34,226 30,470 Selling, general and administrative expenses......... 35,036 31,153 28,237 Amortization of intangible assets.................... 524 247 117 ---------- --------- --------- Operating income................................... 2,429 2,826 2,116 ---------- --------- --------- Other income (expense): Interest expense................................... (892) (729) (643) Interest income.................................... 85 78 62 Gain on disposal of property, plant and equipment, net............................................. 24 14 11 Miscellaneous, net................................. 491 (185) (37) ---------- --------- --------- Other expense, net................................. (292) (822) (607) ---------- --------- --------- Earnings before income taxes....................... 2,137 2,004 1,509 Income taxes (note 8)................................ 843 1,106 819 ---------- --------- --------- Net earnings....................................... $ 1,294 898 690 ========== ========= ========= Basic and diluted net earnings per common share...... $ 0.45 0.31 0.24 ========== ========= ========= Weighted average number of common shares outstanding........................................ 2,877,977 2,876,505 2,873,337 ========== ========= ========= Reconciliation of Net Earnings to Comprehensive Income Net earnings......................................... $ 1,294 898 690 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments........... (652) (499) 2 ---------- --------- --------- Comprehensive income............................... $ 642 399 692
See accompanying notes to consolidated financial statements. F-17 54 C. H. HEIST CORP. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS'S EQUITY (In thousands, except share data)
ACCUMULATED ADDITIONAL OTHER TREASURY STOCK TOTAL COMMON PAID-IN RETAINED COMPREHENSIVE ----------------- STOCKHOLDERS' STOCK CAPITAL EARNINGS LOSSES SHARES AMOUNTS EQUITY ------ ---------- -------- ------------- ------- ------- ------------- Balances at December 31, 1995........................... $158 4,254 24,294 (1,086) 292,419 (1,252) 26,368 Net earnings................... -- -- 690 -- -- -- 690 Exercised options.............. -- 14 -- -- -- -- 14 Foreign currency translation adjustment................... -- -- -- 2 -- -- 2 ---- ----- ------ ------ ------- ------ ------ Balances at December 29, 1996......................... 158 4,268 24,984 (1,084) 292,419 (1,252) 27,074 Net earnings................... -- -- 898 -- -- -- 898 Stock compensation awards...... -- 6 -- -- (2,150) 9 15 Foreign currency translation adjustment................... -- -- -- (499) -- -- (499) ---- ----- ------ ------ ------- ------ ------ Balances at December 28, 1997......................... 158 4,274 25,882 (1,583) 290,269 (1,243) 27,488 Net earnings................... -- -- 1,294 -- -- -- 1,294 Stock compensation awards...... -- 4 -- -- (1,515) 7 11 Foreign currency translation adjustment................... -- -- -- (652) -- -- (652) ---- ----- ------ ------ ------- ------ ------ Balances at December 27, 1998......................... $158 4,278 27,176 (2,235) 288,754 (1,236) 28,141 ==== ===== ====== ====== ======= ====== ======
See accompanying notes to consolidated financial statements. F-18 55 C. H. HEIST CORP. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
YEAR ENDED ----------------------------------------------- DEC. 27, 1998 DEC. 28, 1997 DEC. 29, 1996 ------------- ------------- ------------- Cash flows from operating activities: Net earnings........................................ $ 1,294 898 690 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of plant and equipment............ 4,786 5,110 4,788 Amortization of intangible assets.............. 524 247 117 Gain on disposal of property, plant and equipment, net.............................. (24) (14) (11) Deferred income taxes.......................... (340) 8 (64) Stock compensation awards...................... 11 15 -- Changes in assets and liabilities (see below)...................................... (309) (1,116) 238 -------- -------- ------- Net cash provided by operating activities... 5,942 5,148 5,758 -------- -------- ------- Cash flows from investing activities: Additions to property, plant and equipment.......... (6,095) (4,804) (4,740) Proceeds from disposal of property, plant and equipment........................................ 525 210 225 Acquisitions and earnout payments, net of cash acquired......................................... (7,266) (1,904) (1,119) -------- -------- ------- Net cash used by investing activities....... (12,836) (6,498) (5,634) -------- -------- ------- Cash flows from financing activities: Proceeds from bank line of credit borrowings........ 24,597 17,000 8,700 Repayment of bank line of credit borrowings......... (17,297) (14,700) (9,150) Repayment of acquisition note payable............... -- (500) -- Repayment of other long-term debt................... (38) (37) (37) Exercised stock options............................. -- -- 14 -------- -------- ------- Net cash provided (used) by financing activities................................ 7,262 1,763 (473) Effect of exchange rate changes on cash and cash equivalents......................................... (169) (157) -- -------- -------- ------- Net increase (decrease) in cash and cash equivalents......................................... 199 256 (349) Cash and cash equivalents at beginning of year........ 2,948 2,692 3,041 -------- -------- ------- Cash and cash equivalents at end of year.............. $ 3,147 2,948 2,692 ======== ======== ======= Changes in assets and liabilities providing (using) cash, excluding effects of acquisitions: Receivables...................................... $ (2,123) (2,199) (256) Services in progress............................. 600 (255) (128) Parts and supplies............................... 75 345 566 Prepaid expenses................................. 220 (226) (136) Accounts payable................................. 222 1,074 293 Accrued expenses................................. 874 (625) 316 Income taxes payable............................. (620) 267 (349) Other assets..................................... 48 298 (344) Deferred incentive compensation.................. 395 205 276 -------- -------- ------- Total....................................... $ (309) (1,116) 238 ======== ======== ======= Supplemental disclosure of cash flow information: Cash paid during year for: Interest....................................... $ 871 692 458 Income taxes................................... $ 1,633 823 1,144 Non cash investing and financing activities: Note issued in connection with acquisition..... $ -- -- 500 Liabilities assumed in acquisition transactions................................ $ 760 -- -- ======== ======== =======
See accompanying notes to consolidated financial statements. F-19 56 C.H. HEIST CORP. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 27, 1998, DECEMBER 28, 1997 AND DECEMBER 29, 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C. H. Heist Corp. and subsidiaries (the Company) has two professional service segments: staffing services and industrial maintenance services. The Ablest Service Corp. (Ablest) staffing services subsidiary focuses on providing temporary and contract staffing solutions to businesses in the clerical, light industrial and technology professional sectors. The industrial maintenance segment services a wide range of industries, such as chemical, petrochemical, power generation, pulp and paper, mining and metallurgical plants. The industrial services business includes hydroblasting, painting, sandblasting, vacuuming of industrial wastes, turnaround services, chemical cleaning and commercial insulation. These services are offered domestically and in Canada through C. H. Heist Ltd., a wholly owned subsidiary. Many of these services are rendered on a contract basis. Significant accounting policies followed by the Company are summarized as follows: (a) Fiscal Year The Company's fiscal year ends on the last Sunday of December. The consolidated financial statements include 52 weeks for each of the years ended December 27, 1998, December 28, 1997 and December 29, 1996. (b) Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation. (c) Cash Equivalents All highly liquid investments with original maturities of three months or less are considered cash equivalents. (d) Revenue Recognition The industrial maintenance segment operates primarily under time-and-material contracts, and to a lesser extent under fixed contracts. Time-and-material contract revenue and associated costs are recognized in the period the services are provided. Revenue on fixed price contracts is recognized on the percentage of completion method based on costs incurred in relation to total estimated costs. The staffing services segment recognizes revenue and associated costs in the period the services are provided. Services in progress represents, for both segments, the revenue for services provided but not yet billed. Costs associated with any services in progress are reflected as expenses. Anticipated losses, if any, are provided for in full. (e) Parts and Supplies Parts and supplies used in the industrial maintenance segment are valued at the lower of cost (first-in, first-out) or market. (f) Property, Plant and Equipment Depreciation of plant and equipment is provided over the estimated useful lives of the respective assets, principally on the straight-line method. Leasehold improvements are amortized on the straight-line method over the shorter of the lease term or estimated useful life of the asset. Estimated useful lives generally range from 3 to 40 years. F-20 57 C.H. HEIST CORP. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (g) Intangible Assets The values ascribed to acquired intangibles, primarily goodwill, covenants not-to-compete, customer and employee lists are being amortized on the straight-line method primarily over periods of three to thirty years. The Company regularly evaluates whether events and circumstances have occurred that indicate the carrying amounts of intangible assets may warrant revision or may not be recoverable. In the event of possible impairment, the asset's value will be determined by projected net cash flows of the related business. (h) Income Taxes Income taxes are accounted for by the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and credit carryforwards and differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. (i) Earnings Per Share Basic earnings per share is computed by using the weighted average number of common shares outstanding. Diluted earnings per share is computed by using the weighted average number of common shares outstanding plus the dilutive effect, if any, of stock options. The dilutive effect of stock options was not significant for any of the years presented. (j) Foreign Currency Translation The Canadian subsidiary utilizes the Canadian dollar as its functional currency. Assets and liabilities are translated using rates of exchange as of the balance sheet date and the statements of earnings are translated at an average rate of exchange during the year. Gains and losses resulting from translation are reported separately in stockholders' equity as "Accumulated other comprehensive losses." Foreign currency transaction gains and losses, if any, are reflected in operations. (k) Use of Estimates Management has made a number of estimates and assumptions in preparing these financial statements to conform with generally accepted accounting principles. Actual results could differ from those estimates. (l) Methods and Development Costs Methods and development costs amounted to $352,000, $338,000, and $248,000 for the fiscal years 1998, 1997 and 1996, respectively. (m) Accounting Standards Pronouncements In 1999, the Company will adopt SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". Management believes that the adoption of this standard will not have a material effect on the reported operating results of the Company. (n) Reclassification The Company has reclassified 1997 and 1996 branch expenses that are not directly attributable to the services it performs from cost of services to selling, general and administrative expenses to conform to the F-21 58 C.H. HEIST CORP. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 1998 classification. The effect of these reclassifications was to lower cost of services and increase selling, general and administrative expenses by $15,397,000 and $14,453,000 for fiscal 1997 and 1996, respectively, as compared to amounts previously reported. Management believes that its current presentation is generally consistent with industry practice. (2) PROPERTY, PLANT AND EQUIPMENT A summary of property, plant and equipment, at cost, follows:
YEAR ENDED ------------------------------ DEC. 27, 1998 DEC. 28, 1997 ------------- ------------- (In thousands) Land....................................................... $ 1,321 1,380 Buildings and improvements................................. 5,249 5,394 Machinery and equipment.................................... 27,126 25,092 Automotive equipment....................................... 14,852 14,276 Office furniture and equipment............................. 7,329 6,070 Leasehold improvements..................................... 473 465 ------- ------- $56,350 52,677 ======= =======
(3) INTANGIBLE ASSETS A summary of intangible assets follows:
YEAR ENDED ------------------------------ DEC. 27, 1998 DEC. 28, 1997 ------------- ------------- (In thousands) Goodwill, less accumulated amortization of $263 and $68.... $ 8,908 2,413 Other intangible assets, less accumulated amortization of $623 and $293............................................ 1,563 973 ------- ------ $10,471 3,386 ======= ======
Intangible assets relate primarily to acquisitions in the staffing services segment (note 12). (4) ACCRUED EXPENSES A summary of accrued expenses follows:
YEAR ENDED ------------------------------ DEC. 27, 1998 DEC. 28, 1997 ------------- ------------- (In thousands) Payroll and other compensation............................. $2,474 1,353 Taxes, other than income................................... 155 150 Insurance.................................................. 1,277 1,535 Acquisition earnout costs (note 12)........................ 1,311 264 Other...................................................... 571 512 ------ ------ $5,788 3,814 ====== ======
F-22 59 C.H. HEIST CORP. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (5) INDEBTEDNESS A summary of long-term debt follows:
YEAR ENDED ------------------------------ DEC. 27, 1998 DEC. 28, 1997 ------------- ------------- (In thousands) Notes payable, bank-revolving credit agreement............. $16,050 8,750 Mortgage note with interest at 9% payable in 1999.......... 5 43 ------- ------ Total long-term debt............................. 16,055 8,793 Less current installments of long-term debt................ 5 38 ------- ------ Long-term debt, excluding current installments........... $16,050 8,755 ======= ======
The Company has a $25,000,000 unsecured bank line of credit under a revolving credit agreement. The interest rate on borrowings under the line of credit is elected weekly by the Company and is either (i) the bank's prime rate or (ii) the Secondary Market Certificate of Deposit (CD) Rate plus 3/4%. The rate in effect at December 27, 1998 is 5.785%. On July 31, 2000, the Company has the option of converting the then outstanding borrowings to a term loan, payable in twenty equal quarterly installments, bearing interest at either (i) the bank's prime rate plus 1/2% or (ii) the Secondary Market CD Rate plus 1 1/2%. If converted, the company continues electing, on a weekly basis, the interest rate to be charged. The revolving credit agreement contains working capital requirements, and limits the amount of liabilities, capital expenditures and payment of cash dividends. Under the most restrictive of these provisions, $1,000,000 of retained earnings is free of dividend restrictions at December 27, 1998. The Company also pays a commitment fee of 1/4% per annum on the average daily unused portion. Compensating balances, may be, but are not required to be maintained. The Company's Canadian subsidiary has an unsecured line of credit in the U.S. dollar equivalent amount of $322,000 at December 27, 1998. Any borrowings thereunder bear interest at the bank's prime rate. Commitment fees of 1/4% per annum are payable on the average daily unused portion of the line of credit. No compensating balances are required. No amounts were outstanding at December 27, 1998 and December 28, 1997. Long-term debt matures as follows assuming conversion, on July 31, 2000, of the amount due under the revolving credit agreement; $5,000 in 1999; $1,605,000 in 2000; $3,210,000 in 2001; $3,210,000 in 2002; $3,210,000 in 2003; and $4,815,000 thereafter. The fair value of long-term debt approximates its recorded value. (6) DEFERRED INCENTIVE COMPENSATION The Company has initiated an Economic Value Added (EVA((R))) Incentive Remuneration Plan for officers and key employees. The purpose of the plan is to provide incentive compensation in a form which relates the participants incentive compensation to an increase in the economic value of the Company. The participant is paid a portion of the declared bonus in the February following the year in which the bonus was deemed earned and is reflected in accrued expenses. The remaining portion of the bonus that is declared but unpaid may be paid in succeeding years if performance targets are met. A participant may forfeit any declared but unpaid bonus upon termination of employment other than by reason of death, disability or retirement, at the discretion of the Compensation Committee of the Board of Directors. (7) STOCK OPTION PLANS The Company has reserved 375,000 common shares for issuance in conjunction with its Stock Option Plan (Plan). The Plan provides for the granting of incentive stock options and/or non qualified options to officers and key employees to purchase shares of common stock at a price not less than the fair market value of the stock on the dates options are granted. Such options are exercisable at such time or times as may be determined by the F-23 60 C.H. HEIST CORP. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Compensation Committee of the Board of Directors and generally expire no more than ten years after grant. Options vest and become fully exercisable six months after the grant date. A summary of stock option activity follows:
WEIGHTED OPTIONS AVERAGE EXERCISABLE EXERCISE AT YEAR SHARES PRICE END ------- -------- ----------- Outstanding Dec. 31, 1995............................ 189,700 $7.80 142,700 Exercised.......................................... (1,900) 7.48 Canceled or expired................................ (5,411) 8.06 ------- ----- ------- Outstanding Dec. 29, 1996............................ 182,389 7.80 182,389 Canceled or expired................................ (12,905) 9.13 ------- ----- ------- Outstanding Dec. 28, 1997............................ 169,484 7.70 169,484 Canceled or expired................................ (3,396) 7.98 ------- ----- ------- Outstanding Dec. 27, 1998............................ 166,088 $7.69 166,088 ======= ===== =======
At December 27, 1998, the range of exercise prices and weighted average contractual life of outstanding and exercisable options was $6.94 -- $10.13 and 5.4 years, respectively. At December 27, 1998 there were 204,512 shares available for grant under the Plan. In May 1996, the Company's shareholders approved the adoption of a Leveraged Stock Option plan (Leveraged Plan) for key employees. The Leveraged Plan authorizes the issuance of options covering up to 375,000 shares of common stock. Pursuant to the Leveraged Plan, 10% of a participant's annual EVA incentive compensation payment will be used to purchase stock options, which will be granted, following the end of the fiscal year. The number of options and the exercise price will be based on the average market price per share of common stock for the ten days prior to the calendar year end for which the option is granted. The exercise price of the options will be subject to escalation at 8% per year over the original option price. Options will vest after three years and will be exercisable over a ten-year period from the date of grant. The Compensation Committee of the Board of Directors establishes the percentage of the compensation to be applied towards the options, and the escalation percentage of the options. A summary of Leveraged Plan option activity follows:
WEIGHTED WEIGHTED AVERAGE AVERAGE FAIR VALUE EXERCISE OF OPTIONS SHARES PRICE GRANTED ------ -------- ---------- Outstanding Dec. 29, 1996.............................. -- $ -- $ -- Granted.............................................. 33,583 6.22 $2.59 ------ ----- ----- Outstanding Dec. 28, 1997.............................. 33,583 6.22 Granted.............................................. 38,803 7.02 $2.54 ------ ----- ----- Outstanding Dec. 27, 1998.............................. 72,386 $6.88 ====== ===== =====
At December 27, 1998, the range of exercise prices and weighted average contractual life of outstanding and exercisable options was $6.72 -- $7.02 and 8.7 years, respectively. No options were exercisable as of December 27, 1998. At December 27, 1998 there were 302,614 shares available for grant under the Leveraged Plan. The per share weighted average fair value of stock options granted was determined using the Black Scholes option-pricing F-24 61 C.H. HEIST CORP. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED model with the following weighted average assumptions for 1998 and 1997, respectively: risk free interest rates of 6.4% and 5.6%; expected dividend yield -- none for both years; expected life of ten years for both years; and volatility of 28% and 24%, respectively. Based on the fair value of all options at the grant date under the disclosure provisions of SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:
YEAR ENDED ----------------------------------------------- DEC. 27, 1998 DEC. 28, 1997 DEC. 29, 1996 ------------- ------------- ------------- (In thousands, except per share data) Net earnings As reported................................. $1,294 898 690 Pro forma................................... 1,261 884 598 Basic and diluted net earnings per share As reported................................. $ 0.45 0.31 0.24 Pro forma................................... 0.44 0.31 0.21
(8) INCOME TAXES Income tax expense consists of:
YEAR ENDED ----------------------------------------------- DEC. 27, 1998 DEC. 28, 1997 DEC. 29, 1996 ------------- ------------- ------------- (In thousands) Current expense (benefit): Federal..................................... $ 655 (50) 150 State....................................... 75 257 295 Foreign..................................... 453 891 438 ------ ----- ----- Total current....................... 1,183 1,098 883 ------ ----- ----- Deferred expense (benefit): Federal..................................... (167) 54 (29) State....................................... (173) 10 (2) Foreign..................................... 1 (56) (33) ------ ----- ----- Total deferred...................... (340) 8 (64) ------ ----- ----- $ 843 1,106 819 ====== ===== ===== Earnings before income taxes consist of: Domestic.................................... $1,161 348 426 Foreign..................................... 976 1,656 1,083 ------ ----- ----- $2,137 2,004 1,509 ====== ===== =====
F-25 62 C.H. HEIST CORP. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Actual income taxes differ from the "expected" taxes (computed by applying the U.S. Federal corporate tax rate of 34% to earnings before income taxes) as follows:
YEAR ENDED ----------------------------------------------- DEC. 27, 1998 DEC. 28, 1997 DEC. 29, 1996 ------------- ------------- ------------- (In thousands) Computed expected tax expense................. $ 727 681 513 Adjustments resulting from: Effect of higher foreign tax rates.......... 123 272 167 State taxes net of Federal Tax benefit...... (65) 176 193 Expiration of excess foreign tax credits.... 403 -- -- Change in beginning of year valuation (403) -- (129) allowance for deferred tax assets........ Goodwill amortization....................... 62 -- -- Meals & entertainment....................... 79 57 57 Other....................................... 83 (80) 18 ----- ----- ---- $ 843 1,106 819 ----- ----- ---- Effective tax rate............................ 39.4% 55.2% 54.3% ===== ===== ====
The tax effects of temporary differences that give rise to the deferred tax assets and liability are as follows:
YEAR ENDED ------------------------------ DEC. 27, 1998 DEC. 28, 1997 ------------- ------------- (In thousands) Current deferred tax assets: Allowance for doubtful receivables....................... $ 154 155 Accrued insurance expense................................ 429 543 Other.................................................... 43 108 ----- ----- 626 806 ----- ----- Long-term deferred tax assets: Accumulated depreciation of plant and equipment.......... 117 143 Deferred compensation.................................... 27 33 ----- ----- 144 176 ----- ----- Long-term deferred tax liability, net: Liabilities: Accumulated depreciation of plant and equipment....... (692) (683) Assets: Operating loss and credit carryforwards............... 581 961 Accumulated amortization of other assets.............. 92 119 Deferred compensation................................. 324 162 Valuation allowance................................... (446) (959) Other................................................. 4 2 ----- ----- (137) (398) ----- ----- Net deferred tax assets............................. $ 633 584 ===== =====
In assessing the realizability of deferred tax assets, management considers, within each taxing jurisdiction, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. F-26 63 C.H. HEIST CORP. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the years in which the deferred tax assets are deductible, management has provided valuation allowances for those deferred tax assets that are not expected to be realized. Undistributed earnings of the Canadian subsidiary, which are intended to be permanently reinvested in the business, are approximately $10,723,000 at December 27, 1998. If such earnings were remitted to the domestic parent, taxes based at the then current rates and subject to certain limitations would be payable after reduction for any foreign taxes previously paid on such earnings. (9) EMPLOYEE BENEFIT PLANS The Company has qualified noncontributory defined benefit pension plans covering substantially all of its non-bargaining unit personnel in the United States. The benefits are based on years of service and the employee's average compensation during employment. Pension costs are funded as required by applicable regulations. Plan assets are invested in a diversified portfolio which includes common stocks, bond and mortgage obligations, insurance contracts and money market funds. In 1998 the Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits". The standard does not change any accounting measurements, but requires additional disclosures of the beginning and ending balances of the benefit obligation and the fair value of plan assets, the funded status of the plan and the components of pension expense. The following tables set forth the funded status of the plans at the October 1 measurement date and the components of pension expense:
YEAR ENDED ------------------------------ DEC. 27, 1998 DEC. 28, 1997 ------------- ------------- (In thousands) Change in benefit obligation: Benefit obligation at beginning of year.................. $3,593 3,339 Service cost.......................................... 467 411 Interest.............................................. 233 199 Actuarial loss........................................ 783 445 Benefits paid......................................... (32) (95) Other................................................. -- (706) ------ ------ Benefit obligation at end of year........................ $5,044 3,593 ====== ====== Change in plan assets: Fair value of plan assets at beginning of year........... $3,806 3,513 Actual return on plan assets.......................... 137 387 Employer contributions................................ 242 726 Benefits paid......................................... (32) (95) Other................................................. -- (725) ------ ------ Fair value of plan assets at end of year................. $4,153 3,806 ====== ====== Reconciliation of funded status: Funded status (underfunded)/overfunded................... $ (891) 212 Unrecognized net actuarial (gain)/loss................... 89 (887) Unrecognized transition obligation....................... 9 12 Unrecognized prior service cost.......................... 562 624 ------ ------ Accrued benefit cost..................................... $ (229) (39) ------ ------
F-27 64 C.H. HEIST CORP. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
TS(Y13)] Principal actuarial assumptions are: Weighted average discount rate........................... 5.5% 6.5% Weighted average return on plan assets................... 7.9% 7.8% Rate of compensation increase............................ 3.9% 4.9%
YEAR ENDED ----------------------------------------------- DEC. 27, 1998 DEC. 28, 1997 DEC. 29, 1996 ------------- ------------- ------------- (IN THOUSANDS) Pension expense: Service cost................................ $ 467 411 427 Interest cost............................... 232 199 172 Expected return on plan assets.............. (292) (242) (195) Recognized net actuarial gain............... (39) (47) (26) Amortization of transition obligation....... 3 3 3 Amortization of prior service costs......... 62 62 62 ----- ---- ---- Total pension expense............... $ 433 386 443 ===== ==== ====
On January 15, 1999 the Company announced its intention to terminate its qualified noncontributory defined benefit pension plans covering substantially all of its non-bargaining unit personnel in the United States. The net assets of the plans will be allocated, as prescribed by ERISA and its related regulations. At this time management does not foresee that the Company's obligation for funding deficiencies, if any, in benefits will have a material adverse effect on the Company's financial condition or liquidity. The Company maintains a deferred profit sharing plan covering all salaried employees of its Canadian subsidiary that meet certain eligibility requirements. Contributions to the plan are based on net earnings, as defined, subject to certain limitations based on the salaries of the participants. Expenses under the plan were $39,000 in 1998, $38,000 in 1997 and $35,000 in 1996. In 1997, the Company initiated a qualified defined contribution plan covering the non-bargaining unit employees of the United States. The Company matches the contributions of participating employees, with a maximum contribution limit, on the basis of the percentages specified in the plan. The matching contributions were $47,000 in 1998 and $16,000 in 1997. (10) INDUSTRY SEGMENTS The Company has two professional service segments: staffing and industrial maintenance services. Staffing services are provided on a temporary and contract basis to businesses in clerical, light industrial and technology professional sectors throughout the eastern United States and select south-western U.S. markets. Industrial maintenance services a wide range of industries by providing hydroblasting, painting, sandblasting, and vacuuming of industrial wastes throughout the eastern United States and Canada. The Company has adopted the provision of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". In connection with the adoption of this standard the Company has revised its allocation of various corporate overhead expenses between its reporting segments. The effect of this reclassification was to allocate $1,408,000 and $1,335,000 of additional expenses for fiscal 1997 and 1996, respectively, to the Company's staffing services segment as compared to the allocation previously reported. The reallocation was made based on an assessment of actual corporate costs necessary to serve each segment. Intersegment revenues, where applicable, are accounted for on the same basis as sales to unaffiliated customers. Corporate assets not F-28 65 C.H. HEIST CORP. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED allocated include certificates of deposit. Operating segment data as of and for each of the years ended December 27, 1998, December 28, 1997 and December 29, 1996 are as follows:
YEAR ENDED ----------------------------------------------- DEC. 27, 1998 DEC. 28, 1997 DEC. 29, 1996 ------------- ------------- ------------- (In thousands) Staffing services: Net revenues............................. $78,471 63,268 49,514 Intersegment revenues.................... 101 39 84 ------- ------ ------ Total revenues...................... $78,572 63,307 49,598 Cost of services......................... 60,059 48,740 37,700 Selling, general & administrative: Operations............................. 11,986 10,344 7,087 Allocated overhead..................... 3,141 2,616 2,716 ------- ------ ------ Total selling general & administrative.................... 15,127 12,960 9,803 Amortization............................. 506 215 93 Operating income......................... 2,779 1,353 1,918 Depreciation............................. 426 409 320 Assets................................... 25,603 12,555 9,212 Capital expenditures and acquisitions.... $ 8,039 2,581 1,374 ------- ------ ------ Industrial maintenance services: Net revenues............................. $57,176 56,248 57,001 Cost of services......................... 37,599 36,550 38,345 Selling, general & administrative: Operations............................. 13,911 13,301 13,097 Overhead............................... 5,998 4,892 5,337 ------- ------ ------ Total selling general & administrative.................... 19,909 18,193 18,434 Amortization............................. 18 32 24 Operating income (loss).................. (350) 1,473 198 Depreciation............................. 4,360 4,701 4,468 Assets................................... 27,134 29,414 31,548 Capital expenditures..................... $ 5,322 4,127 4,485 ------- ------ ------ Corporate assets............................ $ 1,284 2,117 37 ======= ====== ======
YEAR ENDED ----------------------------------------------- DEC. 27, 1998 DEC. 28, 1997 DEC. 29, 1996 ------------- ------------- ------------- (In thousands) Consolidated: Net revenues................................ $135,647 119,516 106,515 Cost of services............................ 97,658 85,290 76,045 Selling, general & administrative........... 35,036 31,153 28,237 Amortization................................ 524 247 117 Operating income............................ 2,429 2,826 2,116 Other expense, net.......................... (292) (822) (607) Earnings before income taxes................ 2,137 2,004 1,509 Depreciation................................ 4,786 5,110 4,788 Assets...................................... 54,021 44,086 40,797 Capital expenditures and acquisitions....... $ 13,361 6,708 5,859 ======== ======= =======
F-29 66 C.H. HEIST CORP. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (11) CANADIAN OPERATION A summary of financial data (in U.S. dollars) relating to the Company's Canadian industrial maintenance operation follows:
YEAR ENDED ----------------------------------------------- DEC. 27, 1998 DEC. 28, 1997 DEC. 29, 1996 ------------- ------------- ------------- (In thousands) Identifiable assets........................... $ 9,830 10,570 9,316 Liabilities................................... 1,312 1,921 754 Net service revenues.......................... 16,149 16,300 14,877
(12) ACQUISITIONS On September 15, 1996, Ablest purchased certain assets from Tech Resource, Inc., an information technology staffing services business in the Atlanta, Georgia metropolitan area, and its shareholder. The aggregate purchase price, including acquisition costs was approximately $1,619,000, of which approximately $1,119,000 was paid in cash and $500,000 was in the form of a one-year promissory note paid September 1997. Approximately $1,581,000 of the purchase price has been allocated to various intangible assets, primarily goodwill. On April 28, 1997, Ablest purchased certain assets from Solution Source, Inc., an information technology staffing services business in the Atlanta, Georgia metropolitan area, and its shareholders. The aggregate purchase price, including acquisition costs, was approximately $1,429,000, paid in cash, of which approximately $1,379,000 has been allocated to various intangible assets, primarily goodwill. The acquisition agreement also provides that Ablest may be required to pay additional consideration if certain performance criteria are met in 1997, 1998 and 1999. Total additional payments of $489,000 have been paid or accrued in 1997 and 1998. On June 23, 1997, Ablest purchased certain assets from The Kelton Group, Inc., an information technology staffing and documentation services provider in the Raleigh, North Carolina metropolitan area, and its shareholder. The aggregate purchase price, including acquisition costs, was approximately $475,000, paid in cash, of which approximately $375,000 has been allocated to various intangible assets, primarily goodwill. On April 13, 1998, Ablest purchased 100% of the common stock of Milestone Technologies, Inc., an information technology staffing services provider in the Phoenix, Arizona metropolitan area, from its shareholders. The aggregate purchase price, including acquisition costs, was approximately $6,848,000, paid in cash, of which approximately $5,314,000 has been allocated to various intangible assets, primarily goodwill. The acquisition agreement also provides that Ablest may be required to pay additional consideration if certain performance criteria are met in 1998. Total additional payments of $786,000 have been accrued in 1998. On November 17, 1998, Ablest purchased certain assets from SoftWorks International Consulting, Inc., an information technology staffing services provider in the Denver, Colorado metropolitan area, and its shareholders. The aggregate purchase price, including acquisition costs, was approximately $1,009,000, paid in cash, of which approximately $984,000 has been allocated to various intangible assets, primarily goodwill. The acquisition agreement also provides that Ablest may be required to pay up to an additional $800,000 over the next two years if certain performance criteria are met in 1998 and 1999. Total additional payments of $300,000 have been accrued in 1998. All acquisitions were accounted for by the purchase method of accounting and accordingly, the results of operations since the respective dates of acquisition are included in the consolidated statements of earnings. The purchase prices have been allocated to assets acquired and liabilities assumed based on their fair values. The following unaudited, pro forma, condensed, combined financial information assumes the acquisitions occurred at the beginning of each fiscal year presented. The results do not purport to be indicative of what would F-30 67 C.H. HEIST CORP. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED have occurred had the acquisitions been made at the beginning of each fiscal year presented, or of the results that may occur in the future.
YEAR ENDED -------------------------------------------------- DEC. 27, 1998 DEC. 28, 1997 DEC. 29, 1996 -------------- -------------- -------------- (In thousands, except per share data, unaudited) Net service revenues.......................... $140,185 131,805 120,460 Net earnings.................................. 1,454 1,051 725 Basic and diluted net earnings per share...... $ 0.51 0.37 0.25
(13) LEASE COMMITMENTS The Company and its subsidiaries occupy certain facilities under noncancelable operating lease arrangements. Expenses under such arrangements amounted to $970,000, $941,000, and $786,000 in 1998, 1997 and 1996 respectively. Of these amounts $94,000, $93,000 and $92,000 applied to leases with related persons in 1998, 1997, and 1996, respectively. In addition, the Company leases certain automotive and office equipment under noncancelable operating lease arrangements, which provide for minimum monthly rentals. Expenses under such arrangements amounted to $924,000, $806,000 and $813,000 in 1998, 1997, and 1996, respectively. Management expects that in the normal course of business, new leases will replace leases that expire. Real estate taxes, insurance and maintenance expenses are obligations of the Company. A summary of future minimum rental payments at December 27, 1998 under operating leases follows:
REAL PROPERTY ------------- RELATED YEAR PERSONS OTHER EQUIPMENT ---- ------------- ----- --------- (In thousands) 1999................................ $58 843 630 2000................................ 55 567 492 2001................................ -- 294 225 2002................................ -- 108 13
(14) CONTINGENCIES The Company is exposed to a number of asserted and unasserted potential claims encountered in the normal course of business. In the opinion of management, the resolution of such matters will not have a material adverse effect on the Company's financial condition or liquidity. F-31 68 C. H. HEIST CORP. & SUBSIDIARIES INDEPENDENT AUDITORS' REPORT The Board of Directors C. H. Heist Corp.: We have audited the accompanying consolidated balance sheets of C. H. Heist Corp. and subsidiaries as of December 27, 1998 and December 28, 1997, and the related consolidated statements of earnings and comprehensive income, stockholders' equity and cash flows for the years ended December 27, 1998, December 28, 1997 and December 29, 1996. 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 audits. 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 provide 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 C. H. Heist Corp. and subsidiaries as of December 27, 1998 and December 28, 1997, and the results of their operations and their cash flows for the years ended December 27, 1998, December 28, 1997 and December 29, 1996, in conformity with generally accepted accounting principles. KPMG LLP Buffalo, New York February 12, 1999 F-32 69 C. H. HEIST CORP. & SUBSIDIARIES QUARTERLY FINANCIAL DATA
(in thousands, except per share data and percentages) QUARTER ENDED MARCH JUNE SEPT. DEC. - ------------------------------------------------------------------------------------------------------------------------------ Fiscal 1998: Net revenues................................. $ 28,168 $ 34,136 $ 35,881 $ 37,462 Earnings (loss) before income taxes.......... (890) (3.2)% 1,273 3.7% 1,402 3.9% 352 0.9% Income taxes (benefit)....................... (397) (44.6)% 570 44.8% 644 45.9% 26 7.4% Net earnings (loss).......................... (493) (1.8)% 703 2.1% 758 2.1% 326 0.9% Earnings (loss) per share.................... $ (.17) $ .24 $ .26 $ .11 EPS -- last 12 months........................ $ .43 $ .51 $ .55 $ .45 Stock price range............................ $8 5/8-6 1/2 $8 1/2-6 7/8 $7 5/8-6 3/4 $6 15/16-6 1/4 - ------------------------------------------------------------------------------------------------------------------------------ Fiscal 1997: Net revenues................................. $ 24,961 $ 31,123 $ 31,258 $ 32,174 Earnings (loss) before income taxes.......... (1,212) (4.9)% 661 2.1% 1,181 3.8% 1,374 4.3% Income taxes (benefit)....................... (369) (30.4)% 204 30.9% 551 46.7% 720 52.4% Net earnings (loss).......................... (843) (3.4)% 457 1.5% 630 2.0% 654 2.0% Earnings (loss) per share.................... $ (.29) $ .16 $ .22 $ 22 EPS -- last 12 months........................ $ (.03) $ .29 $ .31 $ .31 Stock price range............................ $7 3/4-6 3/4 $7 3/8-6 3/8 $7 7/8-6 1/2 $8 -6 15/16 - ------------------------------------------------------------------------------------------------------------------------------ Fiscal 1996: Net revenues................................. $ 25,769 $ 25,781 $ 28,219 $ 26,746 Earnings (loss) before income taxes.......... (101) (.4)% (500) (1.9)% 878 3.1% 1,232 4.6% Income taxes (benefit)....................... (39) (38.6)% (49) (9.8)% 305 34.7% 602 48.9% Net earnings (loss).......................... (62) (.2)% (451) (1.8)% 573 2.0% 630 2.4% Earnings (loss) per share.................... $ (.02) $ (.16) $ .20 $ .22 EPS -- last 12 months........................ $ .66 $ .35 $ .34 $ .24 Stock price range............................ $7 5/8-6 1/4 $7 7/8-6 1/2 $8 7/8-5 1/2 $8 5/8-7 3/4 - ------------------------------------------------------------------------------------------------------------------------------ (in thousands, except per share data and percentages) QUARTER ENDED FULL YR. - ----------------------------------------------------- Fiscal 1998: Net revenues................................. $ 135,647 Earnings (loss) before income taxes.......... 2,137 1.6% Income taxes (benefit)....................... 843 39.4% Net earnings (loss).......................... 1,294 1.0% Earnings (loss) per share.................... $ .45 EPS -- last 12 months........................ $ .45 Stock price range............................ $8 5/8-5 1/2 - ----------------------------------------------------- Fiscal 1997: Net revenues................................. $ 119,516 Earnings (loss) before income taxes.......... 2,004 1.7% Income taxes (benefit)....................... 1,106 55.2% Net earnings (loss).......................... 898 .8% Earnings (loss) per share.................... $ .31 EPS -- last 12 months........................ $ .31 Stock price range............................ $8 -6 3/8 - ----------------------------------------------------- Fiscal 1996: Net revenues................................. $ 106,515 Earnings (loss) before income taxes.......... 1,509 1.4% Income taxes (benefit)....................... 819 54.3% Net earnings (loss).......................... 690 .6% Earnings (loss) per share.................... $ .24 EPS -- last 12 months........................ $ .24 Stock price range............................ $8 7/8-5 1/2 - -----------------------------------------------------
The percentages indicate the pre-tax margin (earnings before income taxes /net revenues), the effective tax rate (provision for income taxes /earnings before taxes) and after tax margin (net earnings /net revenues). F-33 70 Appendix 1 January 24, 2000 PERSONAL AND CONFIDENTIAL Board of Directors C.H. Heist Corp. 810 North Belcher Road Clearwater, FL 33765 Ladies and Gentlemen: You have requested our opinion as to the fairness, from a financial point of view, to the shareholders of C.H. Heist Corp. (the "Company") of the Consideration (as defined below) to be received by the Company pursuant to the Purchase Agreement dated as of January 21, 2000 (the "Agreement") by and between the Company and Onyx Industrial Services, Inc. ("Onyx"). Pursuant to the Agreement, and subject to the terms and conditions set forth therein, Onyx will acquire (i) all of the assets of and assume certain current liabilities associated with the Company's U.S. Industrial Maintenance Segment and (ii) the issued and outstanding shares of common stock of C.H. Heist Ltd. (together, the "Industrial Maintenance Segment") for an aggregate purchase price of $20 million, payable in cash (the "Consideration"). McDonald Investments Inc., as part of its investment banking business, is customarily engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. In connection with rendering this opinion, we have reviewed and analyzed, among other things, the following: (i) the Agreement, including the exhibits and schedules thereto; (ii) certain publicly available information concerning the Company, including Annual Reports on Form 10-K of the Company for the years ended December 31, 1995, December 29, 1996, December 28, 1997 and December 27, 1998 and the Quarterly Reports on Form 10-Q of the Company for the quarters ended September 27, 1998, March 28, 1999, June 27, 1999 and September 26, 1999; (iii) certain other internal information, primarily financial in nature, including projections, concerning the business and operations of the Industrial Maintenance Segment furnished to us by management for the purposes of our analysis; (iv) certain publicly available information with respect to certain other companies that we believe to be comparable to the Industrial Maintenance Segment and the trading markets for certain of such other companies' securities; and (v) certain publicly available information concerning the nature and terms of certain other transactions that we consider relevant to our inquiry. We have also met with certain officers and employees of the Company and the Industrial Maintenance Segment to discuss the business and prospects of the Industrial Maintenance Segment, as well as other matters we believe relevant to our inquiry. In our review and analysis and in arriving at our opinion, we have assumed and relied upon the accuracy and completeness of all of the financial and other information provided us or publicly available and have assumed and relied upon the representations and warranties of the Company and Onyx contained in the Agreement. We have not been engaged to, and have not independently attempted to, verify any of such information. We have also relied upon the management of the Company as to the reasonableness and achievability of the financial and operating projections (and the assumptions and bases thereof) provided to us and, with your consent, we have assumed that such projections reflect the best currently available estimates and judgments of the Company's management. We have not been engaged to assess the reasonableness or achievability of such projections or the assumptions on which they were based and express no view as to such projections or assumptions. In addition, we have not conducted a physical inspection or appraisal of any of the assets, properties or facilities of the Industrial Maintenance Segment nor have we been furnished with any such evaluation or appraisal. We have also assumed that the conditions to the transaction as set forth in the Agreement would be satisfied and that the transaction would be consummated on a timely basis in the manner contemplated by the Agreement. 71 C.H. Heist Board of Directors January 24, 2000 Page 2 of 2 It should be noted that this opinion is based on economic and market conditions and other circumstances existing on, and information made available as of, the date hereof and does not address any matters subsequent to such date. In addition, our opinion is, in any event, limited to the fairness, as of the date hereof, from a financial point of view, of the Consideration and does not address the Company's underlying business decision to effect the transactions contemplated by the Agreement or any other terms thereof. We have acted as financial advisor to the Company in connection with the transactions contemplated by the Agreement and will receive from the Company a fee for our services, a significant portion of which is contingent upon the consummation of the transactions contemplated thereby, as well as the Company's agreement to indemnify us under certain circumstances. We will also receive a fee for rendering this opinion. In the ordinary course of our business, we may actively trade securities of the Company and Vivendi, Onyx's ultimate owner, for our own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. It is understood that this opinion is directed to the Board of Directors of the Company and may not be disclosed, summarized, excerpted from or otherwise publicly referred to without our prior written consent. Our opinion does not constitute a recommendation to any stockholder of the Company as to how such shareholder should vote at the stockholders' meeting held in connection with this Agreement. Based upon and subject to the foregoing and such other matters as we consider relevant, it is our opinion that as of the date hereof, the Consideration is fair, from a financial point of view, to the shareholders of the Company. Very truly yours, McDONALD INVESTMENTS INC. 72 Appendix 2 PROCEDURE FOR DISSENTERS' RIGHTS SECTION 623 OF THE NEW YORK BUSINESS CORPORATION LAW SECTION 623 PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR SHARES. (a) A shareholder intending to enforce his right under a section of this chapter to receive payment for his shares if the proposed corporate action referred to therein is taken shall file with the corporation, before the meeting of shareholders at which the action is submitted to a vote, or at such meeting but before the vote, written objection to the action. The objection shall include a notice of his election to dissent, his name and residence address, the number and classes of shares as to which he dissents and a demand for payment of the fair value of his shares if the action is taken. Such objection is not required from any shareholder to whom the corporation did not give notice of such meeting in accordance with this chapter or where the proposed action is authorized by written consent of shareholders without a meeting. (b) Within ten days after the shareholders' authorization date, which term as used in this section means the date on which the shareholders' vote authorizing such action was taken, or the date on which such consent without a meeting was obtained from the requisite shareholders, the corporation shall give written notice of such authorization or consent by registered mail to each shareholder who filed written objection or from whom written objection was not required, excepting any shareholder who voted for or consented in writing to the proposed action and who thereby is deemed to have elected not to enforce his right to receive payment for his shares. (c) Within twenty days after the giving of notice to him, any shareholder from whom written objection was not required and who elects to dissent shall file with the corporation a written notice of such election, stating his name and residence address, the number and classes of shares as to which he dissents and a demand for payment of the fair value of his shares. Any shareholder who elects to dissent from a merger under section 905 (Merger of subsidiary corporation) or paragraph (c) of section 907 (Merger or consolidation of domestic and foreign corporations) or from a share exchange under paragraph (g) of section 913 (Share exchanges) shall file a written notice of such election to dissent within twenty days after the giving to him of a copy of the plan of merger or exchange or an outline of the material features thereof under section 905 or 913. (d) A shareholder may not dissent as to less than all of the shares, as to which he has a right to dissent, held by him of record, that he owns beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial owner as to less than all of the shares of such owner, as to which such nominee or fiduciary has a right to dissent, held of record by such nominee or fiduciary. (e) Upon consummation of the corporate action, the shareholder shall cease to have any of the rights of a shareholder except the right to be paid the fair value of his shares and any other rights under this section. A notice of election may be withdrawn by the shareholder at any time prior to his acceptance in writing of an offer made by the corporation, as provided in paragraph (g), but in no case later than sixty days from the date of consummation of the corporate action except that if the corporation fails to make a timely offer, as provided in paragraph (g), the time for withdrawing a notice of election shall be extended until sixty days from the date an offer is made. Upon expiration of such time, withdrawal of a notice of election shall require the written consent of the corporation. In order to be effective, withdrawal of a notice of election must be accompanied by the return to the corporation of any advance payment made to the shareholder as provided in paragraph (g). If a notice of election is withdrawn, or the corporate action is rescinded, or a court shall determine that the shareholder is not entitled to receive payment for his shares, or the shareholder shall otherwise lose his dissenters' rights, he shall not have the right to receive payment for his shares and he shall be reinstated to all his rights as a shareholder as of the consummation of the corporate action, including any intervening preemptive rights and the right to 73 payment of any intervening dividend or other distribution or, if any such rights have expired or any such dividend or distribution other than in cash has been completed, in lieu thereof, at the election of the corporation, the fair value thereof in cash as determined by the board as of the time of such expiration or completion, but without prejudice otherwise to any corporate proceedings that may have been taken in the interim. (f) At the time of filing the notice of election to dissent or within one month thereafter the shareholder of shares represented by certificates shall submit the certificates representing his shares to the corporation, or to its transfer agent, which shall forthwith note conspicuously thereon that a notice of election has been filed and shall return the certificates to the shareholder or other person who submitted them on his behalf. Any shareholder of shares represented by certificates who fails to submit his certificates for such notation as herein specified shall, at the option of the corporation exercised by written notice to him within forty-five days from the date of filing of such notice of election to dissent, lose his dissenter's rights unless a court, for good cause shown, shall otherwise direct. Upon transfer of a certificate bearing such notation, each new certificate issued therefor shall bear a similar notation together with the name of the original dissenting holder of the shares and a transferee shall acquire no rights in the corporation except those which the original dissenting shareholder had at the time of transfer. (g) Within fifteen days after the expiration of the period within which shareholders may file their notices of election to dissent, or within fifteen days after the proposed corporate action is consummated, whichever is later (but in no case later than ninety days from the shareholders' authorization date), the corporation or, in the case of a merger or consolidation, the surviving or new corporation, shall make a written offer by registered mail to each shareholder who has filed such notice of election to pay for his shares at a specified price which the corporation considers to be their fair value. Such offer shall be accompanied by a statement setting forth the aggregate number of shares with respect to which notices of election to dissent have been received and the aggregate number of holders of such shares. If the corporate action has been consummated, such offer shall also be accompanied by (1) advance payment to each such shareholder who has submitted the certificates representing his shares to the corporation, as provided in paragraph (f), of an amount equal to eighty percent of the amount of such offer, or (2) as to each shareholder who has not yet submitted his certificates a statement that advance payment to him of an amount equal to eighty percent of the amount of such offer will be made by the corporation promptly upon submission of his certificates. If the corporate action has not been consummated at the time of the making of the offer, such advance payment or statement as to advance payment shall be sent to each shareholder entitled thereto forthwith upon consummation of the corporate action. Every advance payment or statement as to advance payment shall include advice to the shareholder to the effect that acceptance of such payment does-not constitute a waiver of any dissenters' rights. If the corporate action has not been consummated upon the expiration of the ninety day period after the shareholders' authorization date, the offer may be conditioned upon the consummation of such action. Such offer shall be made at the same price per share to all dissenting shareholders of the same class, or if divided into series, of the same series and shall be accompanied by a balance sheet of the corporation whose shares the dissenting shareholder holds as of the latest available date, which shall not be earlier than twelve months before the making of such offer, and a profit and loss statement or statements for not less than a twelve month period ended on the date of such balance sheet or, if the corporation was not in existence throughout such twelve month period, for the portion thereof during which it was in existence. Notwithstanding the foregoing, the corporation shall not be required to furnish a balance sheet or profit and loss statement or statements to any shareholder to whom such balance sheet or profit and loss statement or statements were previously furnished, nor if in connection with obtaining the shareholders' authorization for or consent to the proposed corporate action the shareholders were furnished with a proxy or information statement, which included financial statements, pursuant to Regulation 14A or Regulation 14C of the United States Securities and Exchange Commission. If within thirty days after the making of such offer, the corporation making the offer and any shareholder agree upon the price to be paid for his shares, payment therefor shall be made within sixty days after the making of such offer or the consummation of the proposed corporate action, whichever is later, upon the surrender of the certificates for any such shares represented by certificates. 2 74 (h) The following procedure shall apply if the corporation fails to make such offer within such period of fifteen days, or if it makes the offer and any dissenting shareholder or shareholders fail to agree with it within the period of thirty days thereafter upon the price to be paid for their shares: (1) The corporation shall, within twenty days after the expiration of whichever is applicable of the two periods last mentioned, institute a special proceeding in the supreme court in the judicial district in which the office of the corporation is located to determine the rights of dissenting shareholders and to fix the fair value of their shares. If, in the case of merger or consolidation, the surviving or new corporation is a foreign corporation without an office in this state, such proceeding shall be brought in the county where the office of the domestic corporation, whose shares are to be valued, was located. (2) If the corporation fails to institute such proceeding within such period of twenty days, any dissenting shareholder may institute such proceeding for the same purpose not later than thirty days after the expiration of such twenty day period. If such proceeding is not instituted within such thirty day period, all dissenter's rights shall be lost unless the supreme court, for good cause shown, shall otherwise direct. (3) All dissenting shareholders, excepting those who, as provided in paragraph (g), have agreed with the corporation upon the price to be paid for their shares, shall be made parties to such proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in such proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons, and upon each nonresident dissenting shareholder either by registered mail and publication, or in such other manner as is permitted by law. The jurisdiction of the court shall be plenary and exclusive. (4) The court shall determine whether each dissenting shareholder, as to whom the corporation requests the court to make such determination, is entitled to receive payment for his shares. If the corporation does not request any such determination or if the court finds that any dissenting shareholder is so entitled, it shall proceed to fix the value of the shares, which, for the purposes of this section, shall be the fair value as of the close of business on the day prior to the shareholders' authorization date. In fixing the fair value of the shares, the court shall consider the nature of the transaction giving rise to the shareholder's right to receive payment for shares and its effects on the corporation and its shareholders, the concepts and methods then customary in the relevant securities and financial markets for determining fair value of shares of a corporation engaging in a similar transaction under comparable circumstances and all other relevant factors. The court shall determine the fair value of the shares without a jury and without referral to an appraiser or referee. Upon application by the corporation or by any shareholder who is a party to the proceeding, the court may, in its discretion, permit pretrial disclosure, including, but not limited to, disclosure of any expert's reports relating to the fair value of the shares whether or not intended for use at the trial in the proceeding and notwithstanding subdivision (d) of section 3101 of the civil practice law and rules. (5) The final order in the proceeding shall be entered against the corporation in favor of each dissenting shareholder who is a party to the proceeding and is entitled thereto for the value of his shares so determined. (6) The final order shall include an allowance for interest at such rate as the court finds to be equitable, from the date the corporate action was consummated to the date of payment. In determining the rate of interest, the court shall consider all relevant factors, including the rate of interest which the corporation would have had to pay to borrow money during the pendency of the proceeding. If the court finds that the refusal of any shareholder to accept the corporate offer of payment for his shares was arbitrary, vexatious or otherwise not in good faith, no interest shall be allowed to him. (7) Each party to such proceeding shall bear its own costs and expenses, including the fees and expenses of its counsel and of any experts employed by it. Notwithstanding the foregoing, the court may, in its discretion, apportion and assess all or any part of the costs, expenses and fees incurred by the corporation against any or all of the dissenting shareholders who are parties to the proceeding, including any who have withdrawn their notices of election as provided in paragraph (e), if the court finds that their refusal to accept the corporate offer was arbitrary, vexatious or otherwise not in good faith. The court may, in its discretion, 3 75 apportion and assess all or any part of the costs, expenses and fees incurred by any or all of the dissenting shareholders who are parties to the proceeding against the corporation if the court finds any of the following: (A) that the fair value of the shares as determined materially exceeds the amount which the corporation offered to pay; (B) that no offer or required advance payment was made by the corporation; (C) that the corporation failed to institute the special proceeding within the period specified therefor; or (D) that the action of the corporation in complying with its obligations as provided in this section was arbitrary, vexatious or otherwise not in good faith. In making any determination as provided in clause (A), the court may consider the dollar amount or the percentage, or both, by which the fair value of the shares as determined exceeds the corporate offer. (8) Within sixty days after final determination of the proceeding, the corporation shall pay to each dissenting shareholder the amount found to be due him, upon surrender of the certificates for any such shares represented by certificates. (i) Shares acquired by the corporation upon the payment of the agreed value therefor or of the amount due under the final order, as provided in this section, shall become treasury shares or be canceled as provided in section 515 (Reacquired shares), except that, in the case of a merger or consolidation, they may be held and disposed of as the plan of merger or consolidation may otherwise provide. (j) No payment shall be made to a dissenting shareholder under this section at a time when the corporation is insolvent or when such payment would make it insolvent. In such event, the dissenting shareholder shall, at his option: (1) Withdraw his notice of election, which shall in such event be deemed withdrawn with the written consent of the corporation; or (2) Retain his status as a claimant against the corporation and, if it is liquidated, be subordinated to the rights of creditors of the corporation, but have rights superior to the non-dissenting shareholders, and if it is not liquidated, retain his right to be paid for his shares, which right the corporation shall be obliged to satisfy when the restrictions of this paragraph do not apply. (3) The dissenting shareholder shall exercise such option under subparagraph (1) or (2) by written notice filed with the corporation within thirty days after the corporation has given him written notice that payment for his shares cannot be made because of the restrictions of this paragraph. If the dissenting shareholder fails to exercise such option as provided, the corporation shall exercise the option by written notice given to him within twenty days after the expiration of such period of thirty days. (k) The enforcement by a shareholder of his right to receive payment for his shares in the manner provided herein shall exclude the enforcement by such shareholder of any other right to which he might otherwise be entitled by virtue of share ownership, except as provided in paragraph (e), and except that this section shall not exclude the right of such shareholder to bring or maintain an appropriate action to obtain relief on the ground that such corporate action will be or is unlawful or fraudulent as to him. (l) Except as otherwise expressly provided in this section, any notice to be given by a corporation to a shareholder under this section shall be given in the manner provided in section 605 (Notice of meetings of shareholders). (m) This section shall not apply to foreign corporations except as provided in subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and foreign corporations). 4 76 SECTION 910 OF THE NEW YORK BUSINESS CORPORATION LAW SECTION 910 RIGHT OF SHAREHOLDER TO RECEIVE PAYMENT FOR SHARES UPON MERGER OR CONSOLIDATION, OR SALE, LEASE, EXCHANGE OR OTHER DISPOSITION OF ASSETS, OR SHARE EXCHANGE (a) A shareholder of a domestic corporation shall, subject to and by complying with section 623 (Procedure to enforce shareholder's right to receive payment for shares), have the right to receive payment of the fair value of his shares and the other rights and benefits provided by such section, in the following cases: (1) Any shareholder entitled to vote who does not assent to the taking of an action specified in clauses (A), (B) and (C). (A) Any plan of merger or consolidation to which the corporation is a party; except that the right to receive payment of the fair value of his shares shall not be available: (i) To a shareholder of the parent corporation in a merger authorized by section 905 (Merger of parent and subsidiary corporations), or paragraph (c) of section 907 (Merger or consolidation of domestic and foreign corporations); or (ii) To a shareholder of the surviving corporation in a merger authorized by this article, other than a merger specified in subclause (i), unless such merger effects one or more of the changes specified in subparagraph (b) (6) of section 806 (Provisions as to certain proceedings) in the rights of the shares held by such shareholder; or (iii) Notwithstanding subclause (ii) of this clause, to a shareholder for the shares of any class or series of stock, which shares or depository receipts in respect thereof, at the record date fixed to determine the shareholders entitled to receive notice of the meeting of shareholders to vote upon the plan of merger or consolidation, were listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. (B) Any sale, lease, exchange or other disposition of all or substantially all of the assets of a corporation which requires shareholder approval under section 909 (Sale, lease, exchange or other disposition of assets) other than a transaction wholly for cash where the shareholders' approval thereof is conditioned upon the dissolution of the corporation and the distribution of substantially all of its net assets to the shareholders in accordance with their respective interests within one year after the date of such transaction. (C) Any share exchange authorized by section 913 in which the corporation is participating as a subject corporation; except that the right to receive payment of the fair value of his shares shall not be available to a shareholder whose shares have not been acquired in the exchange or to a shareholder for the shares of any class or series of stock, which shares or depository receipt in respect thereof, at the record date fixed to determine the shareholders entitled to receive notice of the meeting of shareholders to vote upon the plan of exchange, were listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. (2) Any shareholder of the subsidiary corporation in a merger authorized by section 905 or paragraph (c) of section 907, or in a share exchange authorized by paragraph (g) of section 913, who files with the corporation a written notice of election to dissent as provided in paragraph (c) of section 623. Any shareholder, not entitled to vote with respect to a plan of merger or consolidation to which the corporation is a party, whose shares will be cancelled or exchanged in the merger or consolidation for cash or other consideration other than shares of the surviving or consolidated corporation or another corporation. 5 77 Appendix 3 CERTIFICATE OF INCORPORATION OF ABLEST INC. ARTICLE FIRST The name of the corporation is Ablest Inc. ARTICLE SECOND The name and address of the corporation's registered office in the State of Delaware is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, New Castle County, Wilmington, Delaware. ARTICLE THIRD The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE FOURTH The total number of shares which the corporation shall have authority to issue shall be 8,000,000, divided into two classes, namely: 500,000 shares of Preferred Stock, par value $.05 per share ("Preferred Stock"), and 7,500,000 shares of Common Stock, par value $.05 per share ("Common Stock"). The designation, relative rights, preferences and limitations of the shares of each class and the authority of the Board of Directors of the corporation to establish and to designate series of the Preferred Stock and to fix the variations in the relative rights, preferences and limitations as between such series, and the relative rights, preferences and limitations of each such series, shall be as follows: 1. PREFERRED STOCK. (a) The Board of Directors of the corporation is authorized, subject to the limitations prescribed by law and the provisions of this Section 1 of this Article FOURTH, to provide for the issuance of the Preferred Stock in series, to establish or change the number of shares to be included in each such series and to fix the designation, powers, rights, and preferences, and the qualifications, restrictions or limitations, of the shares of each such series. The authority of the Board of Directors of the corporation with respect to each series shall include, but not be limited to, determination of the following: (i) the number of shares constituting that series and the distinctive designation of that series; (ii) the dividend rate or rates on the shares of that series and/or the method of determining such rate or rates, and whether dividends shall be cumulative and, if so, from which date or dates; (iii) whether and to what extent the shares of that series shall have voting rights in addition to the voting rights provided by law, which might include the right to elect a specified number of directors in any case or if dividends on such series are not paid for a specified period of time; (iv) whether the shares of that series shall be convertible into shares of stock of any other series or class, and, if so, the terms and conditions of such conversion, including the price or prices or the rate or rates of conversion and the terms of adjustment thereof; (v) whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable and the amount 78 per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (vi) the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation; (vii) the obligation, if any, of the corporation to retire shares of that series pursuant to a sinking fund; and (viii) any other relative rights, preferences and limitations of the Series. (b) Subject to the designations, powers, rights, and preferences and the limitations, qualifications and restrictions provided pursuant to Subsection 1(a) of this Article FOURTH, each share of Preferred Stock of a series shall be of equal rank with each other share of Preferred Stock of such series. (c) The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of the Preferred Stock or any series thereof. 2. COMMON STOCK. (a) DIVIDENDS. Subject to the express terms of the Preferred Stock outstanding from time to time, such dividend or distribution as may be determined by the Board of Directors of the corporation may from time to time be declared and paid or made upon the Common Stock out of any source at the time lawfully available for the payment of dividends. (b) VOTING. Except as otherwise provided by law, each share of Common Stock shall entitle the holder thereof to one vote in any matter which is submitted to a vote of the holders of shares of Common Stock of the corporation. (c) LIQUIDATION. The holders of Common Stock shall be entitled to share ratably upon any liquidation, dissolution or winding up of the affairs of the corporation (voluntary or involuntary) in all assets of the corporation, if any, remaining after payment in full to the holders of Preferred Stock of the preferential amounts, if any, to which they are entitled. Neither the consolidation nor the merger of the corporation with or into any other corporation or corporations, nor a reorganization of the corporation alone, nor the sale or transfer by the corporation of all or any part of its assets, shall be deemed to be a liquidation, dissolution or winding up of the corporation for the purposes of this subparagraph (2)(c). 3. ISSUANCE OF CAPITAL STOCK. Shares of capital stock of the corporation may be issued by the corporation from time to time in such amounts and proportions and for such consideration (not less than the par value thereof in the case of capital stock having par value) as may be fixed and determined from time to time by the Board of Directors and as shall be permitted by law. ARTICLE FIFTH The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by the certificate of incorporation or the by-laws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the corporation. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the number of directors shall be fixed from time to time exclusively by the board of directors pursuant to a resolution adopted by a majority of the Whole Board. For purposes of the certificate of incorporation of the corporation, the term "Whole Board" shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships. The directors, other than those who may be elected by the holders of any series of Preferred Stock, or any other series or class of stock as set forth in the certificate of incorporation of the corporation, shall be elected 2 79 annually by the holders of common stock, and each director shall hold office until his or her successor shall have been duly elected and qualified. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the corporation shall be given in the manner provided in the by-laws of the corporation. The name and mailing address of the incorporator is as follows:
NAME MAILING ADDRESS - ---- --------------- William Appleton, Esq. Baker & Hastetler LLP 312 Walnut Street, Suite 2650 Cincinnati, Ohio 45202
ARTICLE SIXTH The corporation is to have perpetual existence. ARTICLE SEVENTH In furtherance and not in limitation of the power conferred by statute, the Board of Directors of the corporation is expressly authorized to adopt, amend or repeal the by-laws of the corporation. Any adoption, amendment or repeal of the by-laws of the corporation by the board of directors shall require the approval of a majority of the directors. The stockholders may adopt, amend or repeal by-laws of the corporation only upon the affirmative vote of the holders of not less than 66 2/3% of the total number of votes entitled to be cast generally in the election of directors. ARTICLE EIGHTH Any action required or permitted to be taken by the holders of any class or series of stock of the corporation entitled to vote generally in the election of directors may be taken only by vote at an annual or special meeting at which such action may be taken and may not be taken by written consent. ARTICLE NINTH 1. Directors' Liability. To the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended, a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this Article NINTH by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. 2. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee, member or agent of another corporation (including a subsidiary of the corporation) or of a partnership, limited liability company, joint venture, trust or other enterprise, including service with respect to employee benefit plans (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as such a director, officer, employee, trustee, member or agent or in any other capacity while serving as such, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the General Corporation of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than such law permitted the corporation to provide prior to such amendment), against all expense, liability and loss (including, without limitation, attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid in 3 80 settlement) reasonably incurred or suffered by such indemnitee in connection therewith, and such indemnification shall continue as to an indemnitee who has ceased to be such a director, officer, employee, trustee, member or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators; provided, however, that, except as provided in section 3 of this Article NINTH with respect to proceedings to enforce rights to indemnification, the corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this section 2 shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses'); provided, however, that if the General Corporation Law of the State of Delaware requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under this section or otherwise (hereinafter an "undertaking"). 3. Right of Indemnitee to Bring Suit. If a claim for indemnification pursuant to this Article NINTH is not paid in full by the corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses), it shall be a defense that the indemnitee has not met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware. Similarly, in any suit by the corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the corporation shall be entitled to recover such expenses upon a final adjudication that the indemnitee has not met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right hereunder, or by the corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified or entitled to such advancement of expenses under this Article NINTH or otherwise shall be on the corporation. 4. Non-Exclusivity of Rights. The rights to indemnification and advancement of expenses conferred in this Article NINTH shall not be exclusive of any other right that any person may have or hereafter acquire under any statute, certificate of incorporation, by-law, agreement, vote of stockholders or disinterested directors, or otherwise. 5. Insurance. The corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee, trustee, member or agent of the corporation or another corporation, partnership, limited liability company, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. 6. Indemnity Contracts. The corporation may enter into contracts from time to time with such of its directors, officers, agents or employees and providing for such indemnification, insurance, and advancement of expenses as the Board of Directors determines to be appropriate. 4 81 ARTICLE TENTH The Board of Directors of the corporation, when evaluating any offer of another party to make a tender or exchange offer for any equity security of the corporation, to merge or consolidate the corporation with another corporation or to purchase or otherwise acquire all or substantially all of the assets of the corporation, shall, in connection with the exercise of its judgment in determining what is in the best interests of the corporation and its stockholders, give due consideration to the effect that such a transaction would have on the integrity, character and quality of the corporation's operations, all other relevant factors, including, without limitation, long-term as well as short-term interests of the corporation and stockholders (including the possibility that these interests may be best served by the continued independence of the corporation), and the social, legal, and economic effects on the employees, customers, suppliers, and creditors of the corporation and its subsidiaries, on the communities and geographical areas in which the corporation and its subsidiaries operate or are located, and on any of the businesses and properties of the corporation or any of its subsidiaries, as well as such other factors as the directors deem relevant. ARTICLE ELEVENTH Subject to the rights of the holders of any series of Preferred Stock then outstanding, any directors, or the entire board of directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least two-thirds of the voting power of all of the then-outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class. ARTICLE TWELFTH The corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation in the manner now or hereafter prescribed herein and by the laws of the State of Delaware, and all rights conferred upon stockholders herein are granted subject to this reservation. Notwithstanding any other provision herein or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of the Corporation required by law or by the Certificate of Incorporation, the affirmative vote of the holders of at least two-thirds of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal Articles FIFTH, SEVENTH, EIGHTH, NINTH, TENTH, ELEVENTH AND TWELFTH. 5 82 Appendix 4 BYLAWS OF ABLEST INC. A DELAWARE CORPORATION ARTICLE I OFFICES Section 1. Registered Office; Registered Agent. The registered office in the State of Delaware shall be located at Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801. The name of the corporation's registered agent at such address shall be The Corporation Trust Company. Section 2. Other Offices. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors of the corporation (the "Board of Directors") may from time to time determine or the business of the corporation may require. ARTICLE II STOCKHOLDERS Section 1. Meetings of Stockholders. All meetings of the stockholders for the election of directors shall be held at the registered office of the corporation in Delaware, or at such other location within or without the State of Delaware as may be set forth in the notice of call. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of call. Section 2. Annual Meeting. The annual meeting of stockholders shall be held each year at a time and place determined by the Board of Directors. At the annual meeting, the stockholders shall elect directors by a plurality vote in accordance with the corporation's Certificate of Incorporation and transact such other business as may properly be brought before the meeting. Section 3. Notice of Annual Meetings. Written notice of the annual meeting shall be given to each stockholder entitled to vote thereat at least ten and not more than sixty days before the date of the meeting. Section 4. Stockholder List. The officer who has charge of the stock ledger of the corporation shall make, at least ten days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held and which place shall be specified in the notice of the meeting, or, if not specified, at the place where said meeting is to be held. The list shall be produced subject to the inspection of any stockholder who may be present. Section 5. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by the certificate of incorporation, may only be called by the Chairman of the Board or the President or by the Board of Directors acting pursuant to a resolution adopted by a majority of the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Notice of Special Meetings. Written notice of a special meeting of stockholders, stating the date, time, place and purpose or purposes thereof, shall be given to each stockholder entitled to vote thereat, at least ten and not more than sixty days before the date fixed for the meeting. Section 7. Business Transacted At Special Meetings. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. 83 Section 8. Appointment of Inspectors of Election. The Board of Directors shall, in advance of sending to the stockholders any notice of a meeting of the holders of any class of shares, appoint one or more inspectors of election ("inspectors") to act at such meeting or any adjournment or postponement thereof and make a written report thereof. The Board of Directors may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is so appointed or if no inspector or alternate is able to act, the Chairman of the Board shall appoint one or more inspectors to act at such meeting. The inspectors may be directors, officers or employees of the corporation. Section 9. Quorum; Adjournment. Except as otherwise required by law or the certificate of incorporation, the holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If a quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting to a later date without notice other than announcement at the meeting, until a quorum shall be present or represented. If at such later date, a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 10. Voting Power. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 11. Voting; Proxies. Except as otherwise provided by law or by the certificate of incorporation and subject to these bylaws, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period and, except where the transfer books of the corporation have been closed or a date has been fixed as a record date for the determination of its stockholders entitled to vote, no share of stock shall be voted on at any election for directors which has been transferred on the books of the corporation within twenty days next preceding such election of directors. Section 12. Ballots. The vote on any matter, including the election of directors, shall be by written ballot. Each ballot shall be signed by the stockholder voting, or by such stockholder's proxy, and shall state the number of shares voted. Section 13. Stock Ledger. The stock ledger of the corporation shall be the only evidence as to who are the stockholders entitled (i) to examine the stock ledger, any stockholder list required by these bylaws or the books of the corporation, or (ii) to vote in person or by proxy at any meeting of stockholders. Section 14. Advance Notice of Stockholder-Proposed Business at Annual Meeting. To be properly brought before an annual meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than ninety (90) nor more than one hundred and twenty (120) days prior to the one year anniversary of the date of the annual meeting of the previous year. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation that are "beneficially owned" (as defined under Rule 13d-3 of the rules promulgated under the Securities Exchange Act of 1934, as amended) by the stockholder, and (iv) any 2 84 material interest of the stockholder in such business. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 14, provided, however, that nothing in this Section 14 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 14 and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 15. Nomination of Directors; Advance Notice of Stockholder Nominations. Only persons who are nominated in accordance with the procedures set forth in this Section 15 shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation at the annual meeting may be made by or at the direction of the Board of Directors, by any nominating committee or person appointed for such purpose by the Board of Directors, or by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 15. Such nominations, other than those made by, or at the direction of, or under the authority of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than ninety (90) nor more than one hundred and twenty (120) days prior to the one year anniversary of the date of the annual meeting of the previous year. Such stockholder's notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the corporation, if any, which are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Rule 14A under the Securities Exchange Act of 1934, as amended; and (b) as to the stockholder giving the notice (i) the name and record address of the stockholder and (ii) the class and number of shares of capital stock of the corporation which are beneficially owned by the stockholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the qualifications of such proposed nominee to serve as director of the corporation. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure and, if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded. ARTICLE III DIRECTORS Section 1. Powers. The business of the corporation shall be managed by or under the direction of its Board of Directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by law, by the certificate of incorporation or by these bylaws directed or required to be exercised or done by the stockholders. Section 2. Number. Subject to the rights of the holders of any series of Preferred Stock or any other series or class of stock as set forth in the certificate of incorporation of the corporation to elect directors under specified circumstances, the number of directors shall be fixed from time to time as set forth in the corporation's Certificate of Incorporation. Section 3. Filling of Vacancies. Vacancies and newly created directorships may be filled by a majority of the directors then in office, though less than a quorum, and each director so chosen shall hold office until a successor is duly elected and qualified or his or her earlier resignation or removal. If there are no directors in office, then an election of directors may be held in the manner provided by the General Corporation Law of the State of Delaware. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 4. Resignation. Any director may resign at any time upon written notice to the corporation. Such written resignation shall take effect at the time specified therein, and if no time be specified, at the time of its 3 85 receipt by the Chairman of the Board or Secretary. The acceptance of a resignation shall not be necessary to make it effective. Section 5. Meetings of the Directors. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. Section 6. Regular Meetings. Regular meetings, including the annual meeting, of the Board of Directors may be held within or without the State of Delaware at such time and at such place as shall from time to time be determined by resolution of the Board of Directors. Section 7. Special Meetings. Special meetings of the Board of Directors shall be called by the Secretary or an Assistant Secretary on the request of the Chairman of the Board, or on the request in writing of one-third of the whole Board of Directors, stating the purpose or purposes of such meeting. Section 8. Notice of Meetings. Notices of meetings shall be mailed to each director, addressed to each director at such director's residence or usual place of business, or the address where the director is known to be, not later than three days before the day on which the meeting is to be held, or shall be sent to either of such places by telegraph, by telecopy, by facsimile transmission or be communicated to each director personally or by electronic mail or telephone, not later than three hours before such meeting. Notice of any meeting of the Board of Directors need not be given to any director who shall sign a written waiver thereof either before or after the time stated therein for such meeting, or who shall be present at the meeting and participate in the business transacted thereat; and any and all business transacted at any meeting of the Board of Directors shall be fully effective without any notice thereof having been given, if all the members shall be present thereat. Unless limited by law, the certificate of incorporation, the bylaws, or by the terms of the notice thereof, any and all business may be transacted at any meeting without the notice thereof having so specially enumerated the matters to be acted upon. Section 9. Organization. The Chairman of the Board shall preside at all meetings of the Board of Directors at which the Chairman of the Board is present. If the Chairman of the Board shall be absent from any meeting of the Board of Directors, the duties otherwise provided in this Section 9 to be performed by the Chairman of the Board at such meeting shall be performed at such meeting by one of the directors chosen by the members of the Board of Directors present at such meeting. The Secretary of the corporation shall act as the secretary at all meetings of the Board of Directors and in the Secretary's absence a temporary secretary shall be appointed by the chairman of the meeting. Section 10. Quorum; Voting; Adjournment. Except as otherwise required by law or by the certificate of incorporation, at all meetings of the Board of Directors, a majority of the whole Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors who are present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 11. Action By Unanimous Written Consent. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the Board of Directors or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or such committee. Section 12. Participation in Meetings by Conference Telephone. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee thereof, through the use of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 13. Committees of Directors. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of two or more of the 4 86 directors of the corporation, which, to the extent provided in the resolution, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. The Board of Directors may discontinue any such committee at its pleasure. Section 14. Committee Members. Each member of any such committee shall hold office until such member's successor is elected and has qualified, unless such member sooner dies, resigns, or is removed. The number of directors which shall constitute any committee shall be determined by the whole Board of Directors from time to time. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Section 15. Committee Secretary. The Board of Directors may elect a secretary of any such committee. If the Board of Directors does not elect such a secretary, the committee shall do so. The secretary of each committee shall keep regular minutes of the meetings of the committee, and shall provide copies of the minutes to the Board of Directors. Section 16. Committee Meetings. Meetings of committees of the Board of Directors may be held at any place, within or without the State of Delaware, as shall from time to time be designated by the Board of Directors or the committee in question. Regular meetings of any committee shall be held at such times as may be determined by resolution of the Board of Directors or the committee in question and no notice shall be required for any regular meeting. A special meeting of any committee shall be called by resolution of the Board of Directors. Notices of special meetings shall be mailed to each member of the committee in question no later than two days before the day on which the meeting is to be held, or shall be sent by telegraph, by facsimile transmission or telecopy, or be delivered to such member personally or by electronic mail or telephone, no later than three hours before such meeting. Notices of any such meeting need not be given to any such member, however, who shall sign a written waiver thereof, whether before or after the meeting, or who shall be present at the meeting and participate in the business transacted thereat; and any and all business transacted at any meeting of any committee shall be fully effective without any notice thereof having been given, if all the members of the committee shall be present thereat. Unless limited by law, the certificate of incorporation, these bylaws, or by the terms of the notice thereof, any and all business may be transacted at any such special meeting without the notice thereof having so specifically enumerated the matters to be acted upon. Section 17. Action Without a Committee Meeting. Any action required or permitted to be taken at any meeting of a committee of the Board of Directors may be taken without a meeting, if all members of such committee consent thereto in writing and such writing or writings are filed with the minutes of proceedings of the committee. Section 18. Executive Committee. The Board of Directors may, from time to time, by resolution passed by a majority of the directors in office, create an Executive Committee of three or more directors, the members of which shall be elected by the Board of Directors to serve during the pleasure of the Board. If the Board of Directors does not designate a chairman of the Executive Committee, the Executive Committee shall elect a chairman from its own number. Except as otherwise provided herein and in the resolution creating an Executive Committee, such committee shall, during the intervals between the meetings of the Board of Directors, possess and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the corporation, other than that of filling vacancies among the directors or in any committee of the directors. The Executive Committee shall keep full records and accounts of its proceedings and transactions. All action by the Executive Committee shall be reported to the Board of Directors at its meeting next succeeding such action and shall be subject to control, revision and alteration by the Board of Directors, provided that no rights of third persons shall be prejudicially affected thereby. Vacancies in the Executive Committee shall be filled by the Board of Directors, and the Board of Directors may appoint one or more Directors as alternate members of the Executive Committee who may take the place of any absent or disqualified member or members at any meeting. Section 19. Executive Committee Meetings. Subject to the provisions of these bylaws, the Executive Committee shall fix its own rules of procedure and shall meet as provided by such rules or by resolutions of the Board of Directors, and it shall also meet at the call of the Chairman of the Board, the chairman of the Executive 5 87 Committee or any two members of the Executive Committee. A majority of the Executive Committee shall be necessary to constitute a quorum. The Executive Committee may act in a writing without a meeting, but no such action of the Executive Committee shall be effective unless concurred in by all members of the committee. Section 20. Compensation of Directors. Unless otherwise restricted by the certificate of incorporation, the Board of Directors shall have the authority to fix the compensation of directors by written resolution. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors or committee thereof. No such compensation or payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. ARTICLE IV NOTICES Section 1. Notices. Except as otherwise specifically provided for in these bylaws, notices to directors and stockholders shall be in writing and delivered personally or mailed, or given by telephone, by telecopy, by telegram, by facsimile transmission or by other similar means of communication, to the directors or stockholders at their addresses appearing on the books of the corporation. Notice by mail shall be deemed to be given at the time when the same is mailed. Section 2. Waiver. Whenever any notice is required to be given by law or by the certificate of incorporation or these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Any person who is present at a meeting shall be conclusively presumed to have waived notice of such meeting except when such person attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. In the case of directors, such member shall be conclusively presumed to have assented to any action taken unless his or her dissent shall be entered in the minutes of the meeting or unless his or her written dissent to such action shall be filed with the person acting as the Secretary of the meeting before the adjournment thereof or shall be forwarded by registered mail to the Secretary immediately after the adjournment of the meeting. Such right to dissent shall not apply to any member who voted in favor of such action. ARTICLE V OFFICERS Section 1. General. The officers of the corporation shall be elected by the Board of Directors and shall be a Chairman of the Board, a Chief Executive Officer, a President, a Chief Financial Officer, one or more Vice Presidents, a Secretary, and a Treasurer. The Board of Directors may also choose one or more Assistant Secretaries and Assistant Treasurers. Two or more offices may be held by the same person, with the exception of the offices of Chairman of the Board and Secretary. The officers of the corporation need not be stockholders or directors of the corporation. Section 2. Election. The Board of Directors at its first meeting held after each annual meeting of stockholders shall elect the officers of the corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Vacancies may be filled or new offices created and filled at any meeting of the Board of Directors. Each officer shall hold office until a successor is duly elected and qualified or until his or her earlier resignation or removal as hereinafter provided. Section 3. Other Officers and Agents. The Board of Directors may appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Section 4. Compensation. The compensation of all officers of the corporation shall be fixed by the Board of Directors, acting directly or through the Compensation Committee. 6 88 Section 5. Removal. Any officer elected or appointed by the Board of Directors may be removed at any time, with or without cause, by the affirmative vote of a majority of the members of the Board of Directors. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. Section 6. Chairman of the Board. The Chairman of the Board shall be a member of the Board of Directors and shall be an officer of the corporation. The Chairman of the Board shall direct, coordinate and control the corporation's business and activities and shall have general authority to exercise all powers necessary thereto and shall perform such other duties and have such other powers as shall be prescribed from time to time by the Board of Directors. The Chairman of the Board shall preside at all meetings of the Board of Directors, and of the stockholders, at which he or she is present. In the absence or disability of the Chairman of the Board, the duties of the Chairman of the Board shall be performed and his or her authority shall be exercised by the Chief Executive Officer or in his or her absence or inability, by the President or one of the Vice Presidents, as designated for this purpose by the Board of Directors. Section 7. Chief Executive Officer. The Chief Executive Officer shall perform such duties and have such powers as shall be prescribed from time to time by the Board of Directors. The Chairman of the Board may be the Chief Executive Officer of the Corporation. Section 8. President. The President shall perform such duties as shall be prescribed from time to time by the Chairman of the Board, the Chief Executive Officer, or by the Board of Directors. If the Board of Directors so decides, the President may also be designated as the Chief Operating Officer. Section 9. Chief Financial Officer. The Chief Financial Officer of the corporation shall be responsible for all financial and accounting matters and shall have such other powers and perform such other duties as the Board of Directors from time to time may prescribe. Section 10. Vice Presidents. Each Vice President shall have such powers and shall perform such duties as may be assigned to him or her by the President or by the Board of Directors. Section 11. Secretary. The Secretary shall maintain a record of all meetings of the corporation and of the Board of Directors and shall have such other powers and perform such other duties as the Board of Directors, the Chief Executive Officer, or these bylaws may prescribe from time to time. Under the supervision of the Chief Executive Officer, the Secretary shall give, or cause to be given, all notices required to be given by these bylaws or by law. Section 12. Assistant Secretaries. The Assistant Secretary, or if there be more than one, the Assistant Secretaries, shall in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors or the President may prescribe from time to time. Section 13. Treasurer. The Treasurer shall, under the direction of the Chief Financial Officer, have the custody of the corporate funds and securities; shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation; shall deposit all monies and other valuable effects in the name and to the credit of the corporation as may be ordered by the Board of Directors; shall cause the funds of the corporation to be disbursed when such disbursements have been duly authorized, taking proper vouchers for such disbursements; and shall render to the Chief Financial Officer and the Board of Directors, at its regular meeting or when the Board of Directors so requires, an account of the Treasurer's actions; shall have such other powers and perform such other duties as the Board of Directors, the President or these bylaws may prescribe from time to time. Section 14. Assistant Treasurers. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors or the President may prescribe from time to time. Section 15. Appointed Officers. The President may establish positions and offices identified as a function, department or other organizational component of the corporation, and may appoint individuals, who need not be employees of the corporation, to occupy those positions, subject to approval of the Executive Committee of the 7 89 corporation. The individuals so appointed shall have such duties and powers as the President may determine or as may be assigned by the President, the Board of Directors or Executive Committee of the Board of Directors. The titles of such individuals (herein referred to as "appointed officers") may be either conventional corporate officer titles or titles designating a functional activity, but in all cases shall contain, as an integral part of the title, a reference to the function, organizational component or department within which the position is established. Section 16. Appointment, Removal and Term of Appointed Officers. Appointed officers may be appointed by the Chairman of the Board. The Chairman of the Board may, at any time, remove any appointed officer, without notice, or accept such appointed officer's resignation. No term of office shall be established for any appointed officer. Section 17. Duties of Appointed Officers. An appointed officer shall perform such duties (not including duties normally performed by an officer of the corporation) as may, from time to time, be assigned to such appointed officer by the officer of the corporation having management responsibility for the organizational component or function to which such appointed officer is assigned. ARTICLE VI CERTIFICATE OF STOCK Section 1. Certificates of Stock. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the Chairman of the Board, the Chief Executive Officer, or a Vice President of the corporation and the Secretary or an Assistant Secretary of the corporation, certifying the number of shares owned by such holder in the corporation. All certificates of stock issued shall be numbered consecutively. Section 2. Countersigned Certificates; Signature of Former Officers, Transfer Agents or Registrars. Where a certificate is countersigned by (i) a transfer agent other than the corporation or its employee, or (ii) a registrar other than the corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. Section 3. Lost, Stolen or Destroyed Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his or her legal representative, to advertise the same in such manner as it shall require and/or give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 4. Transfer of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 5. Closing of Transfer Books. The Board of Directors may close the stock transfer books of the corporation for a period not exceeding sixty days preceding the date of any meeting of stockholders or the date for payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect. In lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding sixty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, and any adjournment thereof, or entitled to 8 90 receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. Section 6. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person or persons, except as otherwise provided by the General Corporation Law of the State of Delaware. Section 7. Stock Subscriptions. Unless otherwise provided for in the subscription agreement, subscriptions for shares shall be paid in full at such time, or in such installments and at such times, as shall be determined by the Board of Directors. Any call made by the Board of Directors for payment on subscriptions shall be uniform as to all shares of the same class or as to all shares of the same series. In case of default in the payment of any installment or call when such payment is due, the corporation may proceed to collect the amount due in the same manner as any debt due the corporation. ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Reserves. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it is created. Section 3. Checks. All checks or demands for money and notes of the corporation shall be signed by such person or persons as shall be designated from time to time by the Board of Directors or by such officer or officers of the corporation as shall be appointed for that purpose by the Board of Directors. Section 4. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. Section 5. Seal. The corporate seal shall have inscribed thereon the name of the corporation and shall be in such form as may be approved from time to time by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 6. Inspection of Books and Records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean any purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspect, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in the State of Delaware or at its principal place of business. 9 91 Section 7. Inconsistent Provisions; Titles. In the event that any provision of these bylaws is or becomes inconsistent with any provision of the certificate of incorporation, the General Corporation Law of the State of Delaware or any other applicable law, the provision of these bylaws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect. The section titles contained in these bylaws are for convenience only and shall be without substantive meaning or content of any kind whatsoever. ARTICLE VIII AMENDMENTS Section 1. Amendments. These bylaws may be altered or repealed, and any bylaws may be made, only (i) at any annual meeting of the stockholders, or at any special meeting thereof if notice of the proposed alteration or repeal of the bylaws to be made is contained in the notice of such meeting, by the affirmative vote of the holders of at least 66 2/3% of the total number of votes entitled to be cast generally in the election of directors, or (ii) by the affirmative vote of a majority of the directors. 10 92 SPECIAL SHAREHOLDERS MEETING OF C.H. HEIST CORP. MONDAY, MARCH 6, 2000 10:00 A.M. EASTERN STANDARD TIME HYATT REGENCY WESTSHORE 6200 COURTNEY CAMBELL CAUSEWAY TAMPA, FLORIDA 33607 -- FOLD AND DETACH HERE -- C.H. HEIST CORP. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints CHARLES H. HEIST and W. DAVID FOSTER as Proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote as designated below, all of the common shares of C.H. HEIST CORP. held of record by the undersigned on the record date of February 8, 2000. 1. Proposal to Approve the Sale of the Company's Industrial Maintenance Business [ ] FOR [ ] AGAINST [ ] ABSTAIN 2. Proposal to Approve Reincorporation of the Company in the State of Delaware [ ] FOR [ ] AGAINST [ ] ABSTAIN (continued on the reverse side) 93 -- FOLD AND DETACH HERE -- This proxy, when properly executed, will be voted in the manner directed herein by the undersigned shareholder. If no direction is made, this proxy will be voted FOR each of the Proposals. DATE , ---------------------- 2000 SIGNATURE(S) --------------------- SIGNATURE(S) --------------------- When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by an authorized officer. If a partnership, please sign in partnership name by an authorized person. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY. -----END PRIVACY-ENHANCED MESSAGE-----