PROSPECTUS
[COACH USA, INC. LOGO]
OFFER TO EXCHANGE
$1,000 PRINCIPAL AMOUNT OF 9 3/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR EACH $1,000 PRINCIPAL AMOUNT OF OUTSTANDING
9 3/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
($150,000,000 IN AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON SEPTEMBER 25, 1997, UNLESS EXTENDED
------------------------
Coach USA, Inc., a Delaware corporation (the "Company"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal, to exchange $1,000 principal amount of
its 9 3/8% Senior Subordinated Notes, Due 2007, Series B (the "Exchange
Notes"), in a transaction registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement (as
defined herein) of which this Prospectus constitutes a part, for each $1,000
principal amount of the outstanding 9 3/8% Senior Subordinated Notes due 2007,
Series A (the "Old Notes"), of which $150,000,000 aggregate principal amount
is outstanding (the "Exchange Offer"). The Exchange Notes and the Old Notes
are sometimes referred to herein collectively as the "Notes."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the date
the Exchange Offer expires, which will be September 25, 1997 unless the
Exchange Offer is extended (the "Expiration Date"). Tenders of Old Notes may
be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. However, the Exchange
Offer is subject to certain conditions that may be waived by the Company and to
the terms and provisions of the Registration Rights Agreement (as defined
herein). See "The Exchange Offer." Old Notes may be tendered only in
denominations of $1,000 and integral multiples thereof. The Company has agreed
to pay the expenses of the Exchange Offer. There will be no cash proceeds to the
Company from the Exchange Offer. See "Use of Proceeds."
The Exchange Notes will be obligations of the Company entitled to the
benefits of the indenture relating to the Notes (the "Indenture"). The Notes
will be guaranteed on a senior subordinated basis (the "Subsidiary
Guarantees") by its domestic subsidiaries (the "Guarantors"). The form and
terms of the Exchange Notes are identical in all material respects to the form
and terms of the Old Notes, except that (i) the offering of the Exchange Notes
has been registered under the Securities Act, (ii) the Exchange Notes will not
be subject to transfer restrictions and (iii) certain provisions relating to an
increase in the stated interest rate on the Old Notes provided for under certain
circumstances will be eliminated. Following the Exchange Offer, any holders of
Old Notes will continue to be subject to the existing restrictions on transfer
thereof and, as a general matter, the Company will not have any further
obligation to such holders to provide for registration under the Securities Act
of transfers of the Old Notes held by them. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered and tendered but unaccepted Old Notes could be adversely affected.
See "The Exchange Offer -- Purpose and Effect of the Exchange Offer."
(CONTINUED ON NEXT PAGE)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN
FACTORS WHICH INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER
AND AN INVESTMENT IN THE EXCHANGE NOTES OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS AUGUST 21, 1997
<PAGE>
The Old Notes were sold by the Company on June 24, 1997, to Donaldson,
Lufkin & Jenrette Securities Corporation, Merrill Lynch & Co., Inc., Alex. Brown
& Sons Incorporated and Montgomery Securities (the "Initial Purchasers") in
transactions not registered under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act (the "Offering"). The
Initial Purchasers placed the Old Notes with qualified institutional buyers (as
defined in Rule 144A under the Securities Act) ("Qualified Institutional
Buyers" or "QIBs"), each of whom agreed to comply with certain transfer
restrictions and other restrictions. Accordingly, the Old Notes may not be
reoffered, resold or otherwise transferred in the United States unless such
transaction is registered under the Securities Act or an applicable exemption
from the registration requirements of the Securities Act is available. The
Exchange Notes are being offered hereby in order to satisfy the obligations of
the Company under the Registration Rights Agreement.
The Exchange Notes will bear interest at a rate of 9 3/8% per annum,
payable semi-annually on January 1 and July 1 of each year, commencing January
1, 1998. Holders of Exchange Notes of record on December 15, 1997, will receive
on January 1, 1998, an interest payment in an amount equal to (x) the accrued
interest on such Exchange Notes from the date of issuance thereof to January 1,
1998, plus (y) the accrued interest on the previously held Old Notes from the
date of issuance of such Old Notes (June 24, 1997) to the date of exchange
thereof. Interest will not be paid on Old Notes that are accepted for exchange.
The Notes mature on July 1, 2007.
Old Notes were initially represented by a single, global Old Note (the
"Old Global Note") in registered form, registered in the name of Cede & Co.,
as nominee for The Depository Trust Company (the "Depositary"), as depositary.
The Exchange Notes exchanged for Old Notes represented by the Old Global Note
will be initially represented by a single, global Exchange Note (the "Exchange
Global Note") in registered form, registered in the name of the Depositary. See
"Book-Entry; Delivery and Form." References herein to "Global Note" shall be
references to the Old Global Note and the Exchange Global Note.
Based on an interpretation of the Securities Act by the staff of the
Securities and Exchange Commission (the "SEC"), Exchange Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by a holder thereof (other than (i) a
broker-dealer who purchased such Old Notes directly from the Company for resale
pursuant to Rule 144A or any other available exemption under the Securities Act
or (ii) a person that is an "affiliate" (within the meaning of Rule 405 of the
Securities Act) of the Company), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the holder
is acquiring the Exchange Notes in its ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Old Notes
wishing to accept the Exchange Offer must represent to the Company that such
conditions have been met.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must agree that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days after
the Expiration Date, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the Old
Notes or the Exchange Notes. The Company does not intend to apply for listing of
the Exchange Notes on any securities exchange or for quotation through The
Nasdaq Stock Market. There can be no assurance that an active market for the
Exchange Notes will develop. To the extent that a market for the Exchange Notes
does develop, future trading prices of the Exchange Notes will depend on many
factors, including, among other things,
ii
<PAGE>
prevailing interest rates, and the market for similar securities as well as the
Company's results of operations and its financial condition. See "Risk
Factors."
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR
A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
OTHER INFORMATION
The Company has filed with the SEC a registration statement (the
"Registration Statement") under the Securities Act on Form S-4 (Reg. No.
333-33215) with respect to the Exchange Notes offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto, certain parts which are omitted in
accordance with the rules and regulations of the SEC. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved. The Registration Statement and any amendments thereto, including
exhibits filed or incorporated by reference as a part thereof, are available for
inspection and copying at the Public Reference Section of the SEC, at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates, and
at the SEC's regional offices at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New
York, New York 10048. The SEC maintains a web site (http:www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
SEC. The Company intends to furnish its noteholders with annual reports
containing audited financial statements certified by independent public
accountants.
iii
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such 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 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549; and at the
following regional offices of the Commission: 7 World Trade Center, New York,
New York 10048; and 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
at prescribed rates. Such material may also be accessed electronically by means
of the Commission's home page on the Internet at http://www.sec.gov.
The Company has agreed that, whether or not it is required to do so by the
rules and regulations of the Commission, for so long as any of the Notes remain
outstanding, it will furnish to the holders of the Notes and file with the
Commission (unless the Commission will not accept such a filing) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K as if the
Company were required to file such forms, including a "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and, with
respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports in each case within the time periods set forth in the Commission's
rules and regulations. In addition, for so long as any of the Notes remain
outstanding, the Company has agreed to make available to any prospective
purchaser of the Notes or beneficial owner of the Notes in connection with any
sale thereof the information required by Rule 144A(d)(4) under the Securities
Act.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The financial statements of K-T Contract Services, Inc., Texas Bus Lines,
Inc. and California Charters, Inc. contained in the Current Report of the
Company on Form 8-K dated September 13, 1996, and as amended on November 12,
1996, and the Company's Current Report on Form 8-K dated August 8, 1997 are
incorporated herein by reference and shall be deemed to be a part hereof.
The Company will provide, without charge to each person, including any
beneficial owner, to whom this Offering Memorandum is delivered, upon written or
oral request of such person, a copy of any or all of the documents incorporated
herein by reference. Requests for such documents should be submitted in writing,
addressed to the Secretary, Coach USA, Inc., One Riverway, Suite 600, Houston,
Texas 77056, telephone (713) 888-0104.
iv
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE PRO FORMA AND
HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WHICH CONTAIN RISKS AND UNCERTAINTIES. DISCUSSIONS CONTAINING SUCH
FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE INFORMATION SET FORTH UNDER THE
CAPTIONS "RISK FACTORS," "USE OF PROCEEDS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS
WELL AS IN THE PROSPECTUS GENERALLY. ACTUAL EVENTS OR RESULTS MAY DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
VARIOUS FACTORS, INCLUDING, WITHOUT LIMITATION, THE RISK FACTORS SET FORTH
HEREIN AND THE MATTERS SET FORTH IN THIS PROSPECTUS GENERALLY.
THE COMPANY
Coach USA is the largest provider of motorcoach charter, tour and
sightseeing services and one of the five largest non-municipal providers of
commuter and transit motorcoach services in the United States. The Company also
provides airport ground transportation, paratransit and taxicab and other
related passenger ground transportation services. The Company operates across
the U.S., serving a broad customer base (no single customer accounted for more
than 3% of revenues in 1996) with a fleet of approximately 3,400 motorcoaches
and other high occupancy vehicles. For the twelve months ended March 31, 1997,
the Company generated pro forma total operating revenues of $439.5 million and
pro forma EBITDA of $80.8 million.
The motorcoach industry is highly fragmented with approximately 5,000
motorcoach operators which collectively generated approximately $20 billion in
revenues in 1995. The motorcoach industry in the United States can be broadly
divided into three types of services: (i) recreation and excursion (charter,
tour and sightseeing); (ii) commuter and transit; and (iii) regularly scheduled
intercity services. The Company operates primarily in the first two categories,
which collectively generated approximately $19 billion in revenues in 1995. The
Company believes there will be increasing demand for recreation and excursion
services, commuter and transit motorcoach services and airport related services
for a broad range of customers based on a number of factors, including: growing
travel and tourism industry, privatization, outsourcing, expanding metropolitan
areas and increasing airport congestion.
The Company enjoys a number of business attributes that position it to
benefit, both financially and operationally, from the consolidation of this
highly fragmented industry. The Company believes that it can continue to achieve
significant economies of scale as it acquires and integrates additional
motorcoach operators (such as savings in insurance, equipment purchases,
financing and the centralization of certain administrative functions), which
should provide continued margin expansion. The Company also believes that the
centralization of these attention-diverting administrative and support functions
will allow the management of the operating companies and any other acquired
businesses to focus on pursuing new business opportunities and improving
equipment utilization and yields. The Company is diversified from the standpoint
of geography, customer base and type of business, characteristics which provide
it with insulation from disruption in any particular area, customer or business.
In addition, the Company benefits from a strong balance sheet as a result of its
two 1996 equity offerings in which it raised $96.6 million, as well as from its
strategy of using its common stock, par value $.01 per share (the "Common
Stock"), as a significant component of the consideration for its acquisitions.
The Company's objective is to be the largest provider of regional and local
motorcoach and passenger ground transportation services in the United States by
implementing a growth strategy which concentrates on acquisitions, internal
growth and economies of scale.
1
<PAGE>
ACQUISITION STRATEGY
The Company has used Common Stock and convertible securities to finance
approximately 45.8% of the acquisition consideration (including debt assumed) to
date and plans to continue using its Common Stock for acquisitions as
appropriate in the future. In anticipation of such use, the Company has
registered 3.5 million additional shares of Common Stock under the Securities
Act.
ENTER NEW GEOGRAPHIC MARKETS
The Company intends to expand into geographic markets it does not currently
serve by acquiring well-established motorcoach and other passenger ground
transportation service providers that, like its existing operating subsidiaries,
are leaders in their regional markets. Since its founding in 1995 and through
June 30, 1997, the Company has completed 13 new-market acquisitions.
EXPAND EXISTING MARKETS
The Company also plans to acquire additional motorcoach and other passenger
ground transportation service providers in many of the markets in which it
operates, including acquisitions that either broaden the range of services
provided by the Company in that market or expand the geographic scope of the
Company's operations in that market, as well as "tuck-in" acquisitions of
smaller operations. The Company believes that tuck-in acquisitions will increase
operating efficiencies without a proportionate increase in administrative costs
and, in some instances, will broaden the Company's range of services. Since its
founding in 1995 and through June 30, 1997, the Company has completed seven
existing-market acquisitions.
INTERNAL GROWTH STRATEGY
OFFER OF A FULL RANGE OF SERVICES IN EACH REGION
The Company intends to increase growth in each of its regions by adding
complementary services, as appropriate, including motorcoach charter, tour and
sightseeing, commuter and transit, airport ground transportation, paratransit
and taxicab services. Many of the acquired companies do not offer all of such
services and the Company believes they will benefit from the expertise of
affiliated operations.
DEVELOP PRIVATIZATION AND OUTSOURCING
The Company believes that it is well positioned to benefit from the
accelerating trend toward governmental privatization and corporate outsourcing,
as more transit authorities and businesses such as hotels, casinos, rental car
agencies, colleges and other institutions that operate their own fleets decide
to privatize or outsource non-core operations. For example, in February 1997 the
Company was awarded a three-year commuter service contract in the Seattle,
Washington area, which is expected to generate approximately $19 million in
revenues and which may be extended at the option of the customer for two
additional one-year periods. The Company is actively pursuing other
privatization contracts.
ESTABLISH A NATIONAL SALES AND MARKETING PROGRAM
The Company has begun to establish a national sales and marketing program
as a means to expand its recreational and excursion business to position itself
to benefit from the significant growth in the travel and tourism industry. This
program will target travel and tour companies, national and international travel
agencies and convention organizers, as well as organizations such as AAA, AARP
and professional and amateur athletic teams.
ECONOMIES OF SCALE
CENTRALIZE ADMINISTRATIVE FUNCTIONS
The Company believes that it will continue to have greater purchasing
power, resulting in significant cost savings in such areas as equipment and
parts, tires, insurance and financing, than the acquired
2
<PAGE>
companies had independently. The Company has begun to realize cost savings
through the consolidation of administrative functions such as employee benefits,
safety and maintenance programs and risk management. The Company believes that
by continuing to remove the burden and attention-diverting responsibility of
administrative and support functions, the management of the operating companies
and any other acquired businesses will be able to focus on pursuing new business
opportunities and improving equipment utilization and yields.
INCREASE OPERATING EFFICIENCIES
The Company believes that there are additional opportunities to eliminate
redundant facilities and equipment through coordination among its current
operations as well as operations to be acquired in the future. The Company also
expects to continue to benefit from cross-marketing, increased equipment
utilization and implementation of best practices throughout its operating
regions. For example, the Company has consolidated the operational and
maintenance facilities of two of the companies it acquired in Houston into one
location.
BACKGROUND AND RECENT DEVELOPMENTS
The Company was founded in September 1995 to create a nationwide provider
of motorcoach and other ground transportation services. On May 17, 1996, the
Company acquired, simultaneously with the closing of its initial public offering
(the "Initial Public Offering") six companies (the "Founding Companies").
During the remainder of 1996, the Company acquired nine additional companies,
six of which were accounted for as poolings-of-interest and three of which were
accounted for as purchases.
From January 1, 1997 through June 30, 1997 the Company completed the
acquisition of eleven companies. These eleven companies have aggregate annual
revenues of approximately $180 million and the Company has paid, or agreed to
pay, aggregate consideration consisting of approximately $42.8 million in cash,
1,958,280 shares of Common Stock, $22.1 million in aggregate principal amount of
subordinated notes convertible into 586,367 shares of Common Stock, as well as
the assumption of certain indebtedness. Six of the eleven completed acquisitions
were accounted for as poolings-of-interest while the other five were accounted
for as purchases. The recently acquired companies include America Charters of
Gastonia, North Carolina, Antelope Valley Bus, Inc. of Lancaster, California,
The Arrow Line, Inc. of Hartford, Connecticut, Gray Line of Fort Lauderdale,
Florida, Gray Line of Montreal, Canada, International Express Corp. of
Minneapolis, Minnesota, Kerrville Bus Company of Kerrville, Texas, Metro
Transportation Services, Inc. of Miami, Florida, MTC, Inc. of Phoenix, Arizona,
Red & Tan Enterprises of Bergenfield, New Jersey and Trentway-Wagar, Inc. of
Toronto, Canada. The Company believes that each of these acquisitions is
consistent with its strategy of entering new markets and expanding in existing
markets.
The Company has publicly announced pro forma revenues of $199.3 million,
pro forma income before extraordinary item of $10.3 million and earnings per
share before extraordinary item of $0.52 for the six months ended June 30, 1997.
The Company is currently a party to an $181 million Credit Facility (the
"Credit Facility"). The Company has recently announced that it anticipates
that such facility will be amended to provide for borrowings of up to $300
million and additional borrowings outside such facility of up to $80 million.
3
<PAGE>
SUMMARY OF TERMS OF EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $150,000,000 aggregate
principal amount of Exchange Notes for up to an equal aggregate principal amount
of Old Notes. The Exchange Notes will be obligations of the Company entitled to
the benefits of the Indenture. The form and terms of the Exchange Notes are
identical in all material respects to the form and terms of the Old Notes,
except that (i) the offering of the Exchange Notes has been registered under the
Securities Act, (ii) the Exchange Notes will not be subject to transfer
restrictions and (iii) certain provisions relating to an increase in the stated
interest rate on the Old Notes provided for under certain circumstances will be
eliminated. See "Description of the Notes."
Registration Rights
Agreement............................. The Old Notes were sold by the Company
on June 25, 1997 to the Initial
Purchasers pursuant to a Purchase
Agreement, dated June 18, 1997 (the
"Purchase Agreement"). Pursuant to the
Purchase Agreement, the Company, the
Guarantors and the Initial Purchasers
entered into the Registration Rights
Agreement which, among other things,
grants the holders of the Old Notes
certain exchange and registration
rights. The Exchange Offer is intended
to satisfy certain obligations of the
Company under the Registration Rights
Agreement.
The Exchange Offer...................... $1,000 principal amount of Exchange
Notes will be issued in exchange for
each $1,000 principal amount of Old
Notes validly tendered and accepted
pursuant to the Exchange Offer. As of
the date hereof, $150,000,000 in
aggregate principal amount of Old
Notes are outstanding. The Company
will issue the Exchange Notes to
tendering holders of Old Notes
promptly following the Expiration
Date.
The terms of the Exchange Notes are
identical in all material respects to
the Old Notes except for certain
transfer restrictions and registration
rights relating to the Old Notes and
except that the Old Notes provide that
if, (i) the Exchange Offer has not
been consummated by the date required
by the Registration Rights Agreement,
or (ii) a shelf registration statement
relating to the sale of the Old Notes
has not been declared effective by the
date required by the Registration
Rights Agreement, the Company will pay
liquidated damages in an amount equal
to $0.05 per week per $1,000 principal
amount of Notes held by such Holder,
until but excluding the date of the
consummation of the Exchange Offer or
the date such shelf registration
statement is declared effective, as
the case may be. The amount of
liquidated damages will increase by an
additional $0.05 per week per $1,000
principal amount of Old Notes with
respect to each subsequent 90-day
period until all defaults have been
cured, up to a maximum amount of
liquidated damages of $0.50 per week
per $1,000 principal amount of Notes.
In addition, to comply with the
securities laws of certain states of
the United States, it may be necessary
to qualify for sale or register
thereunder the Exchange Notes prior to
offering or selling such Exchange
Notes. The Company has agreed,
pursuant to the Registration Rights
Agreement, subject to certain
limitations specified therein, to
register or qualify the Exchange Notes
for offer or sale under the securities
laws of such states as any holder
reasonably requests in writing. Unless
a holder so requests, the Company does
not intend to register or qualify the
offer or sale of the Exchange Notes in
any such jurisdiction.
4
<PAGE>
Resale.................................. Based on existing interpretations of
the Securities Act by the staff of the
SEC set forth in several no-action
letters to third parties, and subject
to the immediately following sentence,
the Company believes that Exchange
Notes issued pursuant to the Exchange
Offer in exchange for Old` Notes may
be offered for resale, resold and
otherwise transferred by a holder
thereof (other than (i) a
broker-dealer who purchased such Old
Notes directly from the Company for
resale pursuant to Rule 144A or any
other available exemption under the
Securities Act or (ii) a person that
is an "affiliate" (within the meaning
of Rule 405 of the Securities Act) of
the Company), without compliance with
the registration and prospectus
delivery provisions of the Securities
Act, provided that the holder is
acquiring the Exchange Notes in its
ordinary course of business and is not
participating, and has no arrangement
or understanding with any person to
participate, in the distribution of
the Exchange Notes. However, any
purchaser of Old Notes who is an
affiliate of the Company or who
intends to participate in the Exchange
Offer for the purpose of distributing
the Exchange Notes, or any
broker-dealer who purchased the Old
Notes from the Company to resell
pursuant to Rule 144A or any other
available exemption under the
Securities Act, (i) will not be able
to rely on the interpretations by the
staff of the SEC set forthX in the
above-mentioned no-action letters,
(ii) will not be able to tender its
Old Notes in the Exchange Offer and
(iii) must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any sale or transfer
of the Old Notes unless suchX sale or
transfer is made pursuant to an
exemption from such requirements. The
Company does not intend to seek its
own no-action letter and there is no
assurance that the staff of the SEC
would make a similar determination
with respect to the Exchange Notes as
it has in such no-action letters to
third parties. See "The Exchange Offer
-- Purpose and Effect of the Exchange
Offer" and "Plan of Distribution."
Each broker-dealer that receives
Exchange Notes for its own account
pursuant to the Exchange Offer must
acknowledge that it will` deliver a
prospectus in connection with any
resale of such Exchange Notes. The
Letter of Transmittal states that by
so acknowledging and by delivering a
prospectus, a broker-dealer will not
be deemed to admit that it is an
"underwriter" within the meaning of
the Securities Act. This Prospectus,
as it may be amended or supplemented
from time to time, may be used by a
broker-dealer in connection with
resales of Exchange Notes received in
connection with resales of Exchange
Notes received in exchange for Old
Notes where such Old Notes were
acquired by such broker-dealer as a
result of market-making activities or
other trading activities. The Company
has agreed that, for a period of 180
days after the Expiration Date, it
will make this Prospectus available to
any broker-dealer for use in
connection with any such resale. See
"Plan of Distribution."
Expiration Date......................... 5:00 p.m., New York City time, on
September 25, 1997, unless the
Exchange Offer is extended, in which
case the term "Expiration Date" means
the latest date and time to which the
Exchange Offer is extended. See "The
Exchange Offer -- Expiration Date;
Extensions; Amendments."
5
<PAGE>
Accrued Interest on the Exchange Notes
and the Old Notes..................... The Exchange Notes will bear interest
at a rate of 9 3/8% per annum, payable
semi-annually on January 1 and July 1
of each year, commencing January 1,
1998. Holders of Exchange Notes of
record on December 15, 1997, will
receive on January 1, 1998, an
interest payment in an amount equal to
(x) the accrued interest on such
Exchange Notes from the date of
issuance thereof to January 1, 1998,
plus (y) the accrued interest on the
previously held Old Notes from the
date of issuance of such Old Notes
(June 24, 1997) to the date of
exchange thereof. Interest will not be
paid on Old Notes that are accepted
for exchange. The Notes mature on July
1, 2007.
Conditions to the Exchange Offer........ The Company may terminate the Exchange
Offer if it determines that its
ability to proceed with the Exchange
Offer could be materially impaired due
to the occurrence of certain
conditions. The Company does not
expect any of such conditions to
occur, although there can be no
assurance that such conditions will
not occur. Holders of Old Notes will
have certain rights under the
Registration Rights Agreement should
the Company fail to consummate the
Exchange Offer. See "The Exchange
Offer -- Conditions to the Exchange
Offer" and "Description of the Notes
-- Registration Rights; Liquidated
Damages."
Procedures for Tendering Old Notes...... Each holder of Old Notes wishing to
accept the Exchange Offer must
complete, sign and date the Letter of
Transmittal, or a facsimile thereof,
in accordance with the instructions
contained herein and therein, and mail
or otherwise deliver such Letter of
Transmittal, or such facsimile,
together with the Old Notes to be
exchanged and any other required
documentation, to The Bank of New
York, as Exchange Agent, at the
address set forth herein and therein
or effect a tender of Old Notes
pursuant to the procedures for
book-entry transfer as provided for
herein and therein. By executing the
Letter of Transmittal, each holder
will represent to the Company that,
among other things, the Exchange Notes
acquired pursuant to the Exchange
Offer are being acquired in the
ordinary course of business of the
person receiving such Exchange Notes,
whether or not such person is the
holder, that neither the holder nor
any such other person has any
arrangement or understanding with any
person to participate in the
distribution of such Exchange Notes
and that neither the holder nor any
such other person is an "affiliate,"
as defined in Rule 405 under the
Securities Act, of the Company. See
"The Exchange Offer -- Procedures for
Tendering." Following consummation of
the Exchange Offer, holders of Old
Notes not tendered as a general matter
will not have any further registration
rights, and the Old Notes will
continue to be subject to certain
restrictions on transfer. Accordingly,
the liquidity of the market for the
Old Notes could be adversely affected.
See "The Exchange Offer --
Consequences of Failure to Exchange."
6
<PAGE>
Special Procedures for Beneficial
Owners................................ Any beneficial owner whose Old Notes
are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee and who
wishes to tender in the Exchange Offer
should contact such registered holder
promptly and instruct such registered
holder to tender on his behalf. If
such beneficial owner wishes to tender
on his own behalf, such beneficial
owner must, prior to completing and
executing the Letter of Transmittal
and delivering his Old Notes, either
(a) make appropriate arrangements to
register ownership of the Old Notes in
such holder's name or (b) obtain a
properly completed bond power from the
registered holder or endorsed
certificates representing the Old
Notes to be tendered. The transfer of
record ownership may take considerable
time, and completion of such transfer
prior to the Expiration Date may not
be possible. See "The Exchange Offer
-- Procedures for Tendering."
Guaranteed Delivery Procedures.......... Holders of Old Notes who wish to
tender their Old Notes and whose Old
Notes are not immediately available,
or who cannot deliver their Old Notes
(or complete the procedures for
book-entry transfer) and deliver a
properly completed Letter of
Transmittal and any other documents
required by the Letter of Transmittal
to the Exchange Agent prior to the
Expiration Date may tender their Old
Notes according to the guaranteed
delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights....................... Tenders of Old Notes may be withdrawn
at any time prior to the Expiration
Date by furnishing a written or
facsimile transmission notice of
withdrawal to the Exchange Agent
containing the information set forth
in "The Exchange Offer -- Withdrawal
of Tenders."
Acceptance of Old Notes and Delivery of
Exchange Notes........................ Subject to certain conditions (as
summarized above in "Conditions to the
Exchange Offer" and described more
fully in "The Exchange Offer --
Conditions to the Exchange Offer"),
the Company will accept for exchange
any and all Old Notes that are
properly tendered in the Exchange
Offer prior to the Expiration Date.
See "The Exchange Offer -- Procedures
for Tendering." The Exchange Notes
issued pursuant to the Exchange Offer
will be delivered promptly following
the Expiration Date.
Exchange Agent.......................... The Bank of New York, the Trustee
under the Indenture, is serving as
exchange agent (the "Exchange Agent")
in connection with the Exchange Offer.
The registered or certified mail
address of the Exchange Agent is The
Bank of New York, 101 Barclay Street,
7E, New York, New York 10286
Attention: Reorganization Department,
George Johnson. The hand or overnight
delivery address of the Exchange Agent
is The Bank of New York, 101 Barclay
Street, Corporate Trust Services
Window, Ground Level, New York, New
York 10286 Attention: Reorganization
Department, George Johnson. For
assistance and request for additional
copies of this Prospectus, the Letter
of Transmittal or the Notice of
Guaranteed Delivery, the telephone
number for the Exchange Agent is (212)
815-4997, and the facsimile number for
the Exchange Agent is (212) 571-3080.
All communications should be directed
to the attention of Reorganization
Department, George Johnson.
7
<PAGE>
Effect on Holders of Old Notes.......... Holders of Old Notes who do not tender
their Old Notes in the exchange offer
will continue to hold their Old Notes
and will be entitled to all ` the
rights and limitations applicable
thereto under the Indenture. All
untendered, and tendered but
unaccepted, Old Notes will continue to
be subject to the restrictions on
transfer provided for in the Old Notes
and the Indenture. To the extent that
Old Notes are tendered and accepted in
the Exchange Offer, the trading
market, if any, for the Old Notes
could be adversely affected. See "Risk
Factors -- Consequences of Exchange
and Failure to Exchange."
SEE "THE EXCHANGE OFFER" FOR MORE DETAILED INFORMATION CONCERNING
THE TERMS OF THE EXCHANGE OFFER.
8
<PAGE>
THE EXCHANGE NOTES
Securities Offered....... $150.0 million in aggregate principal amount of
9 3/8% Senior Subordinated Notes, Series B (the
"Exchange Notes").
Issuer................... The Company.
Maturity Date............ July 1, 2007.
Interest Payment Dates... January 1 and July 1 of each year, commencing January
1, 1998.
Optional Redemption...... The Exchange Notes will be redeemable at the option
of the Company, in whole or in part, at any time on
or after July 1, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of
redemption. In addition, at any time on or prior to
July 1, 2000, the Company may redeem up to 33 1/3% of
the aggregate principal amount of the Exchange Notes
originally issued with the net proceeds of one or
more offerings of Common Stock at a redemption price
equal to 109.375% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption; provided
that at least 66 2/3% of the aggregate principal
amount of the Exchange Notes originally issued
remains outstanding immediately after such
redemption. See "Description of the Notes -- Optional
Redemption."
Mandatory Redemption..... None.
Ranking.................. The Exchange Notes will be senior subordinated
obligations of the Company and will be subordinated
to all existing and future senior indebtedness of the
Company, including amounts outstanding under the
Company's Credit Facility. As of March 31, 1997,
after giving pro forma effect to the Subsequent
Acquisitions (as defined), the Offering and
application of the estimated net proceeds therefrom,
the Company would have had approximately $59.0
million of senior indebtedness outstanding. See
"Description of the Notes -- Subordination."
Guarantees............... The Exchange Notes will be unconditionally guaranteed
(the "Subsidiary Guarantees") on a senior
subordinated basis by the Company's existing domestic
subsidiaries and each future domestic Restricted
Subsidiary (as defined) of the Company (collectively,
the "Guarantors"). The Subsidiary Guarantees will be
subordinated in right of payment to all existing and
future senior indebtedness of the Guarantors,
including guarantees under the Credit Facility, and
will rank PARI PASSU or senior in right of payment to
any future subordinated indebtedness of the
Guarantors. See "Description of the Notes --
Subsidiary Guarantees."
Change of Control........ Upon the occurrence of a Change of Control (as
defined), holders of the Exchange Notes will have the
right to require the Company to purchase their
Exchange Notes, in whole or in part, at a purchase
price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase.
See "Description of the Notes -- Repurchase at the
Option of Holders -- Change of Control."
9
<PAGE>
Certain Covenants........ The Indenture (as defined) governing the Exchange
Notes contains certain covenants, including, but not
limited to, covenants limiting the Company and the
Guarantors with respect to the following: restricted
payments, incurrence of additional indebtedness,
transactions with affiliates, asset sales,
investments, issuances and dispositions of capital
stock of subsidiaries, payment restrictions affecting
subsidiaries and mergers and consolidations. See
"Description of the Notes -- Certain Covenants."
Exchange Offer;
Registration Rights.... Pursuant to a registration rights agreement entered
between the Company, the Guarantors and the Initial
Purchasers (the "Registration Rights Agreement"), the
Company agreed to file a registration statement (of
which this Prospectus forms a part) with the
Commission (the "Exchange Offer Registration
Statement") with respect to an offer to exchange the
Old Notes for the Exchange Notes registered under the
Securities Act, with terms identical to those of the
Notes (the "Exchange Offer"). If (i) the Exchange
Offer is not permitted by applicable law or
Commission X policy or (ii) any Holder of Transfer
Restricted Securities (as defined) notifies the
Company that (A) it is prohibited by law or
Commission policy from participating in the Exchange
Offer, (B) that it may not resell the Exchange Notes
acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration
Statement is not appropriate or available for such
resales or (C) that it is a broker-dealer and owns
Old Notes acquired directly from the Company or an
affiliate of the Company, the Company will file a
shelf registration statement (the "Shelf Registration
Statement") with the Commission to cover the resales
of the Old Notes by the holders thereof under the
Registration Rights Agreement. If the Company fails
to satisfy its registration obligations, it will be
required to pay liquidated damages ("Liquidated
Damages") to the holders of Notes under certain
circumstances.
RISK FACTORS
An investment in the Notes involves certain risks that a potential investor
should carefully evaluate prior to making an investment in the Notes. See "Risk
Factors."
10
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
The Company acquired, simultaneously with the closing of the Initial Public
Offering in May 1996, the Founding Companies. During the remainder of 1996 and
through March 31, 1997 the Company completed twelve acquisitions, seven of which
were accounted for as poolings (the "Pooled Companies") and five of which were
accounted for as purchases (the "Purchased Companies"). The Pro Forma
Statement of Income Data presented below includes (i) the Company (including the
Pooled Companies) combined with historical financial statement data of the
Founding Companies at historical cost for all periods presented and the
Purchased Companies since their date of acquisition; (ii) certain reductions in
salaries and benefits attributed to pre-acquisition periods, as well as a
non-recurring, non-cash charge recorded by the Company (collectively, the
"Compensation Differential"); (iii) certain tax adjustments related to the
taxation of certain of the predecessor businesses as S Corporations prior to
their acquisition by the Company and the tax effect of the other adjustments to
income included herein; (iv) for 1995 and 1996, the conversion of debt to equity
at one of the Pooled Companies; and (v) the elimination of non-recurring pooling
costs. Pro Forma As Adjusted information adjusts the Pro Forma Statement of
Income Data to give effect to the acquisition of the Purchased Companies, and
the acquisition of eight companies subsequent to March 31, 1997 (the eight
collectively referred to as the "Subsequent Acquisitions") as well as the
impact on interest expense of the issuance of the Notes, as if all such
transactions had occurred on January 1, 1996. The As Adjusted Balance Sheet Data
are adjusted to give effect to the Subsequent Acquisitions, and the issuance of
the Notes and the application of the net proceeds from the Offering, as if the
same had occurred on March 31, 1997. See "Selected Consolidated Pro Forma
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Unaudited Pro Forma Combined Financial
Statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, TWELVE MONTHS --------------------
------------------------------------------------------------------ ENDED
MARCH 31, PRO FORMA
PRO FORMA COMBINED PRO FORMA 1997 COMBINED
----------------------------------------------------- AS ADJUSTED PRO FORMA --------------------
1992 1993 1994 1995 1996 1996 AS ADJUSTED 1996 1997
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF
INCOME DATA:
Total revenues........ $ 172,974 $ 180,705 $ 194,814 $ 216,892 $ 250,776 $ 436,372 $ 439,497 $ 52,515 $ 69,311
Gross profit.......... 36,015 35,347 41,507 51,365 61,692 104,074 105,499 9,737 14,925
General and
administrative
expenses............ 22,667 21,166 23,188 23,724 26,554 49,923 50,204 6,122 8,131
Operating income...... 13,348 14,181 18,319 27,641 35,138 54,151 55,295 3,615 6,794
Interest expense...... 6,307 6,362 7,422 8,207 9,934 23,965(1) 23,182(1) 2,250 3,199
Income tax
provision........... 2,873 3,690 4,376 8,217 9,958 12,161 12,965 549 1,445
Income (loss) before
extraordinary
items............... 4,168 4,129 6,521 11,217 15,246 18,025 19,148 816 2,150
OTHER PRO FORMA DATA:
EBITDA(2)............. $ 23,006 $ 24,398 $ 29,028 $ 40,335 $ 50,357 $ 78,561 $ 80,833 $ 6,994 $ 12,082
Compensation
Differential........ 2,615 3,656 4,506 6,061 6,794 8,430 4,859 3,255 224
Depreciation and
amortization........ 9,658 10,217 10,709 12,694 15,219 24,410 25,538 3,379 5,288
Capital
expenditures(3)..... 2,713 10,857 28,449 25,610 40,688 69,023 85,881 10,409 31,970
Gross profit margin... 20.8% 19.6% 21.3% 23.7% 24.6% 23.8% 24.0% 18.5% 21.5%
EBITDA margin......... 13.3 13.5 14.9 18.6 20.1 18.0 18.4 13.3 17.4
PRO FORMA RATIOS:
Ratio of earnings to
fixed charges(4).... 1.93x 2.02x 2.24x 3.01x 3.19x 2.14x 2.26x 1.52x 2.01x
EBITDA/interest
expense(1)(2)....... 3.28 3.49
Net debt/
EBITDA(2)(5)........ 2.33 3.00
</TABLE>
THREE MONTHS ENDED
MARCH 31,
--------------------
PRO FORMA
AS ADJUSTED
1997
PRO FORMA STATEMENT OF
INCOME DATA:
Total revenues........ $ 97,361
Gross profit.......... 17,621
General and
administrative
expenses............ 12,383
Operating income...... 5,238
Interest expense...... 5,409(1)
Income tax
provision........... (25)
Income (loss) before
extraordinary
items............... (146)
OTHER PRO FORMA DATA:
EBITDA(2)............. $ 12,323
Compensation
Differential........ 465
Depreciation and
amortization........ 7,085
Capital
expenditures(3)..... 34,529
Gross profit margin... 18.1%
EBITDA margin......... 12.7
PRO FORMA RATIOS:
Ratio of earnings to
fixed charges(4).... --
EBITDA/interest
expense(1)(2).......
Net debt/
EBITDA(2)(5)........
AT MARCH 31, 1997
--------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash
equivalents......... $ 6,544 $ 7,251
Working capital
(deficit)........... (20,789) (32,854)
Total assets......... 416,124 495,808
Total debt, including
current portion..... 203,650 249,581
Stockholders'
equity.............. 111,806 124,491
- ------------
(1) Pro Forma As Adjusted interest expense includes the effect of the issuance
of the Notes in the Offering.
(2) EBITDA represents net income plus depreciation and amortization, income
taxes, net interest expense and extraordinary items as adjusted to reflect
the Compensation Differential. While EBITDA should not be construed as a
substitute for income from operations, net income or cash flows from
operating activities in analyzing the Company's operating performance,
financial position or cash flows, the Company has included EBITDA because
it is commonly used by certain investors and analysts to analyze and
compare companies on the basis of operating performance, leverage and
liquidity and to determine a company's ability to service debt.
(3) Capital expenditures represent current capital additions less the net book
value of capital equipment retired plus assets acquired under capital
leases.
(4) For purposes of calculating this ratio, "earnings" consist of income
before taxes and extraordinary items plus fixed charges. "Fixed charges"
consist of interest expense plus one-third of rental expense, which the
Company estimates to be representative of the interest factors therein.
(5) Pro Forma As Adjusted net debt represents total debt (which includes the
convertible subordinated notes) less cash and cash equivalents. The ratio
of net debt to EBITDA was calculated based on pro forma net debt of $183.3
million and $242.3 million as of December 31, 1996 and March 31, 1997,
respectively. See "Capitalization."
11
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS IN
ADDITION TO OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE MAKING AN
INVESTMENT IN THE NOTES. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
CONCERNING THE COMPANY'S OPERATIONS, ECONOMIC PERFORMANCE AND FINANCIAL
CONDITION, INCLUDING, IN PARTICULAR, THE LIKELIHOOD OF THE COMPANY'S SUCCESS IN
DEVELOPING AND EXPANDING ITS BUSINESS. THESE STATEMENTS ARE BASED UPON A NUMBER
OF ASSUMPTIONS AND ESTIMATES THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT
UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE
COMPANY, AND REFLECT FUTURE BUSINESS DECISIONS THAT ARE SUBJECT TO CHANGE. SOME
OF THESE ASSUMPTIONS INEVITABLY WILL NOT MATERIALIZE, AND UNANTICIPATED EVENTS
WILL OCCUR THAT WILL AFFECT THE COMPANY'S RESULTS.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. In addition, upon the
consummation of the Exchange Offer holders of Old Notes which remain outstanding
will not be entitled to any rights to have such Old Notes registered under the
Securities Act or to any similar rights under the Registration Rights Agreement,
subject to certain exceptions. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Old Notes could be adversely affected. The Old Notes
provide that if, (i) the Exchange Offer has not been consummated by the date
required in the Registration Rights Agreement, or (ii) a shelf registration
statement relating to the sale of the Old Notes has not been declared effective
by the date required in the Registration Rights Agreement, the Company will pay
liquidated damages in an amount equal to $0.192 per week per $1,000 principal
amount of the Old Notes outstanding until but excluding the date on which the
Exchange Offer is consummated or such shelf registration statement is declared
effective.
EFFECTS OF LEVERAGE
The Company is highly leveraged. On March 31, 1997, after giving pro forma
effect to the Subsequent Acquisitions, the Offering and application of the net
proceeds therefrom, the Company would have had total indebtedness of
approximately $249.6 million (of which $150.0 million would have consisted of
the Notes, $40.6 million would have consisted of convertible subordinated notes
issued in connection with the acquisition of certain businesses and the balance
would have consisted of capital lease and other obligations) and stockholders'
equity of approximately $124.5 million. Also after giving pro forma effect to
such transactions, the Company's ratio of earnings to fixed charges would have
been 2.14 and less than 1.00 for the year-ended December 31, 1996 and for the
three months ended March 31, 1997, respectively. The Company and its
subsidiaries will be permitted to incur substantial additional indebtedness in
the future. See "Capitalization", "Selected Consolidated Pro Forma Financial
Data" and "Description of the Notes."
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Notes), or to fund planned capital expenditures or
future acquisitions will depend on its future performance, which, to a certain
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond its control. Based upon the current
level of operations and anticipated cost savings and revenue growth, management
believes that cash flow from operations and available cash, together with
available borrowings under the Credit Facility, will be adequate to meet the
Company's anticipated future requirements for working capital, budgeted capital
expenditures, acquisitions and scheduled payments of principal and interest on
its indebtedness, including the Notes, for the next several years. The Company
may, however, need to refinance all or a portion of the principal of the Notes
on or prior to maturity. There can be no assurance that the Company's business
will generate sufficient cash flow from operations or that anticipated
12
<PAGE>
revenue growth and operating improvements will be realized or that future
borrowings will be available under the Credit Facility in an amount sufficient
to enable the Company to service its indebtedness, including the Notes, make
anticipated capital expenditures or fund future acquisitions. In addition, there
can be no assurance that the Company will be able to effect any such refinancing
on commercially reasonable terms or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including but not limited to: (i) making
it more difficult for the Company to satisfy its obligations with respect to the
Notes, (ii) increasing the Company's vulnerability to general adverse economic
and industry conditions, (iii) limiting the Company's ability to obtain
additional financing to fund future working capital, capital expenditures,
future acquisitions and other general corporate purposes, (iv) requiring the
dedication of a substantial portion of the Company's cash flow from operations
to the payment of principal of, and interest on, its indebtedness, thereby
reducing the availability of such cash flow to fund working capital, capital
expenditures, acquisitions or other general corporate purposes, (v) limiting the
Company's flexibility in planning for, or reacting to, changes in its business
and the industry, and (vi) placing the Company at a competitive disadvantage
vis-a-vis less-leveraged competitors. In addition, both the Indenture and the
Credit Facility contain financial and other restrictive covenants that limit the
ability of the Company to, among other things, borrow additional funds. Failure
by the Company to comply with such covenants could result in an event of default
which, if not cured or waived, could have a material adverse effect on the
Company. In addition, the degree to which the Company is leveraged, could
prevent it from repurchasing all of the Notes tendered to it upon the occurrence
of a Change of Control. See "Description of the Notes -- Repurchase at the
Option of Holders -- Change of Control" and "Description of Certain
Indebtedness -- Credit Facility."
LIMITED COMBINED OPERATING HISTORY
The Company was founded in September 1995 but conducted no operations and
generated no revenues prior to the closing of the Initial Public Offering. The
Company acquired the Founding Companies simultaneously with the closing of the
Initial Public Offering. Prior to their acquisition by the Company, the Founding
Companies and all subsequent acquisitions operated as separate independent
entities, and there can be no assurance that the Company will be able to
successfully integrate the operations of these businesses or institute the
necessary Company-wide systems and procedures to successfully manage the
combined enterprise on a profitable basis. The Company's management group has
been assembled for approximately one year, and there can be no assurance that
the management group will be able to effectively manage the combined entity or
effectively implement the Company's internal growth strategy and acquisition
program. The historical financial results of the Company, the Founding Companies
and the subsequent acquisitions cover periods when the Company, the Founding
Companies and the subsequent acquisitions were not under common control or
management and, therefore, may not be indicative of the Company's future
financial or operating results. The inability of the Company to successfully
integrate the Founding Companies and the subsequent acquisitions could have a
material adverse effect on the Company's business, financial condition and
results of operations and would make it unlikely that the Company's acquisition
program could continue to be successful. See "Management."
HOLDING COMPANY STRUCTURE AND SUBORDINATION OF NOTES AND GUARANTEES
The Company conducts all of its operations through subsidiaries.
Accordingly, the Company relies on dividends and cash advances from its
subsidiaries to provide funds necessary to meet its obligations, including the
payment of principal and interest on the Notes. The ability of any such
subsidiary to pay dividends or make cash advances is subject to applicable laws
and contractual restrictions, including restrictions under credit agreements
between such subsidiaries and third party lenders.
The Notes are unsecured obligations of the Company and are subordinated in
right of payment to all existing and future senior indebtedness of the Company,
which will include borrowings under the Credit Facility. The Credit Facility
provides for a revolving facility of $181 million through a syndicate of eight
13
<PAGE>
banks, and allows the Company to have borrowings of up to $40 million (in
addition to Subordinated Debt (as defined therein)) outside the Credit Facility.
The Company has recently announced that it anticipates that such facility will
be amended to provide for borrowings of up to $300 million and additional senior
borrowings outside such facility of up to $80 million. The Credit Facility is
guaranteed by substantially all of the Company's subsidiaries and is secured by
substantially all of the assets of the Company and matures on August 14, 1999 at
which time all amounts then outstanding become due. The Notes rank PARI PASSU in
right of payment with all other existing and future senior subordinated debt of
the Company and will rank senior to other indebtedness that expressly provides
that it is subordinated in right of payment of the Notes. In the event of
bankruptcy, liquidation or reorganization of the Company, the assets of the
Company will be available to pay obligations on the Notes only after all senior
indebtedness has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Notes outstanding. As of March
31, 1997, the aggregate principal amount of senior indebtedness of the Company
would have been $59.0 million on a pro forma basis after giving effect to the
Subsequent Acquisitions, the Offering and the application of the net proceeds
therefrom and the aggregate principal amount of subordinated indebtedness, not
including the Notes, would have been $40.6 million on a pro forma basis giving
effect to the Offering and the application of the net proceeds therefrom.
Additional senior indebtedness may be incurred by the Company from time to time,
subject to certain restrictions. In addition to being subordinated to all
existing and future senior indebtedness of the Company, the Notes are
effectively subordinated to all secured debt of the Company.
Should the Company fail to satisfy any payment obligation with respect to
the Notes, the holders of the Notes would have a direct claim against the
Guarantors, pursuant to their respective Subsidiary Guarantees, however, (i) the
Subsidiary Guarantees are subordinated to senior indebtedness of the Guarantors
to the same extent and in the same manner as the Notes are subordinated to
senior indebtedness, (ii) the Subsidiary Guarantee are effectively subordinated
to all secured debt of the Guarantors and (iii) the Subsidiary Guarantee rank
PARI PASSU with the claims of unsecured creditors (including trade creditors and
tort claimants) of the Guarantors that have not agreed to be subordinated in
right of payment to the Subsidiary Guarantee.
CAPITAL AVAILABILITY AND RISKS RELATED TO ACQUISITION FINANCING
The Company intends to continue to finance future acquisitions by issuing
shares of its Common Stock for all or a substantial portion of the consideration
to be paid. In the event that the Common Stock does not maintain a sufficient
market value, or potential acquisition candidates are otherwise unwilling to
accept Common Stock as part of the consideration for the sale of their
businesses, the Company may be required to utilize more of its cash resources,
if available, in order to maintain its acquisition program. If the Company does
not have sufficient cash resources, its growth could be limited unless it is
able to obtain additional capital through debt or equity financings. Although
the Company has established a line of credit which provides for aggregate credit
capacity of $221 million, there can be no assurance that the Company will be
able to obtain all the financing it will need in the future on terms the Company
deems acceptable. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The Credit Facility contains customary restrictive covenants, including
requiring the Company to maintain: consolidated Net Worth, as defined therein,
plus consolidated Subordinated Debt, as defined therein, at a level not less
than (i) the greater of 90% of the consolidated Net Worth of the Company as of
June 30, 1996, or $35 million, plus (ii) 90% of the Company's cumulative annual
consolidated net earnings, plus (iii) 100% of the net proceeds resulting from
any sale, issuance or assumption of stock or Subordinated Debt (as defined
therein); consolidated Tangible Net Worth, as defined therein, of the Company at
not less than 40% of the consolidated Net Worth of the Company; a ratio of
consolidated Funded Debt, as defined therein, of the Company less the
Subordinated Debt, as defined therein, of the Company to the consolidated
EBITDA, as defined therein, of the Company of no greater than 3.0 to 1.0; and a
Fixed Charge Coverage Ratio, as defined therein, of not less than 1.25 to 1.0.
At March 31, 1997, on a pro forma as adjusted basis (see "Selected Consolidated
Pro Forma Financial Data"), the Company's consolidated Net Worth plus the
14
<PAGE>
consolidated Subordinated Debt exceeded the net worth test by $4.0 million, the
consolidated Tangible Net Worth was 45.7% of the consolidated Net Worth and the
Fixed Charge Coverage Ratio was 1.28. The Company believes it will be in
compliance with such covenants on the date of closing of the Offering. The
Indenture will contain restrictions on the Company's ability to incur additional
indebtedness, and other contractual arrangements to which the Company may become
subject in the future could contain similar restrictions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY
The Company intends to continue to grow primarily through the acquisition
of additional motorcoach and other passenger ground transportation businesses.
Increased competition for acquisition candidates may develop, in which event
there may be fewer acquisition opportunities available to the Company as well as
higher acquisition prices. There can be no assurance that the Company will be
able to continue to identify, acquire or profitably manage additional businesses
or successfully integrate acquired businesses, if any, into the Company without
substantial costs, delays or other operational or financial problems. Further,
acquisitions involve a number of special risks, including possible adverse
effects on the Company's operating results, diversion of management's attention,
failure to retain key acquired personnel, risks associated with unanticipated
events or liabilities and amortization of acquired intangible assets, some or
all of which could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, there can be no
assurance that the acquired companies or other businesses acquired in the future
will achieve anticipated revenues and earnings. See "Business -- Business
Strategy."
RANKING AND FRAUDULENT CONVEYANCE CONSIDERATIONS
Holders of the Notes will have a direct claim on the assets of the
Guarantors pursuant to the Subsidiary Guarantees. However, each Guarantor's
guarantee of the obligations of the Company under the Notes may be subject to
review under relevant federal and state fraudulent conveyance statutes (the
"Fraudulent Conveyance Statutes") in a bankruptcy, reorganization or
rehabilitation case or similar proceeding or a lawsuit by or on behalf of unpaid
creditors of such Guarantors. If a court were to find under relevant Fraudulent
Conveyance Statutes that, at the time the Notes were issued, (a) a Guarantor
guaranteed the Notes with the intent of hindering, delaying or defrauding
current or future creditors or (b)(i) a Guarantor received less than reasonably
equivalent value or fair consideration for guaranteeing the Notes and (ii)(A)
was insolvent or was rendered insolvent by reason of such Subsidiary Guarantee,
(B) was engaged, or about to engage, in a business or transaction for which its
assets constituted unreasonably small capital, (C) intended to incur, or
believed that it would incur, obligations beyond its ability to pay as such
obligations matured (as all of the foregoing terms are defined in or interpreted
under such Fraudulent Conveyance Statutes) or (D) was a defendant in an action
for money damages, or had a judgment for money damages docketed against it (if,
in either case, after final judgment, the judgment is unsatisfied), such court
could avoid or subordinate such guarantee of the Notes to presently existing and
future indebtedness of such Guarantor and take other action detrimental to the
holders of the Notes, including, under certain circumstances, invalidating such
guarantee of the Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the federal or state law that is being applied in any such
proceeding. Generally, however, a Guarantor would be considered insolvent if
either (i) the fair market value (or fair saleable value) of its assets is less
than the amount required to pay the probable liability on its total existing
indebtedness and liabilities (including contingent liabilities) as they become
absolute and mature or (ii) it is incurring obligations beyond its ability to
pay as such obligations mature or become due.
The Boards of Directors and management of each of the Company and each
Guarantor believe that at the time of issuance of the Notes and the Subsidiary
Guarantees of the Notes, each Guarantor (i) will be (a) neither insolvent nor
rendered insolvent thereby, (b) in possession of sufficient capital to meet its
obligations as the same mature or become due and to operate its business
effectively and (c) incurring obligations within its ability to pay as the same
mature or become due and (ii) will have sufficient assets to
15
<PAGE>
satisfy any probable judgment against it in any pending action. There can be no
assurance, however, that such beliefs will prove to be correct or that a court
passing on such questions would reach the same conclusions.
LABOR RELATIONS
The Company currently has approximately 7,600 employees, approximately
5,000 of whom are motorcoach drivers. At March 31, 1997 approximately 2,800 of
the Company's employees were members of various labor unions. The Company's
inability to negotiate acceptable contracts with these unions as existing
agreements expire could result in strikes by the affected workers and increased
operating costs as a result of higher wages or benefits paid to union members.
If the unionized employees were to engage in a strike or other work stoppage, or
other employees were to become unionized, the Company could experience a
significant disruption of its operations and higher ongoing labor costs, which
could have a material adverse effect on the Company's business and results of
operations. See "Business -- Drivers and Other Personnel."
SUBSTANTIAL SEASONALITY OF THE MOTORCOACH BUSINESS
The motorcoach business is subject to seasonal variations in operations.
During the winter months, operating costs are higher due to the cold weather and
demand for motorcoach services is lower, particularly because of a decline in
tourism. As a result, the Company expects its revenues and results of operations
to be lower in the first and fourth quarters than in the second and third
quarters of each year, which may impact the Company's ability to make scheduled
payments of principal or interest on outstanding indebtedness. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
FUEL PRICES AND TAXES
Fuel is a significant cost to the Company. Fuel prices are subject to
sudden increases as a result of variations in supply levels and demand. Any
sustained increase in fuel prices could adversely affect the Company's results
of operations unless it were able to increase prices. From time to time, there
are efforts at the Federal or state level to increase fuel or highway use taxes,
which, if enacted, also could adversely affect the Company's results of
operations.
INSURANCE COSTS; CLAIMS
The Company's cost of maintaining personal injury, property damage and
workers' compensation insurance is significant. The Company could experience
higher insurance premiums as a result of adverse claims experience or because of
general increases in premiums by insurance carriers for reasons unrelated to the
Company's own claims experience. As an operator of motorcoaches and other
vehicles, the Company is exposed to claims for personal injury or death and
property damage as a result of accidents. The Company is self-insured for the
first $100,000 of losses per incident involving a motorcoach and is self-insured
for the first $250,000 of losses per incident involving a taxicab. If the
Company were to experience a significant increase in the number of claims for
which it is self-insured or claims in excess of its insurance limits, its
results of operations and financial condition would be adversely affected. See
"Business -- Risk Management and Insurance."
CAPITAL REQUIREMENTS
The Company's operations require significant capital in order to maintain a
modern fleet of motorcoaches and to achieve internal growth. The Company has
historically financed the acquisition of new motorcoaches with debt financing. A
new motorcoach costs in excess of $300,000, and there can be no assurance that
adequate financing will be available in the future on terms favorable to the
Company to enable the Company to efficiently maintain operations and implement
any expansion of service through a larger fleet. In addition, as motorcoaches
age, they require increasing amounts of maintenance and, therefore, are more
expensive to operate. The Company's inability to obtain, or a material delay in
obtaining, the financing necessary to acquire replacement motorcoaches as needed
would have an adverse
16
<PAGE>
effect on the Company's results of operations due to higher operating costs
associated with operating an aging fleet. See "Business -- Equipment."
GOVERNMENT SUBSIDIES
Payments to the Company under a number of its commuter and transit
contracts are funded through Federal or state subsidy programs, and, without
these subsidies, the state or local transit authority may be unwilling to
continue to renew these contracts. In addition, many of the motorcoaches
provided at nominal rent to the Company under these contracts are purchased with
funds provided by Federal programs. If funding for these Federal programs were
eliminated or curtailed, the Company would be required to operate existing
motorcoaches longer than economically practicable or be forced to acquire
replacement equipment. Either alternative could result in an increase in the
Company's costs of operations or could cause the Company to decide not to renew
some of its contracts.
SIGNIFICANT REGULATION
As a result of the enactment of the ICC Termination Act of 1995, interstate
motorcoach operations previously regulated by the Interstate Commerce Commission
became subject, as of January 1, 1996, to regulatory requirements administered
by the Federal Highway Administration (the "FHWA") and the new Surface
Transportation Board, both units of the United States Department of
Transportation. Motorcoach operators subject to FHWA jurisdiction are required
to be registered with the FHWA and to maintain minimum amounts of insurance. The
Surface Transportation Board (the "STB") must approve or exempt any
consolidation or merger of two or more regulated interstate motorcoach operators
or the acquisition of one such operator by another. As of May 15, 1997, the STB
had exempted from regulatory approval requirements each of the acquisition
transactions involving federally-regulated interstate motorcoach operators
entered into by the Company through February 1997. However, acquisitions
subsequent to March 1, 1997 and future acquisitions of other motorcoach
operators must be approved or exempted from the need for regulatory approval by
the STB. There can be no assurance that the Company will be able to obtain such
approval or exemption with respect to such acquisitions. Motorcoach operators
are also subject to extensive safety requirements and requirements imposed by
environmental laws, workplace safety and anti-discrimination laws, including the
Americans with Disabilities Act. Safety, environmental and vehicle accessibility
requirements for motorcoach operators have increased in recent years, and this
trend could continue. The FHWA and state regulatory agencies have broad power to
suspend, amend or revoke the Company's operating authorizations for failure to
comply with statutory requirements, including safety and insurance requirements.
A number of states, such as New Jersey, Nevada and Pennsylvania, require
motorcoach operators to obtain authority to operate over certain specified
intrastate routes, and, in some instances, such authority cannot be obtained if
another operator already has obtained authority to operate on that route. As a
result, there may be regulatory constraints on the expansion of the Company's
operations in these states. Furthermore, the Company currently has a competitive
advantage with respect to certain of its existing route authorities as a result
of this regulatory posture. Therefore, if New Jersey or another highly regulated
state in which the Company has operations were to reduce the level of
regulation, the Company's competitive advantage arising from such regulation
could be lost. Similarly, the Company's taxicab service operations are regulated
primarily at the local municipality level. Local regulations applicable to
taxicab services focus on the entry of new operators into the marketplace and
the aggregate number of vehicles which will have authority to operate as well as
the fares that can be charged for providing transportation services via
taxicabs. These regulations may limit the Company's ability to expand the size
of its taxicab fleet. See "Business -- Regulation."
POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES
The Company's operations are subject to various environmental laws and
regulations, including those dealing with air emissions, water discharges and
the storage, handling and disposal of petroleum and hazardous substances. The
motorcoach and ground passenger transportation services industry may in the
future become subject to stricter regulations which could impose significant
compliance costs on the Company. In addition to compliance costs, there have
been spills and releases of hazardous substances,
17
<PAGE>
including petroleum and petroleum related products, at several of the Company's
operating facilities in the past. As a result of past and future operations at
these facilities, the Company may be required to incur significant remediation
costs and may be subject to penalties for noncompliance with applicable
environmental laws and regulations. The Company believes that its liabilities
for existing environmental matters will not have a material adverse effect on
its financial condition, liquidity, results of operations or competitive
position; however, there can be no assurance that the Company will not incur
costs in the future that will have a material adverse effect on the Company. In
addition, although the Company intends to conduct appropriate due diligence with
respect to environmental matters in connection with future acquisitions, there
can be no assurance that the Company will be able to identify or be indemnified
for all potential environmental liabilities relating to any acquired business.
See "Business -- Environmental Matters."
SUBSTANTIAL COMPETITION
The motorcoach and ground transportation industry is highly competitive,
fragmented and subject to rapid change, particularly with regard to recreational
and excursion services and commuter and transit services. There are numerous
other companies that provide these services, a number of which are as large or
larger than the Company on a national or regional basis and thousands of which
are small, independent and serve local populations. Certain competitors operate
in several of the Company's existing or target markets, and others may choose to
enter those markets in the future. The majority of the Company's competition is
made up of smaller regional or local operators with a strong presence in their
respective local markets. As a result of these factors, the Company may lose
customers or have difficulty in acquiring new customers. See
"Business -- Competition."
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of its
executive officers and the senior management of the operating subsidiaries.
Furthermore, the Company will likely be dependent on the senior management of
any businesses acquired in the future. If any of these persons becomes unable to
continue in his or her present role, or if the Company is unable to attract and
retain other qualified employees, the Company's business or prospects could be
adversely affected. Although the Company or an operating subsidiary has entered
into an employment agreement with each of the Company's executive officers and
key managers, there can be no assurance that any individual will continue in his
present capacity with the Company or operating subsidiary for any particular
period of time. The Company does not intend to obtain key man life insurance
covering any of its executive officers or other members of senior management.
See "Management."
RISKS RELATING TO A CHANGE OF CONTROL
Upon a Change of Control (as defined), holders of the Notes will have the
right to require the Company to repurchase all or any part of such holders'
Notes at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages (as defined), if any, to the date of
repurchase. The events that constitute a Change of Control under the Indenture
relating to the Notes would constitute a default under the Credit Agreement,
which prohibits the purchase of the Notes by the Company in the event of certain
Change of Control events unless and until such time as the Company's
indebtedness under the Credit Agreement is repaid in full. There can be no
assurance that the Company and the Guarantors would have sufficient financial
resources available to satisfy all of its or their obligations under the Credit
Agreement and the Notes in the event of a Change of Control. The Company's
failure to purchase the Notes would result in a default under the Indenture and
under the Credit Agreement, each of which could have adverse consequences for
the Company and the holders of the Notes. See "Description of the
Notes -- Repurchase at the Option of Holders -- Change of Control." The
definition of "Change of Control" in the Indenture includes a sale, lease,
conveyance or other disposition of "all or substantially all" of the assets of
the Company and its Subsidiaries taken as a whole to a person or a group of
persons. There is little case law interpreting the phrase "all or substantially
all" in the context of an indenture. Because there is no precise established
definition of this phrase, the ability of a holder of the Notes to
18
<PAGE>
require the Company to repurchase such Notes as a result of a sale, lease,
conveyance or transfer of all or substantially all of the Company's assets to a
person or group of persons may be uncertain.
ABSENCE OF A PUBLIC MARKET FOR NOTES
There is no existing market for the Notes. The Company does not intend to
apply for listing of the Notes on a securities exchange or to seek approval for
quotation through an automated quotation system. Accordingly, there can be no
assurance that an active market for the Notes will develop following the
completion of the Exchange Offer or, if developed, that such market will be
sustained or as to the liquidity of the market.
19
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on June 24, 1997, to the Initial
Purchasers pursuant to a Purchase Agreement, dated June 18, 1997, between the
Company, the Guarantors and the Initial Purchasers (the "Purchase Agreement").
The Initial Purchasers subsequently resold all of the Old Notes to Qualified
Institutional Buyers, each of whom agreed to comply with certain transfer
restrictions and other conditions. As a condition to the purchase of the Old
Notes by the Initial Purchasers, the Company entered into a registration rights
agreement with the Initial Purchasers (the "Registration Rights Agreement"),
which requires, among other things, that promptly following the issuance and
sale of the Old Notes, the Company file with the SEC the Registration Statement
with respect to the Exchange Notes, use its best efforts to cause the
Registration Statement to become effective under the Securities Act and, upon
the effectiveness of the Registration Statement, offer to the holders of the Old
Notes the opportunity to exchange their Old Notes for a like principal amount of
Exchange Notes, which will be issued without a restrictive legend and may be
reoffered and resold by the holder without restrictions or limitations under the
Securities Act subject to certain exceptions described below. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The term "holder" with respect
to the Exchange Offer means any person in whose name Old Notes are registered on
the Company's books or any other person who has obtained a properly completed
bond power from the registered holder or any person whose Old Notes are held of
record by the Depositary who desires to deliver such Old Notes by book-entry
transfer of the Depositary. The Old Notes provide that if, (i) the Exchange
Offer has not been consummated by the date required by the Registration Rights
Agreement, or (ii) a shelf registration statement relating to the sale of the
Old Notes has not been declared effective by the date required by the
Registration Rights Agreement, the Company will pay liquidated damages in an
amount equal to $0.05 per week per $1,000 principal amount of the Old Notes
outstanding until but excluding the date the Exchange Offer is consummated or
such shelf registration statement is declared effective. The amount of
liquidated damages will increase by an additional $0.05 per $1,000 principal
amount of Old Notes with respect to each subsequent 90 day period until all
defaults have been cured, up to a maximum amount of liquidated damages of $0.50
per week per $1,000 principal amount of Notes.
Based on existing interpretations of the Securities Act by the staff of the
SEC set forth in several no-action letters to third parties, and subject to the
immediately following sentence, the Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by a holder thereof (other than (i) a
broker-dealer who purchased such Old Notes directly from the Company for resale
pursuant to Rule 144A or by any other available exemption under the Securities
Act or (ii) a person that is an "affiliate" (within the meaning of Rule 405 of
the Securities Act) of the Company), without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that the
holder is acquiring the Exchange Notes in its ordinary course of business and is
not participating, and has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes. However, any purchaser of
Old Notes who is an affiliate of the Company or who intends to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes, or any
broker-dealer who purchased the Old Notes from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act, (i) will
not be able to rely on the interpretations by the staff of the SEC set forth in
the above-mentioned no-action letters, (ii) will not be able to tender its Old
Notes in the Exchange Offer and (iii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or transfer of the Old Notes unless such sale or transfer is made pursuant
to an exemption from such requirements. Accordingly, any holder who tenders in
the Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. See "Plan of Distribution."
As a result of the filing and effectiveness of the Registration Statement
of which this Prospectus is a part, the Company will not be required to pay an
increased interest rate on the Old Notes. Following the
20
<PAGE>
consummation of the Exchange Offer, holders of Old Notes not tendered will not
have any further registration rights except in certain limited circumstances
requiring the filing of a Shelf Registration Statement (as defined herein), and
the Old Notes will continue to be subject to certain restrictions on transfer.
See "Description of the Notes -- Registered Exchange Offer; Registration
Rights." Accordingly, the liquidity of the market for the Old Notes could be
adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept all Old Notes properly
tendered and not withdrawn prior to 5:00 p.m. New York City time, on the
Expiration Date. After authentication of the Exchange Notes by the Trustee or an
authenticating agent, the Company will issue and deliver $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Old Notes accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer in denominations of $1,000 and
integral multiples thereof.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to represent that (i) it is not an
affiliate of the Company, (ii) it is not engaged in, and does not intend to
engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the Series B Notes to be issued in the
Exchange Offer, (iii) it is acquiring the Series B Notes in its ordinary course
of business and (iv) if such Holder is a broker-dealer, that it will receive
Exchange Securities for its own account in exchange for Securities that were
acquired as a result of market-making activities or other trading activities and
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution."
The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Old Notes, except that (i) the offering of
the Exchange Notes has been registered under the Securities Act, (ii) the
Exchange Notes will not be subject to transfer restrictions and (iii) certain
provisions relating to an increase in the stated interest rate on the Old Notes
provided for under certain circumstances will be eliminated. The Exchange Notes
will evidence the same debt as the Old Notes. The Exchange Notes will be issued
under and entitled to the benefits of the Indenture.
As of the date of this Prospectus, $150,000,000 aggregate principal amount
of the Old Notes is outstanding. In connection with the issuance of the Old
Notes, the Company arranged for the Old Notes to be issued and transferable in
book-entry form through the facilities of the Depositary, acting as depositary.
The Exchange Notes will also be issuable and transferable in book-entry form
through the Depositary.
This Prospectus, together with the accompanying Letter of Transmittal, is
initially being sent to all registered holders of the Old Notes as of the close
of business on August 20, 1997. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act, and
the rules and regulations of the SEC thereunder, including Rule 14e-1, to the
extent applicable. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Old Notes being tendered, and holders of the Old
Notes do not have any appraisal or dissenters' rights under the General
Corporation Law of the State of Delaware or under the Indenture in connection
with the Exchange Offer. The Company shall be deemed to have accepted validly
tendered Old Notes when, as and if the Company has given oral or written notice
thereof to the Exchange Agent. See "-- Exchange Agent." The Exchange Agent will
act as agent for the tendering holders for the purpose of receiving Exchange
Notes from the Company and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, at the
Company's cost, to the tendering holder thereof as promptly as practicable after
the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and
21
<PAGE>
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "-- Solicitation of Tenders, Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
MOREOVER, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF
OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD NOTES TO TENDER AFTER
READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR
ADVISORS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
September 25, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date to which the Exchange Offer is extended. The Company may extend the
Exchange Offer at any time and from time to time by giving oral or written
notice to the Exchange Agent and by timely public announcement.
The Company expressly reserves the right, in its sole discretion (i) to
delay acceptance of any Old Notes, to extend the Exchange Offer or to terminate
the Exchange Offer and to refuse to accept Old Notes not previously accepted, if
any of the conditions set forth herein under "-- Conditions of the Exchange
Offer" shall have occurred and shall not have been waived by the Company (if
permitted to be waived by the Company), by giving oral or written notice of such
delay, extension or termination to the Exchange Agent and (ii) to amend the
terms of the Exchange Offer in any manner. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof by the Company to the registered holders of
the Old Notes. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of such
amendment and the Company will extend the Exchange Offer to the extent required
by law.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advise, or
otherwise communicate any such public announcement, other than by making a
timely release thereof to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate of 9 3/8% per annum,
payable semi-annually on January 1 and July 1 of each year, commencing January
1, 1998. Holders of Exchange Notes of record on December 15, 1997, will receive
on January 1, 1998, an interest payment in an amount equal to (x) the accrued
interest on such Exchange Notes from the date of issuance thereof to January 1,
1998, plus (y) the accrued interest on the previously held Old Notes from the
date of issuance of such Old Notes (June 24, 1997) to the date of exchange
thereof. Interest will not be paid on Old Notes that are accepted for exchange.
The Notes mature on July 1, 2007.
PROCEDURES FOR TENDERING
Each holder of Old Notes wishing to accept the Exchange Offer must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such facsimile, together with
the Old Notes to be exchanged and any other required documentation, to The Bank
of New York, as Exchange Agent, at the address set forth herein and therein or
effect a tender of Old Notes pursuant to the procedures for book-entry transfer
as provided for herein and therein. By executing the Letter of Transmittal, each
holder will represent to the Company, that, among other things, the Exchange
Notes acquired pursuant to
22
<PAGE>
the Exchange Offer are being acquired in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is the holder,
that neither the holder nor any such other person has any arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and that neither the holder nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company.
Any financial institution that is a participant in the Depositary's
Book-entry Transfer Facility system may make book-entry delivery of the Old
Notes by causing the Depositary to transfer such Old Notes into the Exchange
Agent's account in accordance with the Depositary's procedure for such transfer.
Although delivery of Old Notes may be effected through book-entry transfer into
the Exchange Agent's account at the Depositary, the Letter of Transmittal (or
facsimile thereof), with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at its address set forth herein under "-- Exchange Agent" prior
to 5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF DOCUMENTS
TO THE DEPOSITARY IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE EXCHANGE AGENT.
Only a holder may tender its Old Notes in the Exchange Offer. To tender in
the Exchange Offer, a holder must complete, sign and date the Letter of
Transmittal or a facsimile thereof, have the signatures thereof guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver such Letter
of Transmittal or such facsimile, together with the Old Notes (unless such
tender is being effected pursuant to the procedure for book-entry transfer) and
any other required documents, to the Exchange Agent, prior to 5:00 p.m., New
York City time, on the Expiration Date.
The Tender by a holder will constitute an agreement between such holder,
The Company and the Exchange Agent in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal. If less than
all of the Old Notes are tendered, a tendering holder should fill in the amount
of Old Notes being tendered in the appropriate box on the Letter of Transmittal.
The entire amount of Old Notes delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
THE LETTER OF TRANSMITTAL WILL INCLUDE REPRESENTATIONS TO THE COMPANY THAT,
AMONG OTHER THINGS, (1) THE EXCHANGE NOTES ACQUIRED PURSUANT TO THE EXCHANGE
OFFER ARE BEING ACQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE PERSON
RECEIVING SUCH EXCHANGE NOTES (WHETHER OR NOT SUCH PERSON IS THE HOLDER), (2)
NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS ENGAGED IN, INTENDS TO ENGAGE IN
OR HAS ANY ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE
DISTRIBUTION OF SUCH EXCHANGE NOTES, (3) NEITHER THE HOLDER NOR ANY SUCH OTHER
PERSON IS AN "AFFILIATE," AS DEFINED IN RULE 405 UNDER THE SECURITIES ACT, OF
THE COMPANY AND (4) IF THE TENDERING HOLDER IS A BROKER OR DEALER (AS DEFINED IN
THE EXCHANGE ACT) (A) IT ACQUIRED THE OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT
OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND (B) IT HAS NOT
ENTERED INTO ANY ARRANGEMENT OR UNDERSTANDING WITH THE COMPANY OR ANY
"AFFILIATE" THEREOF (WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES ACT)
TO DISTRIBUTE THE EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER. IN THE
CASE OF A BROKER-DEALER THAT RECEIVES EXCHANGE NOTES FOR ITS OWN ACCOUNT IN
EXCHANGE FOR OLD NOTES WHICH WERE ACQUIRED BY IT AS A RESULT OF MARKET-MAKING OR
OTHER TRADING ACTIVITIES, THE LETTER OF TRANSMITTAL WILL ALSO INCLUDE AN
ACKNOWLEDGMENT THAT THE BROKER-DEALER WILL DELIVER A COPY OF THIS PROSPECTUS IN
CONNECTION WITH THE RESALE BY IT OF EXCHANGE NOTES RECEIVED PURSUANT TO THE
EXCHANGE OFFER; HOWEVER, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS,
SUCH HOLDER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE
MEANING OF THE SECURITIES ACT. SEE "PLAN OF DISTRIBUTION."
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
ALSO REQUEST
23
<PAGE>
THAT THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES EFFECT SUCH TENDER FOR HOLDERS, IN EACH CASE AS SET FORTH HEREIN AND IN
THE LETTER OF TRANSMITTAL.
Any beneficial owner whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such owner's
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Exchange Act (each an "Eligible Institution"), unless
the Old Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" of the Letter of Transmittal or (ii) for the
account of an Eligible Institution. If the Letter of Transmittal is signed by a
person other than the registered holder listed therein, such Old Notes must be
endorsed or accompanied by appropriate bond powers which authorize such person
to tender the Old Notes on behalf of the registered holder, in either case
signed as the name of the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed or
endorsed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with such Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive an irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall be
under any duty to give notification of defects or irregularities with respect to
tenders of Old Notes, nor shall any of them incur any liability for failure to
give such notification. Tenders of Old Notes will not be deemed to have been
made until such irregularities have been cured or waived. Any Old Notes received
by the Exchange Agent that the Company determines are not properly tendered or
the tender of which is otherwise rejected by the Company and as to which the
defects or irregularities have not been cured or waived by the Company will be
returned by the Exchange Agent to the tendering holder unless otherwise provided
in the Letter of Transmittal, as soon as practicable following the Expiration
Date.
In addition, the Company reserves the right in its sole discretion (a) to
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date, or, as set forth under "-- Conditions of the Exchange
Offer," terminate the Exchange Offer and (b) to the extent permitted by
applicable law, to purchase Old Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
may differ from the terms of the Exchange Offer.
24
<PAGE>
BOOK-ENTRY TRANSFER
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the DTC (the "Book-Entry Transfer Facility") for the purpose
of facilitating the Exchange Offer, and subject to the establishment thereof,
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry deliver of Old Notes by causing such
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account with respect to the Old Notes in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. ALTHOUGH DELIVERY OF OLD NOTES
MAY BE EFFECTED THROUGH BOOK-ENTRY TRANSFER INTO THE EXCHANGE AGENT'S ACCOUNT AT
THE BOOK-ENTRY TRANSFER FACILITY, AN APPROPRIATE LETTER OF TRANSMITTAL PROPERLY
COMPLETED AND DULY EXECUTED WITH ANY REQUIRED SIGNATURE GUARANTEE AND ALL OTHER
REQUIRED DOCUMENTS MUST IN EACH CASE BE TRANSMITTED TO AND RECEIVED OR CONFIRMED
BY THE EXCHANGE AGENT AT ITS ADDRESS SET FORTH BELOW ON OR PRIOR TO THE
EXPIRATION DATE, OR, IF THE GUARANTEED DELIVERY PROCEDURES DESCRIBED BELOW ARE
COMPLIED WITH, WITH THE TIME PERIOD PROVIDED UNDER SUCH PROCEDURES. DELIVERY OF
DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO
THE EXCHANGE AGENT.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or who cannot complete the procedure for book-entry transfer on
a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmittal, mail or hand delivery)
setting forth the name and address of the holder, the certificate number or
numbers of such holder's Old Notes and the principal amount of such Old
Notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within three New York Stock Exchange ("NYSE") trading
days after the Expiration Date, the Letter of Transmittal (or facsimile
thereof), together with the certificate(s) representing the Old Notes to be
tendered in proper form for transfer (or confirmation of a book-entry
transfer into the Exchange Agent's account at the Depositary of Old Notes
delivered electronically) and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer into the Exchange Agent's account at the Depositary of
Old Notes delivered electronically) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within three NYSE
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the
Old Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Old Notes or, in the case of Old Notes transferred by
book-entry transfer, the name and number of the account at the Depositary to be
credited), (iii) be signed by the Depositor in the same manner as the original
signature on the Letter of
25
<PAGE>
Transmittal by which such Old Notes were tendered (including any required
signature guarantee) or be accompanied by documents of transfer sufficient to
permit the Trustee with respect to the Old Notes to register the transfer of
such Old Notes into the name of the Depositor withdrawing the tender and (iv)
specify the name in which any such Old Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer, and no Exchange Notes will be
issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Any Old Notes that have been tendered but are not accepted for
exchange will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures described above under "-- Procedures for Tendering" at any
time prior to the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or to exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes if, in the Company's judgment, any of the
following conditions has occurred or exists or has not been satisfied: (i) that
the Exchange Offer, or the making of any exchange by a holder, violates
applicable law or any applicable interpretation of the staff of the SEC, (ii)
that any action or proceeding shall have been instituted or threatened in any
court or by or before any governmental agency or body with respect to the
Exchange Offer, (iii) that there has been adopted or enacted any law, statute,
rule or regulation that can reasonably be expected to impair the ability of the
Company to proceed with the Exchange Offer, (iv) that there has been declared by
United States federal or Texas or New York state authorities a banking
moratorium; or (v) that trading on the New York Stock Exchange or generally in
the United States over-the-counter market has been suspended by order of the SEC
or any other governmental agency, in each of clauses (i) through (iv) which, in
the Company's judgment, would reasonably be expected to impair the ability of
the Company to proceed with the Exchange Offer.
If the Company determines that it may terminate the Exchange Offer for any
of the reasons set forth above, the Company may (i) refuse to accept any Old
Notes and return any Old Notes that have been tendered to the holders thereof,
(ii) extend the Exchange Offer and retain all Old Notes tendered prior to the
Expiration Date of the Exchange Offer, subject to the rights of such holders of
tendered Old Notes to withdraw their tendered Old Notes or (iii) waive such
termination event with respect to the Exchange Offer and accept all properly
tendered Old Notes that have not been withdrawn. If such waiver constitutes a
material change in the Exchange Offer, the Company will disclose such change by
means of a supplement to this Prospectus that will be distributed to each
registered holder, and the Company will extend the Exchange Offer for a period
of five to ten business days, depending upon the significance of the waiver and
the manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such period.
26
<PAGE>
EXCHANGE AGENT
The Bank of New York, the Trustee under the Indenture, has been appointed
as Exchange Agent for the Exchange Offer. In such capacity, the Exchange Agent
has no fiduciary duties and will be acting solely on the basis of directions of
the Company. Requests for assistance and requests for additional copies of this
Prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent addressed as follows:
THE BANK OF NEW YORK, EXCHANGE AGENT
<TABLE>
<CAPTION>
<S> <C> <C>
By Hand or Overnight Delivery: By Registered or Certified Mail: By Facsimile Transmission:
The Bank of New York The Bank of New York (FOR ELIGIBLE INSTITUTIONS ONLY):
101 Barclay Street 101 Barclay Street, 7E (212) 571-3080
Corporate Trust Services Window New York, New York 10286 Attention: George Johnson
Ground Level Attention: Reorganization Department, CONFIRM BY TELEPHONE:
New York, New York 10286 George Johnson (212) 815-4997
Attention: Reorganization Department,
George Johnson
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
Delivery to an address or facsimile number other than those listed above will
not constitute a valid delivery.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation pursuant to the Exchange Offer
is being made by mail. Additional solicitations may be made by officers and
regular employees of the Company and its affiliates in person, by telegraph,
telephone or telecopier.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company will, however,
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket costs and expenses
in connection therewith and will indemnify the Exchange Agent for all losses and
claims incurred by it as a result of the Exchange Offer. The Company may also
pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus, Letters of Transmittal and related documents to the beneficial
owners of the Old Notes and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees and printing costs, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed by the Company directly to such tendering holder.
27
<PAGE>
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company as a result of the consummation of the Exchange Offer.
The expenses of the Exchange Offer will be amortized by the Company over the
term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Old Notes
are urged to consult their financial and tax advisors in making their own
decisions as to what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of the Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights, and subject to the limitations applicable thereto, under the
Indenture and the Registration Rights Agreement, except for any such rights
under the Registration Rights Agreement that by their terms terminate or cease
to have further effect as a result of the making of this Exchange Offer. See
"Description of the Notes." All untendered Old Notes will continue to be
subject to the restrictions on transfer set forth in the Indenture. The Old
Notes may not be offered, resold, pledged or otherwise transferred, prior to the
date that is two years after the later of June 24, 1997 and the last date on
which the Company or any "affiliate" (within the meaning of Rule 144 of the
Securities Act) of the Company was the owner of such Old Note except (i) to the
Company, (ii) pursuant to a registration statement which has been declared
effective under the Securities Act, (iii) to Qualified Institutional Buyers in
reliance upon the exemption from the registration requirements of the Securities
Act provided by Rule 144A, (iv) to institutional "accredited investors" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) in
transactions exempt from the registration requirements of the Securities Act,
(v) in transactions complying with the provisions of Regulation S under the
Securities Act or (vi) pursuant to any other available exemption from the
registration requirements under the Securities Act. To the extent that Old Notes
are tendered and accepted in the Exchange Offer, the liquidity of the trading
market for untendered Old Notes could be adversely affected.
The Company may in the future seek to acquire untendered Old Notes in the
open market or through privately negotiated transactions, through subsequent
exchange offers or otherwise. The Company intends to make any such acquisitions
of Old Notes in accordance with the applicable requirements of the Exchange Act
and the rules and regulations of the SEC thereunder, including Rule 14e-1, to
the extent applicable. The Company has no present plan to acquire any Old Notes
that are not tendered in the Exchange Offer or to file a registration statement
to permit resales of any Old Notes that are not tendered in the Exchange Offer.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange Old
Notes in like principal amount. The form and terms of the Exchange Notes are
identical in all material respects to the form and terms of the Old Notes,
except that (i) the offering of the Exchange Notes has been registered under the
Securities Act, (ii) the Exchange Notes will not be subject to transfer
restrictions and (iii) certain provisions relating to an increase in the stated
interest rate on the Old Notes provided for under certain circumstances will be
eliminated. The Old Notes surrendered in exchange for Exchange Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in a change in the indebtedness of the Company.
28
<PAGE>
CAPITALIZATION
The following table sets forth the current maturities of long-term
obligations and total capitalization of the Company as of March 31, 1997,
Actual, and As Adjusted to reflect the Subsequent Acquisitions, the issuance of
the Old Notes and the application of the proceeds therefrom and the exchange of
the Old Notes for the Exchange Notes. See "Selected Consolidated Pro Forma
Financial Data." This table should be read in conjunction with the Unaudited
Pro Forma Combined Financial Statements of the Company and the related notes
thereto included elsewhere in this Prospectus.
ACTUAL AS ADJUSTED
Current maturities of long-term
obligations........................... $ 6,452 $ 13,284
========= ===========
Long-term obligations:
Credit Facility.................... $ 126,739 $ --
Capital lease obligations and
other............................ 33,629 45,717
Exchange Notes..................... -- 150,000
Convertible subordinated
notes(1)......................... 36,830 40,580
--------- -----------
Total long-term obligations... 197,198 236,297
Stockholders' equity:
Common Stock: $0.01 par value,
30,000,000 shares authorized;
17,778,107 and 18,629,096 shares
outstanding, respectively........ 178 193
Additional paid-in capital......... 101,325 113,608
Cumulative translation
adjustment....................... -- (218)
Retained earnings.................. 10,303 10,908
--------- -----------
Total stockholders' equity.... 111,806 124,491
--------- -----------
Total capitalization..... $ 309,004 $ 360,788
========= ===========
- ------------
(1) The Company issued $22.5 million of convertible subordinated notes in August
1996 ($4 million of which were repaid in January 1997) and $18.3 million of
convertible subordinated notes in February 1997. Subsequent to March 31,
1997, the Company issued $3.8 million of additional convertible subordinated
notes. All of such notes were issued as consideration to former owners of
certain acquired businesses.
29
<PAGE>
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
The Company acquired, simultaneously with the closing of the Initial Public
Offering in May 1996, the Founding Companies. During the remainder of 1996 and
through March 31, 1997 the Company completed twelve acquisitions, seven of which
were accounted for as poolings and five of which were accounted for as
purchases. The Statement of Income Data for the Pro Forma Combined periods below
include the Company (including the Pooled Companies through March 31, 1997)
combined with historical financial statement data of the Founding Companies at
historical cost for all periods presented and the Purchased Companies since
their date of acquisition. The Pro Forma Statement of Income Data presented
below includes (i) the Statement of Income Data discussed above; (ii) the
Compensation Differential; (iii) certain tax adjustments related to the taxation
of certain of the predecessor businesses as S Corporations prior to their
acquisition by the Company and the tax effect of the other adjustments to income
included herein; (iv) for 1995 and 1996, the conversion of debt to equity at one
of the companies acquired in a pooling; and (v) the elimination of non-recurring
pooling costs. Pro Forma As Adjusted information adjusts the Pro Forma Statement
of Income Data to give effect to the acquisition of the Purchased Companies, the
Subsequent Acquisitions as well as the impact on interest expense of the
issuance of the Notes as if all such transactions had occurred on January 1,
1996. The As Adjusted Balance Sheet Data are adjusted to give effect to the
Subsequent Acquisitions, the issuance of the Notes and the application of the
net proceeds therefrom, as if the same had occurred on March 31, 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Unaudited Pro Forma Combined Financial Statements.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, ---------
--------------------------------------------------------------------- TWELVE MONTHS
ENDED PRO FORMA
PRO FORMA COMBINED PRO FORMA MARCH 31, 1997 COMBINED
----------------------------------------------------- AS ADJUSTED PRO FORMA ---------
1992 1993 1994 1995 1996 1996 AS ADJUSTED 1996
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues........ $ 172,974 $ 180,705 $ 194,814 $ 216,892 $ 250,776 $ 52,515
Gross profit.......... 36,015 35,347 41,507 51,365 61,692 9,737
General and
administrative
expenses............ 25,282 24,822 27,694 29,785 33,348 9,377
Operating income...... 10,733 10,525 13,813 21,580 28,344 360
Interest expense...... 6,307 6,362 7,422 9,505 10,826 2,587
Income tax
provision........... 417 915 1,748 2,979 7,726 45
Income (loss) before
extraordinary
items............... 4,009 3,248 4,643 9,096 9,792 (2,272)
PRO FORMA STATEMENT OF
INCOME DATA:
Total revenues........ $ 172,974 $ 180,705 $ 194,814 $ 216,892 $ 250,776 $436,372 $439,497 $ 52,515
Gross profit.......... 36,015 35,347 41,507 51,365 61,692 104,074 105,499 9,737
General and
administrative
expenses............ 22,667 21,166 23,188 23,724 26,554 49,923 50,204 6,122
Operating income...... 13,348 14,181 18,319 27,641 35,138 54,151 55,295 3,615
Interest expense...... 6,307 6,362 7,422 8,207 9,934 23,965(1) 23,182(1) 2,250
Income tax
provision........... 2,873 3,690 4,376 8,217 9,958 12,161 12,965 549
Income before
extraordinary
items............... 4,168 4,129 6,521 11,217 15,246 18,025 19,148 816
OTHER PRO FORMA DATA:
EBITDA(2)............. $ 23,006 $ 24,398 $ 29,028 $ 40,335 $ 50,357 $ 78,561 $ 80,883 $ 6,994
Compensation
Differential........ 2,615 3,656 4,506 6,061 6,794 8,430 4,859 3,255
Depreciation and
amortization........ 9,658 10,217 10,709 12,694 15,219 24,410 25,538 3,379
Capital
expenditures(3)..... 2,713 10,857 28,449 25,610 40,688 69,203 85,881 10,409
Gross profit margin... 20.8% 19.6% 21.3% 23.7% 24.6% 23.8% 24.0% 18.5%
EBITDA margin......... 13.3 13.5 14.9 18.6 20.1 18.0 18.4 13.3
PRO FORMA RATIOS:
Ratio of earnings to
fixed charges(4).... 1.93x 2.02x 2.24x 3.01x 3.19x 2.14x 2.26x 1.52x
EBITDA/interest
expense(1)(2)....... 3.28 3.49
Net debt/
EBITDA(2)(5)........ 2.33 3.00
</TABLE>
THREE
MONTHS
ENDED
MARCH 31,
---------
PRO FORMA
COMBINED PRO FORMA
--------- AS ADJUSTED
1997 1997
STATEMENT OF INCOME DATA:
Total revenues........ $ 69,311
Gross profit.......... 14,925
General and
administrative
expenses............ 8,355
Operating income...... 6,570
Interest expense...... 3,199
Income tax
provision........... 1,402
Income (loss) before
extraordinary
items............... 1,969
PRO FORMA STATEMENT OF
INCOME DATA:
Total revenues........ $ 69,311 $ 97,361
Gross profit.......... 14,925 17,621
General and
administrative
expenses............ 8,131 12,383
Operating income...... 6,794 5,238
Interest expense...... 3,199 5,409(1)
Income tax
provision........... 1,445 (25)
Income before
extraordinary
items............... 2,150 (146)
OTHER PRO FORMA DATA:
EBITDA(2)............. $ 12,082 $ 12,323
Compensation
Differential........ 224 465
Depreciation and
amortization........ 5,288 7,085
Capital
expenditures(3)..... 31,970 34,529
Gross profit margin... 21.5% 18.1%
EBITDA margin......... 17.4 12.7
PRO FORMA RATIOS:
Ratio of earnings to
fixed charges(4).... 2.01x --
EBITDA/interest
expense(1)(2).......
Net debt/
EBITDA(2)(5)........
30
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31, 1997
------------------------------------------------------- -----------------------
PRO FORMA COMBINED
------------------------------------------
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents....................... $ 6,301 $ 6,433 $ 7,058 $ 7,503 $ 1,470 $ 6,544 $ 7,251
Working capital (deficit)........... (8,753) (8,355) (10,158) (12,060) (7,499) (20,789) (32,854)
Total assets........................ 135,201 138,220 161,403 184,794 299,950 416,124 495,808
Total debt, including current
portion........................... 79,577 75,918 93,963 104,290 131,483 203,650 249,581
Stockholders' equity................ 17,197 20,614 23,911 29,093 109,926 111,806 124,491
</TABLE>
- ------------
(1) Pro Forma As Adjusted interest expense includes the effect of the issuance
of the Notes.
(2) EBITDA represents net income plus depreciation and amortization, income
taxes, net interest expense and extraordinary items as adjusted to reflect
the Compensation Differential. While EBITDA should not be construed as a
substitute for income from operations, net income or cash flows from
operating activities in analyzing the Company's operating performance,
financial position or cash flows, the Company has included EBITDA because
it is commonly used by certain investors and analysts to analyze and
compare companies on the basis of operating performance, leverage and
liquidity and to determine a company's ability to service debt.
(3) Capital expenditures represent current capital additions less the net book
value of capital equipment retired plus assets acquired under capital
leases.
(4) For purposes of calculating this ratio, "earinings" consist of income
before taxes and extraordinary items plus fixed charges. "Fixed charges"
consist of interest expense plus one-third of rental expense, which the
Company estimates to be representative of the interest factors therein.
(5) Pro Forma As Adjusted net debt represents total debt (which includes the
convertible subordinated notes) less cash and cash equivalents. The ratio
of net debt to EBITDA was calculated based on pro forma net debt of $183.3
million and $242.3 million as of December 31, 1996 and March 31, 1997,
respectively. See "Capitalization."
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company was founded in September 1995 to create a nationwide provider
of motorcoach and other ground transportation services. On May 17, 1996, the
Company acquired, simultaneously with the closing of the Initial Public
Offering, the six Founding Companies. Through the remainder of 1996 and the
first quarter of 1997, the Company acquired twelve additional businesses. The
acquisition of seven of these businesses has been accounted for under the
pooling-of-interests method of accounting (the "Pooled Companies") and the
remaining five have been accounted for under the purchase method of accounting
(the "Purchased Companies"). As a result, the pro forma financial statements,
including the pro forma results discussed below, include the historical
financial statements of the Founding Companies and the Company (including the
Pooled Companies) for all periods presented at historical cost, as if these
companies had always been members of the same operating group and give effect to
(i) the Compensation Differential; (ii) the elimination of merger costs related
to pooled acquisitions; (iii) certain tax adjustments related to the taxation of
certain Founding Companies and Pooled Companies as S Corporations prior to the
consummation of the mergers of the Founding Companies and the Subsequent
Acquisitions; and (iv) the tax impact of the Compensation Differential in each
period.
The Company has begun to realize savings by consolidating certain general
administrative and purchasing functions and reducing insurance expenses. In
addition, the Company has begun to realize savings from its ability to borrow at
lower interest rates than the Founding Companies and the subsequent
acquisitions. These savings are being partially offset by the costs of being a
public company and the incremental increase in costs related to the Company's
new corporate management. Neither these savings nor the costs associated
therewith for the periods prior to the Initial Public Offering have been
included in the pro forma financial information discussed below. As a result,
historical pro forma results may not be comparable to, or indicative of, future
performance.
The Company's motorcoach revenues are derived from fares charged to
individual passengers and fees charged under contracts to provide motorcoach
services. Taxicab operation revenues are derived from fees and other services
charged to independent taxicab operators. Operating expenses consist primarily
of salaries and benefits for motorcoach drivers and mechanics, depreciation,
maintenance, fuel, oil, insurance and commissions to agents. General and
administrative expenses consist primarily of compensation and related benefits
to the owners and certain key employees of the Founding Companies and the Pooled
Companies, administrative salaries and benefits, marketing, communications and
professional fees.
PRO FORMA COMBINED RESULTS FOR THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1997
The pro forma combined results discussed below occurred when the combined
Founding Companies were under common control and management from June 1, 1996,
and the Pooled and Purchased Companies were under common control from the date
of their respective acquisitions. All other periods reflected were not under
common control or management and may not be comparable to, or indicative of,
future performance.
Revenues increased by 32.0% to $69.3 million for the three months ended
March 31, 1997. The increase in revenues was largely due to the revenues of the
Purchased Companies of approximately $14.1 million, and incremental increases at
certain other locations.
Operating expenses increased 27.1% to $54.4 million for the three months
ended March 31, 1997. The increase in operating expenses was the result of the
increased operations offset by savings in the Company's insurance program and
parts buying program.
General and administrative expenses, after elimination of the Compensation
Differential and acquisition related costs, increased 32.8% as compared to the
three months ended March 31, 1996. The increase in general and administrative
expenses in the three month period ended March 31, 1997 was largely due to an
increase of $0.7 million related to the establishment of the corporate
management group required to execute the acquisition program and to manage the
consolidated group of companies and the overall increase in
32
<PAGE>
operations and $0.3 million of cost associated with goodwill amortization
related to the acquisitions of the Purchased Companies.
Interest expense increased $0.6 million as compared to the three months
ended March 31, 1996, due to the higher level of debt related to additional
equipment and debt related to the Purchased Companies, partially offset by the
repayment of debt through the use of proceeds of the Initial Public Offering, a
secondary offering of Common Stock, and due to lower interest rates for
borrowings under the Credit Facility.
Pro forma net income before extraordinary items, which has been adjusted
for the Compensation Differential and the pro forma provision for taxes,
increased during the three months ended March 31, 1997 as compared to the three
months ended March 31, 1996 primarily due to continued revenue growth and the
effects of increased purchasing power on lowering certain costs.
PRO FORMA RESULTS FOR 1995 COMPARED TO 1996
Total revenues increased $33.9 million, or 15.6%, to $250.8 million for the
year 1996. The increase in revenues was largely due to: (i) an increase in
taxicab service revenues of $7.3 million, primarily attributable to internal
expansion, (ii) an increase of $7.2 million in special destination services
revenues primarily to the Atlantic City and Louisiana casinos, and (iii) an
increase of $4.1 million in per capita tour revenue attributable in part to the
acquisition of the Company's Los Angeles operations in 1995. In addition,
revenues from the Purchased Companies totaled $12.7 million since their
acquisition.
Operating expenses increased 14.2% to $189.1 million for 1996. The increase
in operating expenses was largely due to a combined increase of $3.1 million at
all of the locations attributable to higher fuel costs in 1996. Approximately
$1.4 million of the additional fuel cost related to higher prices and the
remainder related to higher consumption consistent with the Company's increased
operations. The increase in fuel expense was offset by savings in the Company's
insurance program. The remaining increase was consistent with increased
operations throughout the Company.
General and administrative expenses in 1996, after elimination of the
Compensation Differential, increased $2.8 million, or 11.9%, from $23.7 million
in 1995 to $26.6 million. The increase in general and administrative expenses
was largely due to an increase of $1.5 million related to the establishment of
the corporate management group required to execute the acquisition program and
to manage the consolidated group of companies. The remaining increase was
consistent with the increased operations throughout the Company.
Interest expense increased $1.7 million in 1996 as compared to 1995 due to
the higher level of debt related to additional equipment and debt related to the
Purchased Companies, partially offset by the repayment of debt through the use
of proceeds of the Initial Public Offering, a subsequent offering of Common
Stock completed in November 1996 and due to lower rates from the Credit
Facility.
Pro forma net income (before giving effect to the extraordinary items),
which has been adjusted for the Compensation Differential and the pro forma
provision for taxes, increased during 1996 as compared to 1995 primarily due to
continued revenue growth and the effects of increased purchasing power.
The extraordinary items recorded in 1996 include an extraordinary gain that
was recognized in connection with the mergers of the Pooled Companies with the
Company in August 1996 and extraordinary losses related to prepayment penalties
on certain debt retired. Obligations due to stockholders of $17.2 million were
retired in exchange for shares of Common Stock. The transactions resulted in an
extraordinary gain on early extinguishment of debt of approximately $4.2
million, net of taxes, representing the excess of the recorded value of the
obligations exchanged over the market value of the Common Stock. In addition,
extraordinary losses of $1.5 million, net of taxes, for prepayment penalties on
certain retired debt were recorded in 1996.
PRO FORMA RESULTS FOR 1994 COMPARED TO 1995
Total revenues increased $22.1 million, or 11.3%, from $194.8 million in
1994 to $216.9 million in 1995. The increase was largely due to an increase in
motorcoach charter and special destination revenues of $9.0 million, primarily
attributable to increased service to the Louisiana casinos, an increase in
motorcoach
33
<PAGE>
transit revenues of $5.7 million, primarily attributable to additional transit
contracts in Northern California and New York, an increase in taxicab service
revenues of $2.9 million, primarily attributable to the purchase of additional
taxicab operations in Austin, Texas in July 1995, and an increase in per capita
revenue of $2.5 million primarily attributable to the acquisition of the
Company's Los Angeles operations in 1995.
Operating expenses increased $12.2 million, or 8.0%, from $153.3 million in
1994 to $165.5 million in 1995, but declined as a percentage of revenues from
78.7% in 1994 to 76.3% in 1995. The dollar increase was largely due to an
increase in operating expenses of $3.8 million, primarily attributable to
increased service to the Louisiana casinos, an increase in operating expenses of
$4.6 million, primarily attributable to the increase in transit services, and
$2.1 million, primarily attributable to higher per capita sales. These increases
were partially offset by a $2.2 million reduction in operating expenses
primarily due to a decision not to renew a municipal contract in the Northeast,
and lower salaries, wages and related benefits from favorable revisions of a
collective bargaining agreement.
General and administrative expenses, after elimination of the Compensation
Differential, increased $0.5 million, or 2.3%, from $23.2 million in 1994 to
$23.7 million in 1995. This increase was consistent with the increase in
revenues.
Interest expense increased $2.1 million, or 28.1%, from $7.4 million in
1994 to $9.5 million in 1995. The increase was largely due to higher levels of
debt during 1995 as a result of equipment purchases.
Net income, adjusted for the Compensation Differential, interest and taxes,
increased $4.7 million, from $6.5 million in 1994 to $11.2 million in 1995, and
represented 3.3% of revenues in 1994 compared to 5.2% of revenues in 1995.
34
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following consolidated financial information represents the operations
of the Pooled Companies for all periods presented and the Founding Companies and
the Company for the seven months ended December 31, 1996 and the Purchased
Companies since their date of acquisition. This financial information has been
derived from the Consolidated Financial Statements of the Company. Pro forma net
income before extraordinary items gives effect to (i) the Compensation
Differential; (ii) the elimination of non-recurring pooling costs associated
with the 1996 acquisitions; and (iii) the tax impact of the Compensation
Differential in each period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues................... $ 76,046 $ 77,633 $ 88,060 $ 103,403 $ 205,838 $ 28,294 $ 69,311
Gross profit..................... 18,665 17,329 22,600 28,401 53,540 7,060 14,925
Operating income................. 5,278 4,997 7,377 11,629 27,968 2,749 6,570
Income before extraordinary
items.......................... 631 899 1,343 2,952 10,817 450 1,969
PRO FORMA:
Operating income................. 7,762 6,817 9,825 14,483 35,138 3,333 6,794
Income before extraordinary
items.......................... 2,281 2,446 2,953 4,409 15,246 1,098 2,150
BALANCE SHEET DATA:
Working capital (deficit)........ $ (5,901) $ (6,390) $ (6,759) $ (7,847) $ (7,499) $ (8,835) $ (20,789)
Total assets..................... 66,587 69,764 86,562 102,607 299,950 109,942 416,124
Total debt, including current
portion........................ 47,008 45,905 62,080 72,217 108,983(1) 77,279 166,820(2)
Stockholders' equity (deficit)... (238) 1,647 2,270 4,379 109,926 4,342 111,806
</TABLE>
- ------------
(1) Does not include $22.5 million of convertible debt issued in connection with
the acquisitions of the Purchased Companies.
(2) Does not include $36.8 million of convertible debt issued in connection with
the acquisitions of the Purchased Companies.
HISTORICAL RESULTS FOR THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1997
Revenues increased by 145% to $69.3 million for the three months ended
March 1997. The increase in revenues was largely due to the revenues of the
Founding Companies of $24.5 million and revenues of the Purchased Companies of
approximately $14.1 million, and incremental increases at certain Pooled
Companies.
Operating expenses increased 156% to $54.4 million for the three months
ended March 31, 1997. The increase in operating expenses was the result of the
increased operations.
General and administrative expenses increased 94% as compared to the three
months ended March 31, 1996. The increase in general and administrative expenses
in the three month period ended March 31, 1997 was primarily due to the overall
increase in operations and the establishment of the corporate management group
required to execute the acquisition program and to manage the consolidated group
of companies.
Interest expense increased $1.3 million as compared to the three months
ending March 31, 1996, due to the higher level of debt related to additional
equipment and debt related to the Purchased Companies, partially offset by
repayment of debt through the use of proceeds of the Initial Public Offering, a
secondary offering of Common Stock, and due to lower rates from the Credit
Facility.
Net income before extraordinary items increased during the three months
ended March 31, 1997 as compared to the three months ended March 31, 1996
primarily due to the acquisitions of the Founding Companies and Purchased
Companies and the effects of increased purchasing power on lowering certain
costs.
35
<PAGE>
HISTORICAL RESULTS FOR 1995 COMPARED TO 1996
Total revenues increased $102.4 million, or 99.1%, to $205.8 million for
the year 1996. The increase in revenues was largely due to: (i) the acquisition
of the Founding Companies with revenues of $72.9 million, (ii) the acquisition
of the Purchased Companies with revenues of $12.7 million, (iii) an increase in
taxicab service revenues of $7.3 million, primarily attributable to internal
expansion, (iv) an increase of $3.8 million in special destination services
revenues primarily to the Louisiana casinos, and (v) an increase of $4.1 million
in per capita tour revenue attributable in part to the acquisition of the
Company's Los Angeles operations in 1995.
Operating expenses increased 103.1% to $152.3 million for 1996. The
increase in operating expenses was consistent with increased operations
throughout the Company. The remaining increase was due to higher fuel costs in
1996, offset by savings in the Company's insurance program.
General and administrative expenses in 1996, after elimination of the
Compensation Differential and the elimination of non-recurring pooling costs
associated with the 1996 acquisitions, increased $4.5 million, or 32.2%, from
$13.9 million in 1995 to $18.4 million in 1996. The increase in general and
administrative expenses was largely due to the increase in operations and an
increase related to the establishment of the corporate management group required
to execute the acquisition program and to manage the consolidated group of
companies.
Interest expense increased $3.2 million in 1996 as compared to 1995 due to
the higher level of debt related to additional equipment and subordinated debt
related to the Purchased Companies, partially offset by the repayment of debt
through the use of proceeds of the Initial Public Offering, Secondary Stock
Offering and due to lower rates from the Credit Facility.
Pro forma net income (before giving effect to the extraordinary gain),
which has been adjusted for the Compensation Differential and the pro forma
provision for taxes, increased during 1996 as compared to 1995 primarily due to
continued revenue growth and the effects of increased purchasing power.
The extraordinary items recorded in 1996 include an extraordinary gain that
was recognized in connection with the mergers of the Pooled Companies with the
Company in August 1996 and extraordinary losses related to prepayment penalties
on certain debt retired. Obligations due to stockholders of $17.2 million were
retired in exchange for shares of Common Stock. The transactions resulted in an
extraordinary gain on early extinguishment of debt of approximately $4.2
million, net of taxes, representing the excess of the recorded value of the
obligations exchanged over the market value of the Common Stock. In addition,
extraordinary losses of $1.5 million, net of taxes, for prepayment penalties on
certain retired debt were recorded in 1996.
HISTORICAL RESULTS FOR 1994 COMPARED TO 1995
Total revenues increased $15.3 million, or 17.4%, from $88.1 million in
1994 to $103.4 million in 1995. The increase was largely due to an increase in
motorcoach charter and special destination revenues of $6.6 million, primarily
attributable to increased service to the Louisiana casinos, an increase in
taxicab service revenues of $2.9 million, partially attributable to the purchase
of additional taxicab operations in Austin, Texas in July 1995, and an increase
in per capita revenue of $2.5 million partially attributable to the acquisition
of the Company's Los Angeles operations in 1995.
Operating expenses increased $9.5 million, or 14.6%, from $65.5 million in
1994 to $75.0 million in 1995, but declined as a percentage of revenues from
74.3% in 1994 to 72.5% in 1995. The dollar increase was largely due to an
increase in operating expenses of $3.8 million, primarily attributable to
increased service to the Louisiana casinos, and $2.1 million, primarily
attributable to higher per capita sales.
General and administrative expenses, after elimination of the Compensation
Differential, increased $1.1 million, or 8.9%, from $12.8 million in 1994 to
$13.9 million in 1995. This increase was consistent with the increase in
revenues.
Interest expense increased $1.7 million, or 35.1%, from $4.9 million in
1994 to $6.6 million in 1995. The increase was largely due to higher levels of
debt during 1995 as a result of equipment purchases.
36
<PAGE>
Net income, adjusted for the Compensation Differential and taxes, increased
$1.4 million, from $3.0 million in 1994 to $4.4 million in 1995, and represented
3.4% of revenues in 1994 compared to 4.3% of revenues in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by historical operating activities was $6.6 million, $7.4
million, $9.0 million and $25.8 million for 1994, 1995, 1996, and the three
months ended March 31, 1997 respectively.
Cash used in historical investing activities was $21.7 million, $12.4
million, $54.4 million and $55.7 million for 1994, 1995, 1996, and the three
months ended March 31, 1997 respectively. Cash used in investing activities was
primarily for additions and replacements of motorcoaches and for expansion of
facilities, net of sales of property and equipment. In addition, in 1996 and
1997 the Company paid $34.8 million and $26.1 million, respectively, in cash for
the Founding Companies and Purchased Companies, net of cash acquired.
Cash provided by historical financing activities was $13.8 million, $6.6
million, $43.4 million, and $35.0 million for 1994, 1995, 1996, and the three
months ended March 31, 1997, respectively. Cash provided by financing activities
for 1995 was primarily attributable to the issuance of $7.6 million of long-term
obligations, net of repayments, partially offset by $1.1 million in S
Corporation distributions paid to the former owners of the Pooled Companies.
Cash provided by financing activities of $43.4 million for 1996 was primarily
attributable to $48.1 million from the Initial Public Offering and $48.5 million
from its second public offering partially offset by $51.4 million of net
payments on long-term obligations and $1.8 million in S Corporation
distributions paid to the former owners of the Pooled Companies. Cash provided
by financing activities of $35.0 million for the three months ended March 31,
1997 related to borrowings under the Company's credit agreement used to pay down
existing debt and finance equipment additions.
Cash and cash equivalents decreased $1.3 million and $1.9 million for 1994
and 1996, respectively. For 1995 and the three months ended March 31, 1997, cash
and cash equivalents increased $1.6 million and $5.1 million.
Capital expenditures during 1994, 1995, 1996 and the three months ended
March 31, 1997 were $23.4 million, $15.4 million, $29.3 million and $32.0
million, respectively. These expenditures were primarily incurred to purchase
motorcoaches and other vehicles and were principally financed with debt and cash
flows from operations. Capital expenditures are net of trade-ins and proceeds
and related gains or losses from sales of property and equipment plus the cost
of assets acquired under capital leases. As of December 31, 1996, the Company
had entered into commitments to purchase 108 motorcoaches for approximately
$32.6 million. The Company expects to finance additional vehicle purchases
primarily from cash flows from operations, trade-ins of older equipment
supplemented, as necessary, with borrowings under the Credit Facility.
In November and December 1996, the Company sold 2,084,307 shares of Common
Stock in a public offering, resulting in net proceeds of approximately $48.5
million. The net proceeds were used to repay outstanding debt freeing the
existing credit facility for additional working capital and general corporate
purposes, including acquisitions.
From January 1, 1997 through June 30, 1997 the Company completed the
acquisition of eleven companies. These eleven companies have aggregate annual
revenues of approximately $180 million and the Company has paid, or agreed to
pay, aggregate consideration consisting of approximately $42.8 million in cash,
1,958,280 shares of Common Stock, $22.1 million in aggregate principal amount of
subordinated notes convertible into 586,367 shares of Common Stock, as well as
the assumption of certain indebtedness. Six of the eleven completed acquisitions
were accounted for as poolings-of-interest while the other five were accounted
for as purchases. The recently acquired companies include America Charters of
Gastonia, North Carolina, Antelope Valley Bus, Inc. of Lancaster, California,
The Arrow Line, Inc. of Hartford, Connecticut, Gray Line of Fort Lauderdale,
Florida, Gray Line of Montreal, Canada, International Express Corp. of
Minneapolis, Minnesota, Kerrville Bus Company of Kerrville, Texas, Metro
Transportation Services, Inc. of Miami, Florida, MTC, Inc. of Phoenix, Arizona,
Red & Tan Enterprises of Bergenfield,
37
<PAGE>
New Jersey and Trentway-Wagar, Inc. of Toronto, Canada. The Company believes
that each of these acquisitions is consistent with its strategy of entering new
markets and expanding in existing markets.
The Credit Facility provides for a revolving facility of $181 million
through a syndicate of eight banks, and allows the Company to have borrowings of
up to $40 million (in addition to Subordinated Debt (as defined therein))
outside the Credit Facility. The Company has recently announced that it
anticipates that such facility will be amended to provide for borrowings of up
to $300 million and additional senior borrowings outside such facility of up to
$80 million. The Credit Facility is secured by substantially all of the assets
of the Company and matures August 14, 1999 at which time all amounts then
outstanding become due. Interest on outstanding borrowings is charged, at the
Company's option, at the banks' prime rate plus up to 1.0% or the London
Interbank Offered Rate ("LIBOR") plus 1.0% to 2.25% (7.44% at March 31, 1997),
both as determined by the ratio of the Company's funded debt to cash flow (as
defined). A commitment fee ranging from 0.25% to 0.50% is payable on the unused
portion of the Credit Facility. Under the terms of the Credit Facility, the
Company must maintain certain minimum financial ratios. The Credit Facility
restricts the Company's ability to make distributions, including but not limited
to prohibiting the Company from declaring or paying any dividends. As of March
31, 1997, the Company had a total of $166.8 million outstanding under the Credit
Facility and other sources and had utilized $4.9 million of the facility for
letters of credit securing certain insurance obligations and performance bonds,
resulting in a borrowing availability of $49.3 million under the Credit Facility
and other sources. The Company's obligations under the Credit Facility are
guaranteed by substantially all of the domestic subsidiaries of the Company.
The obligations of the lenders under the Credit Facility to advance funds
is subject to the satisfaction of certain conditions customary in agreements of
this type. In addition, the Company and its subsidiaries are subject to certain
customary affirmative and negative covenants contained in the Credit Facility,
including, without limitation, covenants that restrict, subject to specified
exceptions, (i) incurring additional indebtedness and other obligations; (ii) a
merger or consolidation with any other person, or a liquidation, dissolution or
winding up; (iii) acquisitions; (iv) distributions in respect to its shares of
capital stock; (v) engaging in transactions with affiliates; (vi) investing
funds of the Company; (vii) granting of liens to secure any other indebtedness
(including the Notes) and (viii) changing the character of its lines of
business. Many of these covenants will be more restrictive than those in favor
of holders of the Notes as described herein and as set forth in the Indenture.
Moreover, the Credit Facility requires the Company to meet certain
financial tests, including: consolidated Net Worth, as defined therein, plus
consolidated Subordinated Debt, as defined therein, at a level not less than (i)
the greater of 90% of the consolidated Net Worth of the Company as of June 30,
1996, or $35 million, plus (ii) 90% of the Company's cumulative annual
consolidated net earnings, plus (iii) 100% of the net proceeds resulting from
any sale, issuance or assumption of stock or Subordinated Debt (as defined
therein); consolidated Tangible Net Worth, as defined therein, of the Company at
not less than 40% of the consolidated Net Worth of the Company; a ratio of
consolidated Funded Debt, as defined therein, of the Company less the
Subordinated Debt, as defined therein, of the Company to the consolidated
EBITDA, as defined therein, of the Company of no greater than 3.0 to 1.0; and a
Fixed Charge Coverage Ratio, as defined therein, of not less than 1.25 to 1.0.
At March 31, 1997, on a pro forma as adjusted basis (see "Selected Consolidated
Pro Forma Financial Data"), the Company's consolidated Net Worth plus the
consolidated Subordinated Debt exceeded the net worth test by $4.0 million, the
consolidated Tangible Net Worth was 45.7% of the consolidated Net Worth and the
Fixed Charge Coverage Ratio was 1.28. The Company believes it will be in
compliance with such covenants on the date of closing of the Offering. The
Indenture will contain restrictions on the Company's ability to incur additional
indebtedness, and other contractual arrangements to which the Company may become
subject in the future could contain similar restrictions.
The Credit Facility also provides for customary events of default.
Occurrence of any of such events of default could result in acceleration of the
Company's obligations under the Credit Facility and foreclosure on the
collateral securing such obligations, with material adverse results to holders
of the Notes. See "Risk Factors -- Holding Company Structure and Subordination
of Notes and Guarantees."
38
<PAGE>
In September 1996, the Company entered into an interest rate cap agreement
with a bank. The agreement has a term of one year and a notional amount of $50
million. The agreement provides that if the 90 day LIBOR rate exceeds 6.5% for
certain measurement periods, the bank will pay to the Company the difference
between such rate and 6.5%. As of March 31, 1997, the 90-day LIBOR rate was
5.81%. The cost of the agreement is being amortized over its term.
The Company's ability to make scheduled payments of principal or interest
on its indebtedness (including the Notes), or to fund planned capital
expenditures or future acquisitions will depend on its future performance,
which, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond its
control. Based upon the current level of operations and anticipated cost savings
and revenue growth, management believes that cash flow from operations and
available cash, together with available borrowings under the Credit Facility,
will be adequate to meet the Company's anticipated future requirements for
working capital and budgeted capital expenditures. There can be no assurance
that the Company's business will generate sufficient cash flow from operations
or that anticipated revenue growth and operating improvements will be realized
or that future borrowings will be available under the Credit Facility in an
amount sufficient to enable the Company to service its indebtedness, make
anticipated capital expenditures or fund future acquisitions. See "Risk
Factors."
SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
The following supplemental consolidated financial information represents
the operations of the Pooled Companies for all periods presented and the
Founding Companies and the Company for the seven months ended December 31, 1996
and the Purchased Companies since their date of acquisition. This financial
information has been derived from the Supplemental Consolidated Financial
Statements of the Company. Pro forma net income before extraordinary items gives
effect to (i) the Compensation Differential; (ii) the elimination of
non-recurring pooling costs associated with the 1996 acquisitions; and (iii) the
tax impact of the Compensation Differential in each period.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues...................... $ 116,318 $ 135,342 $ 127,484 $ 147,042 $ 258,130 $ 37,617 $ 79,868
Gross profit........................ 25,222 26,309 28,542 37,579 63,995 7,707 15,631
Operating income.................... 7,442 8,571 8,326 14,586 31,984 1,909 5,732
Income before extraordinary items... 834 2,076 1,271 3,971 12,392 (116) 1,280
PRO FORMA:
Operating income.................... 10,535 11,017 11,635 18,303 40,089 2,741 6,128
Income before extraordinary items... 2,847 3,997 3,395 5,937 17,484 679 1,563
BALANCE SHEET DATA:
Working capital (deficit)........... $ (8,551) $ (9,308) $ (9,390) $ (10,341) $ (13,477) $ (11,984) $ (25,681)
Total assets........................ 85,262 90,541 105,828 123,367 329,818 129,371 445,129
Total debt, including current
portion........................... 57,698 56,911 73,917 83,105 124,827(1) 87,971 183,485(2)
Stockholders' equity................ 2,479 4,546 2,463 5,590 112,579 4,846 113,766
</TABLE>
- ------------
(1) Does not include $22.5 million of convertible debt issued in connection with
the acquisitions of the Purchased Companies.
(2) Does not include $36.8 million of convertible debt issued in connection with
the acquisitions of the Purchased Companies.
HISTORICAL RESULTS FOR THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1997
Revenues increased by 112.3% to $79.9 million for the three months ended
March 1997. The increase in revenues was largely due to the revenues of the
Founding Companies of $24.5 million and revenues of the Purchased Companies of
approximately $14.1 million, and incremental increases at certain Pooled
Companies.
39
<PAGE>
Operating expenses increased 114.8% to $64.2 million for the three months
ended March 31, 1997. The increase in operating expenses was the result of the
increased operations.
General and administrative expenses increased 70.7% as compared to the
three months ended March 31, 1996. The increase in general and administrative
expenses in the three month period ended March 31, 1997 was primarily due to the
overall increase in operations and the establishment of the corporate management
group required to execute the acquisition program and to manage the consolidated
group of companies.
Interest expense increased $1.5 million as compared to the three months
ending March 31, 1996, due to the higher level of debt related to additional
equipment and debt related to the Purchased Companies, partially offset by
repayment of debt through the use of proceeds of the Initial Public Offering, a
secondary offering of Common Stock, and due to lower rates from the Credit
Facility.
Net income before extraordinary items increased during the three months
ended March 31, 1997 as compared to the three months ended March 31, 1996
primarily due to the acquisitions of the Founding Companies and Purchased
Companies and the effects of increased purchasing power on lowering certain
costs.
HISTORICAL RESULTS FOR 1995 COMPARED TO 1996
Total revenues increased $111.1 million, or 75.5%, to $258.1 million for
the year 1996. The increase in revenues was largely due to: (i) the acquisitions
of the Founding Companies with revenues of $72.9 million, (ii) the acquisition
of the Purchased Companies with revenues of $12.7 million, (iii) an increase in
taxicab service revenues of $7.3 million, primarily attributable to internal
expansion, (iv) an increase of $3.8 million in special destination services
revenues primarily to the Louisiana casinos, and (v) an increase of $4.1 million
in per capita tour revenue attributable in part to the acquisition of the
Company's Los Angeles operations in 1995.
Operating expenses increased 77.4% to $194.1 million for 1996. The increase
in operating expenses was consistent with increased operations throughout the
Company. The remaining increase was due to higher fuel costs in 1996, offset by
savings in the Company's insurance program.
General and administrative expenses in 1996, after elimination of the
Compensation Differential and the elimination of non-recurring pooling costs
associated with the 1996 acquisitions, increased $4.6 million, or 24.0%, from
$19.3 million in 1995 to $23.9 million in 1996. The increase in general and
administrative expenses was largely due to the increase in operations and an
increase related to the establishment of the corporate management group required
to execute the acquisition program and to manage the consolidated group of
companies.
Interest expense increased $3.1 million in 1996 as compared to 1995 due to
the higher level of debt related to additional equipment and subordinated debt
related to the Purchased Companies, partially offset by the repayment of debt
through the use of proceeds of the Initial Public Offering, Secondary Stock
Offering and due to lower rates from the Credit Facility.
Pro forma net income (before giving effect to the extraordinary gain),
which has been adjusted for the Compensation Differential and the pro forma
provision for taxes, increased during 1996 as compared to 1995 primarily due to
continued revenue growth and the effects of increased purchasing power.
The extraordinary items recorded in 1996 include an extraordinary gain that
was recognized in connection with the mergers of the Pooled Companies with the
Company in August 1996 and extraordinary losses related to prepayment penalties
on certain debt retired. Obligations due to stockholders of $17.2 million were
retired in exchange for shares of Common Stock. The transactions resulted in an
extraordinary gain on early extinguishment of debt of approximately $4.2
million, net of taxes, representing the excess of the recorded value of the
obligations exchanged over the market value of the Common Stock. In addition,
extraordinary losses of $1.5 million, net of taxes, for prepayment penalties on
certain retired debt were recorded in 1996.
HISTORICAL RESULTS FOR 1994 COMPARED TO 1995
Total revenues increased $19.6 million, or 15.3%,from $127.5 million in
1994 to $147.0 million in 1995. The increase was largely due to an increase in
motorcoach charter and special destination revenues of
40
<PAGE>
$6.6 million, primarily attributable to increased service to the Louisiana
casinos, an increase in taxicab service revenues of $2.9 million, partially
attributable to the purchase of additional taxicab operations in Austin, Texas
in July 1997, and an increase in per capita revenue of $2.5 million partially
attributable to the acquisition of the Company's Los Angeles operations in 1995.
Operating expenses increased $10.5 million, or 10.6%, from $98.9 million in
1994 to $109.5 million in 1995, but declined as a percentage of revenues from
77.6% in 1994 to 74.4% in 1995. The dollar increase was largely due to an
increase in operating expenses of $3.8 million, primarily attributable to
increased service to the Louisiana casinos, and $2.1 million, primarily
attributable to higher per capita sales.
General and administrative expenses, after elimination of the Compensation
Differential, increased $2.4 million, or 14.0%, from $16.9 million in 1994 to
$19.3 million in 1995. This increase was consistent with the increase in
revenues.
Interest expense increased $1.8 million, or 30.7%, from $5.7 million in
1994 to $7.5 million in 1995. The increase was largely due to higher levels of
debt during 1995 as a result of equipment purchases.
Net income, adjusted for the Compensation Differential and taxes, increased
$2.5 million, from $3.4 million in 1994 to $5.9 million in 1995, and represented
2.7% of revenues in 1994 compared to 4.0% of revenues in 1995.
SEASONALITY
The timing of certain holidays, weather conditions and seasonal vacation
patterns may cause the Company's quarterly results of operations to fluctuate
significantly. The Company expects to realize higher revenues, operating income
and net income during the second and third quarters and lower revenues,
operating income and net income during the first and fourth quarters.
INFLATION
Inflation has not had a material impact on the Company's results of
operations.
41
<PAGE>
BUSINESS
The Company is the largest provider of motorcoach charter, tour and
sightseeing services and one of the five largest non-municipal providers of
commuter and transit motorcoach services in the United States. The Company also
provides airport ground transportation, paratransit and other related passenger
ground transportation services. The Company's services are provided through a
fleet of approximately 3,400 motorcoaches, including 500 motorcoaches provided
by various transit authorities pursuant to service contracts, as well as various
other high occupancy vehicles. The Company's charter and tour fleet features
luxury, European style motorcoaches with plush seats, televisions, VCRs and
other amenities. The Company's taxicab and high occupancy vehicle services
include dispatching and vehicle sales, leasing and financing for more than 1,450
vehicles, primarily owned by independent contractor drivers.
The Company was founded in September 1995 to create a nationwide provider
of motorcoach and other ground transportation services; however, it conducted no
operations prior to the Initial Public Offering. The Company acquired,
simultaneously with the closing of the Initial Public Offering, the six Founding
Companies. Through December 31, 1996, the Company acquired eight additional
motorcoach businesses and one taxicab service business. Subsequent to year-end
and through June 30, 1997, the Company has acquired eleven additional motorcoach
businesses and has executed a definitive agreement to acquire one additional
company.
The Company enjoys a number of business attributes that position it to
benefit, both financially and operationally, from the consolidation of this
highly fragmented industry. The Company believes that it can continue to achieve
significant economies of scale as it acquires and integrates additional
motorcoach operators (such as savings in insurance, equipment purchases,
financing and the centralization of certain administrative functions), which
should provide continued margin expansion. The Company also believes that the
centralization of these attention-diverting administrative and support functions
will allow the management of the operating companies and any other acquired
businesses to focus on pursuing new business opportunities and improving
equipment utilization and yields. The Company is diversified from the standpoint
of geography, customer base and type of business, characteristics which provide
it with insulation from disruption in any particular area, customer or business.
In addition, the Company benefits from a strong balance sheet as a result of its
two 1996 equity offerings in which it raised $96.6 million, as well as from its
strategy of using its Common Stock as a significant component of the
consideration for its acquisitions.
INDUSTRY OVERVIEW
The motorcoach industry is highly fragmented with approximately 5,000
motorcoach operators which collectively generated approximately $20 billion in
revenues in 1995. The motorcoach industry in the United States can be broadly
divided into three types of services: (i) recreation and excursion (charter,
tour and sightseeing); (ii) commuter and transit; and (iii) regularly scheduled
intercity services. The Company operates primarily in the first two categories,
which collectively generated approximately $19 billion in revenues in 1995.
The Company believes that there will be increasing demand for recreation
and excursion services, commuter and transit motorcoach services and airport
related services for a broad range of customers based on a number of factors,
including:
GROWING TRAVEL AND TOURISM INDUSTRY
The Company believes that the travel and tourism is among the fastest
growing industries in the United States. Nationwide charter users include such
large organizations as AAA, AARP and convention organizers, whose members are
potential users of motorcoach services. As the population of the United States
continues to age, the Company believes more people will find motorcoach touring
an attractive, low cost alternative to travel by automobile. Also, the number of
European and Asian tourists traveling to the United States continues to
increase, and motorcoach travel is a popular way for these tourists to travel in
the United States.
42
<PAGE>
PRIVATIZATION
The Company expects state and local governments to accelerate their efforts
to privatize capital intensive operations, such as commuter and transit
services, and ancillary services, such as paratransit services required under
the Americans with Disabilities Act ("ADA"). The Company believes that this
growth will continue to accelerate primarily from a decrease in Federal funds
available to subsidize operations and the increasing capital cost of acquiring
equipment. For example, in February 1997 the Company was awarded a three-year
commuter service contract in the Seattle, Washington area, which is expected to
generate approximately $19 million in revenues and which may be extended at the
option of the customer for two additional one-year periods.
OUTSOURCING
Many hotels, casinos, rental car companies, colleges and other institutions
operate large motorcoach fleets and other high occupancy vehicles. These
entities are increasingly seeking to outsource these non-core activities as a
means to better manage their capital and operating resources and to improve
their profits.
EXPANDING METROPOLITAN AREAS
Metropolitan areas are continuing to expand geographically and in
population. As a result, state and local governments face increasing automobile
traffic congestion, deteriorating infrastructures and a continuing migration of
offices and commuters to suburban locations. These trends should increase the
Company's opportunities to provide motorcoach commuter and transit services. The
Company believes that the fuel and emissions efficiency, flexibility and low
capital cost of motorcoaches and other high occupancy vehicles will make them
increasingly viable alternatives to the high cost of widening existing roads or
establishing or expanding other transit and commuter systems, such as subways
and commuter trains.
ALLEVIATING AIRPORT CONGESTION
Currently, there is no coordinated effort to provide seamless
transportation between planes and motorcoaches or other modes of ground
transportation, and many passengers continue to use private automobiles for
local or regional travel to and from airports. The Company believes that
motorcoaches, vans and other high occupancy vehicles can alleviate much of this
congestion and address the shortage of convenient parking at many airports. In
addition, taxicab service is an integral part of passenger ground transportation
to and from most major airports.
BUSINESS STRATEGY
The Company's objective is to be the largest provider of regional and local
motorcoach and passenger ground transportation services in the United States by
implementing a growth strategy which concentrates on acquisitions, internal
growth and economies of scale.
ACQUISITION STRATEGY
The Company has used Common Stock and convertible securities to finance
approximately 45.8% of the acquisition consideration (including debt assumed) to
date and plans to continue using its Common Stock for acquisitions as
appropriate in the future. In anticipation of such use, the Company has
registered 3.5 million additional shares of Common Stock under the Securities
Act of 1933, as amended (the "Securities Act").
ENTER NEW GEOGRAPHIC MARKETS. The Company intends to expand into
geographic markets it does not currently serve by acquiring well-established
motorcoach and other passenger ground transportation service providers that,
like its existing operating subsidiaries, are leaders in their regional markets.
Since its founding in 1995 and through June 30, 1997, the Company has completed
13 new-market acquisitions.
EXPAND EXISTING MARKETS. The Company also plans to acquire additional
motorcoach and other passenger ground transportation service providers in many
of the markets in which it operates, including acquisitions that either broaden
the range of services provided by the Company in that market or expand the
geographic scope of the Company's operations in that market, as well as
"tuck-in" acquisitions of smaller
43
<PAGE>
operations. The Company believes that tuck-in acquisitions will increase
operating efficiencies without a proportionate increase in administrative costs
and, in some instances, will broaden the Company's range of services. Since its
founding in 1995 and through June 30, 1997, the Company has completed seven
existing-market acquisitions.
INTERNAL GROWTH STRATEGY
OFFER OF A FULL RANGE OF SERVICES IN EACH REGION. The Company intends to
increase growth in each of its regions by adding complementary services, as
appropriate, including motorcoach charter, tour and sightseeing, commuter and
transit, airport ground transportation, paratransit and taxicab services. Many
of the acquired companies do not offer all of such services and the Company
believes they will benefit from the expertise of affiliated operations.
DEVELOP PRIVATIZATION AND OUTSOURCING. The Company believes that it is
well positioned to benefit from the accelerating trend toward governmental
privatization and corporate outsourcing, as more transit authorities and
businesses such as hotels, casinos, rental car agencies, colleges and other
institutions that operate their own fleets decide to privatize or outsource
non-core operations. For example, in February 1997 the Company was awarded a
three-year commuter service contract in the Seattle, Washington area, which is
expected to generate approximately $19 million in revenues and which may be
extended at the option of the customer for two additional one-year periods. The
Company is actively pursuing other privatization contracts.
ESTABLISH A NATIONAL SALES AND MARKETING PROGRAM. The Company has begun to
establish a national sales and marketing program as a means to expand its
recreational and excursion business in order to position itself to benefit from
the significant growth in the travel and tourism industry. This program will
target travel and tour companies, national and international travel agencies and
convention organizers, as well as organizations such as AAA, AARP and
professional and amateur athletic teams.
ECONOMIES OF SCALE
CENTRALIZE ADMINISTRATIVE FUNCTIONS. The Company believes that it will
continue to have greater purchasing power, resulting in significant cost savings
in such areas as equipment and parts, tires, insurance and financing, than the
acquired companies had independently. The Company has begun to realize cost
savings through the consolidation of administrative functions such as employee
benefits, safety and maintenance programs and risk management. The Company
believes that by continuing to remove the burden and attention-diverting
responsibility of administrative and support functions, the management of the
operating companies and any other acquired businesses will be able to focus on
pursuing new business opportunities and improving equipment utilization and
yields.
INCREASE OPERATING EFFICIENCIES. The Company believes that there are
opportunities to eliminate redundant facilities and equipment through
coordination among its current operations as well as operations to be acquired
in the future. The Company also expects to continue to benefit from
cross-marketing, increased equipment utilization and implementation of best
practices throughout its operating regions. For example, the Company has
consolidated the operational and maintenance facilities of two of the companies
it acquired in Houston into one location.
ACQUISITION PROGRAM
The Company believes that there are many attractive acquisition candidates
in the motorcoach and passenger ground transportation services industry because
of the highly fragmented nature of the industry, industry participants' need for
capital and their owners' desire for liquidity. The Company will continue to
pursue an aggressive acquisition program to consolidate and enhance its position
in its current markets and to acquire operations in new markets.
The Company acquired the six Founding Companies simultaneously with the
completion of the Initial Public Offering. The Founding Companies include four
companies in New Jersey, and one each in San Francisco and Phoenix. Through the
remainder of fiscal 1996, the Company completed the acquisition of eight
additional motorcoach service businesses and one taxicab service business. From
January 1, 1997
44
<PAGE>
through June 30, 1997 the Company completed the acquisition of eleven companies.
These eleven companies have aggregate annual revenues of approximately $180
million and the Company has paid, or agreed to pay, aggregate consideration
consisting of approximately $42.8 million in cash, 1,958,280 shares of Common
Stock, $22.1 million in aggregate principal amount of subordinated notes
convertible into 586,367 shares of Common Stock, as well as the assumption of
certain indebtedness. Six of the eleven completed acquisitions were accounted
for as poolings-of-interest while the other five were accounted for as
purchases. The recently acquired companies include America Charters of Gastonia,
North Carolina, Antelope Valley Bus, Inc. of Lancaster, California, The Arrow
Line, Inc. of Hartford, Connecticut, Gray Line of Fort Lauderdale, Florida, Gray
Line of Montreal, Canada, International Express Corp. of Minneapolis, Minnesota,
Kerrville Bus Company of Kerrville, Texas, MTC, Inc. of Phoenix, Arizona, Metro
Transportation Services, Inc. of Miami, Florida and Red & Tan Enterprises of
Bergenfield, New Jersey and Trentway-Wagar, Inc. of Toronto, Canada. The Company
believes that each of these acquisitions is consistent with its strategy of
entering new markets and expanding in existing markets.
The Company has analyzed a substantial amount of data on the motorcoach and
passenger ground transportation services industry and individual businesses
within the industry and believes it is well positioned to continue implementing
its acquisition program. Several of the principals of the current operating
subsidiaries have leadership roles in both national and regional motorcoach and
taxicab service trade associations, which has allowed these principals to become
personally acquainted with operators of motorcoach and passenger ground
transportation services businesses across the country. The Company believes that
the visibility of these individuals within these associations will increase the
industry's awareness of the Company thereby attracting interest from local and
regional operators.
SERVICES PROVIDED
The type and level of services provided by the Company vary by market
served. The services offered in each of the Company's markets are determined by
the management team responsible for that market location and are based on such
management's estimate of the demand for a particular service in the market,
competition to provide that service and the Company's ability to provide that
service consistent with the quality standard that the Company seeks.
The Company provides motorcoach services on both a contracted and per seat
basis. For contracted services, the Company arranges a fee for the use of the
equipment. In these arrangements, the customer contracts the vehicle for use and
the Company is paid a rate, generally on a daily or per mile basis, that is not
dependent on passenger load factors. In per seat operations, the Company is paid
by each individual customer. Fares for these per seat services are usually
determined by the Company and payment is received from individual passengers or
through a commissioned agent. In some states, these fares are subject to
regulatory approval.
The Company's taxicab service revenues are derived primarily from services
provided to independent contractors that own or lease and operate taxicabs under
one of the Company's trade names. The independent contractor drivers pay a
weekly or daily fee in advance to the Company for dispatching, use and
maintenance of taxicab equipment, liability insurance coverage, use of operating
rights, charge account and other services. The independent contractor collects
and retains the fares from the passenger. Fares charged to passengers are
subject to municipal or state regulatory approval.
MOTORCOACH SERVICES
The Company's motorcoaches are either owned by the Company or leased under
long-term leases, pursuant to which the Company is responsible for all
maintenance, insurance and upkeep. Certain transit privatization contracts
provide equipment and insurance to the Company. The majority of the Company's
motorcoach drivers are employees of the Company with the remainder provided
pursuant to a leasing arrangement. In certain of the motorcoach operations, the
drivers are independent contractors.
45
<PAGE>
RECREATION AND EXCURSION
CHARTER AND TOUR SERVICES. Charter services are provided on a fixed daily
rate, based on mileage and hours of operation. The Company offers both daily and
long-term charter and tour arrangements (as long as 14 days) with various levels
of luxury and price. The Company has arrangements with tour agencies to provide
various levels of service and equipment for agent-sponsored and organized tours.
Under these arrangements, the Company contracts with tour agencies to provide
the motorcoach and driver at a fixed daily rate. To increase equipment
utilization, the Company also regularly offers shorter charter service to
various social groups or other organizers for transportation to events or
specific destinations. In some instances, the Company organizes its own tours
and markets them on a per passenger basis.
SIGHTSEEING. Per seat sightseeing services are provided on a scheduled
basis at an advertised or published price. Typically, customers will make
reservations for the tours or can simply board on an "open-door" basis at
scheduled locations. Payment is made by the customer, or through the travel
agent or the hotel. The Company uses a network of hotel lobby ticket counters,
hotel concierges and travel agents to sell the Company's sightseeing tours.
AIRPORT SERVICE. The Company picks up passengers at airports in Atlantic
City, Colorado Springs, Denver, Houston, Las Vegas, Los Angeles, Miami, Newark
and Philadelphia and transports them to and from their hotel, casino, cruise
ship or convention site. The Company provides passenger ground transportation
services into, from and between airports in certain cities in which the Company
has operations using motorcoaches and other high occupancy vehicles. This
service is provided on either a fixed schedule or on demand service basis. In
fixed schedule services, the Company provides regular pick-up and drop-off
services while fixed fee services can be arranged through computerized
reservations systems or through purchase at a service desk at the airport.
Taxicab service operations are an integral part of the passenger ground
transportation services to and from the airports in the cities in which the
Company operates.
SPECIALIZED DESTINATION ROUTE. The Company provides specialized
destination route services, including daily scheduled service to casinos in New
Jersey, Louisiana, Nevada and Connecticut. Luxury motorcoaches pick passengers
up at specified locations. Tickets are sold through agents and at specified
locations. Customers are taken on an "open-door" basis or by reservation.
COMMUTER AND TRANSIT SERVICES
COMMUTER SERVICES. In most of its commuter services, the Company has fixed
routes serviced on a daily basis. Most of these routes are owned (as a result of
having received Federal or state route authority) by the individual operating
subsidiaries. Many of the Company's motorcoaches that are dedicated to commuter
service are owned by a state or municipal transit authority and provided to the
Company at nominal rent or given by such authority to the Company to service a
particular route. In all cases, the drivers and operations personnel are
employed by the Company and the Company is responsible for maintenance of the
equipment. The Company is paid through individual ticket purchases or through a
fare box. Contracts with transit authorities for this service typically have one
to three year terms and are periodically reviewed for rate and fare increases.
Commuter service is provided daily.
OUTSOURCING CONTRACTS. The Company has agreements with various
corporations, institutions and government entities to provide motorcoaches,
drivers and equipment for their employees and customers. The Company contracts
with the customer to provide the schedule of service required by the customer,
sometimes 24 hours per day.
PRIVATIZATION TRANSIT CONTRACTS. In privatization transit contracts, the
Company has a contract with a transit authority for fixed routes on a daily
basis, with the schedule established by the transit authority. The Company
operates dedicated equipment owned by the Company or by the transit authority.
In each instance, the drivers and operations personnel are employees of the
Company and the Company is responsible for equipment maintenance. The Company is
paid a fixed amount from the municipality based on number of miles or hours
operated. Contracts for this service range from three to five years and are
periodically reviewed for rate increases.
46
<PAGE>
PARATRANSIT SERVICES. The Company has contracts with agencies of various
counties that are responsible for coordinating the non-emergency transportation
of medical aid patients, many of whom are transported to the hospital or
doctor's office on a regular basis for treatment. Following delivery to the
Company of patient reservation schedules, the Company provides the scheduled
service, usually through use of independent contractor drivers, and invoices the
county organization for services provided. These contracts are generally on a
multi-year basis and require the Company to meet certain performance standards.
TAXICAB SERVICES
The majority of the taxicabs included in the Company's taxicab service
operations are owned by independent contractor drivers, with the remainder being
owned by the Company and leased on a daily or weekly basis to independent
contractor drivers. None of the taxicab drivers are employees of the Company. In
addition to the daily or weekly fee paid by the drivers to the Company for
dispatching and other support services, the Company derives revenues through
vehicle sales and financing services to drivers, maintenance, parts and labor
provided to drivers and vehicle mini-billboard advertising.
RADIO DISPATCHED SERVICES
Radio dispatched services are provided primarily on a call-in basis. When
the request is made for taxicab service, the closest available taxicab is
notified through the Company's computer dispatching system. An independent
contractor driver of the identified vehicle accepts the trip and picks up the
customer.
AIRPORT SERVICES
Taxicab services are provided to passengers going to and coming from the
airports in the municipalities in which the Company provides taxicab services.
Most services provided to passengers coming from the airports are provided on a
demand basis as passengers depart the airport and summon a taxicab at the
airport cab station.
PARATRANSIT SERVICES
Pursuant to contracts with local transit authorities, the Company provides
on demand transportation services for disabled and other persons that are in
need of transportation services. These contracts are generally on a multi-year
basis and require the Company to meet certain performance standards.
SALES AND MARKETING
The Company has a broad customer base. No single customer of the Company
accounted for more than 3% of revenues in 1996. Management at the Company's
operating locations has been responsible for establishing and maintaining
relationships with tour organizers, travel agencies and other regular users of
charter and tour services as well as pursuing outsourcing and privatization
opportunities. Each of the motorcoach operations also has a sales staff that
focuses primarily on obtaining specific charter and tour business.
The principal means of marketing charter and tour services has been in
telephone directories and through direct mail or personal contact with customers
included in each operating location's data bases, which include civic groups,
schools and domestic and foreign tour organizers and travel agencies. The
Company uses ticket counters in hotel lobbies and concierges to market and
promote sightseeing services.
The Company's specialized destination route services to casinos in New
Jersey, Connecticut, Nevada and Louisiana are promoted primarily by individual
casinos. These casinos will either pay the Company for the transportation or
provide incentives to passengers transported by the Company to the casino. In
some instances, the casinos actively advertise these promotions in various
media, such as newspapers, television and billboards.
The Company has begun to establish a targeted national sales and marketing
campaign for its recreation and excursion services. The focus of this campaign
is on national users of motorcoach service, such as domestic and international
travel and tour agencies, convention organizers and sports teams. The
47
<PAGE>
Company believes that it will have a marketing advantage over its competitors
since it will be able to offer consistent, dependable, quality service in
various metropolitan areas in the United States, thereby enabling its customers
to use the Company's services in multiple locations rather than dealing with
numerous regional or local motorcoach operators.
Contracts with counties and municipalities to provide commuter and transit
and paratransit services are generally obtained through a competitive bidding
process. In some instances where the Company is the existing provider, the
county or municipality may elect to renegotiate the Company's existing contract
instead of putting the contract out for rebid. The Company believes that
counties and municipalities consider quality of service, reliability and price
to be the most important factors in awarding contracts although other factors,
such as financial stability, personnel policies and practices and total cost
both to the municipality and the public, are also considered.
The Company's taxicab service operations utilize the yellow pages,
billboards and signs on the taxicabs as the primary means of marketing services.
Paratransit contracts are obtained through a competitive bidding process.
OPERATIONS
All aspects of the Company's daily motorcoach and passenger ground
transportation services operations are handled on a local basis. Each location
has an operations center staffed by customer service personnel, fleet managers
and dispatchers. All of the Company's commuter and transit services as well as
its sightseeing and specialized destination route services are operated with
dedicated fleets of motorcoaches and drivers, and most fleets include back-up
vehicles in case of equipment breakdown or higher passenger volume. Because
commuter and transit services and specialized destination route services involve
fixed routes which rarely vary, the dispatch function is limited to
communicating with drivers by radio to determine that the motorcoach is in
service, the number of passengers embarked and whether the motorcoach is on
schedule and to deal with any problems in route. When necessary, dispatchers can
communicate necessary modifications in schedules to meet customer demand and
increase utilization. Computerized dispatch services are an integral part of the
daily support services provided to the independent contractor drivers.
Operations personnel schedule individual motorcoaches for recreation and
excursion services as charter business is obtained. In many instances, the
Company receives bookings for tours and charters well in advance, which enables
the Company to predict periods during which equipment utilization is likely to
be low. When this occurs, the Company more actively solicits charter business in
an effort to maintain equipment utilization or schedules alternative uses for
its equipment, particularly during the winter months when tourism declines.
The Company maintains a decentralized management structure. Most operating
decisions are made at the operating location level. At the same time, the
Company has begun to centralize and maintain certain administrative support
activities. The Company believes that by continuing to remove the burden and
attention-diverting responsibility of administrative and support functions, the
management of the operating companies and any other acquired businesses will be
able to focus on pursuing new business opportunities and improving equipment
utilization and yields.
The Company has initiated and believes there will continue to be
opportunities to increase equipment utilization by coordination among the
various operating locations. For example, some motorcoaches that transport
passengers into New York City or Atlantic City in the morning are parked until
they run the reverse trip at the end of the day. The use of these motorcoaches
for day charters and sightseeing could be increased. In addition, equipment
stored during the "off-season" could be transported and utilized by another
location that has more business during that time.
EQUIPMENT
The Company operates approximately 3,400 motorcoaches and other high
occupancy vehicles. Approximately 400 of these motorcoaches are provided by
various transit authorities for nominal rent, with the Company assuming full
responsibility for maintenance and repairs. These motorcoaches are provided
under contracts to perform transit and commuter services and must be returned to
the transit authorities in the event the contracts for them are not renewed. In
addition, approximately 100 other motorcoaches have
48
<PAGE>
been provided by certain transit authorities to the Company to operate for the
normal useful operating lives thereof, and these motorcoaches must only be
returned to such transit authorities if the Company surrenders its routes for
which such motorcoaches were provided, or at the end of the normal useful
operating lives thereof. The Company's owned fleet of motorcoaches has an
average age of five years. Motorcoaches have a useful operating life in excess
of 10 years, depending on the vehicles' location and use. The Company's
replacement policy will depend on the use being made of the particular
motorcoach, but the Company expects that on average it will replace motorcoaches
every 10 to 12 years based on its ability to redeploy its motorcoach fleet. A
majority of the Company's current fleet of motorcoaches are from one
manufacturer, Motorcoach Industries Incorporated, although other manufacturers
are represented in the Company's fleet. Most engines and drive trains are
manufactured by Detroit Diesel and Allison Transmissions, respectively. This
continuity of engine and drive train should enable the Company to implement a
standardized, Company-wide maintenance program and allow it to reduce its spare
parts inventory. The Company leases most of its tires from Firestone, with the
lease payments based on mileage driven on the tires.
The Company's taxicab service operations provide dispatch and related
services to a fleet of over 1,450 vehicles, of which approximately 900 are owned
and operated by independent contractor drivers and the remainder of which are
owned by the Company and leased on a daily or weekly basis to independent
contractor drivers. The Company offers full service maintenance and repairs on
vehicles owned by the independent contractor drivers and provides maintenance on
the vehicles owned by the Company.
MAINTENANCE
Each of the Company's motorcoach operating locations has a comprehensive
preventive maintenance program for its equipment to minimize equipment downtime
and prolong equipment life. This program includes regular safety checks when a
motorcoach returns to the terminal, regular oil and filter changes, lubrication,
cooling system checks and wheel alignment on average every 6,000 to 12,000
miles, and more extensive maintenance procedures at greater intervals. Interiors
of motorcoaches are cleaned and exteriors washed usually on a daily basis.
Repairs and maintenance are primarily performed at various maintenance
facilities operated by the Company. Most maintenance provided by outside
facilities results from on-the-road breakdowns or involves major engine
overhauls.
To the extent economically and logistically practicable, the Company shares
maintenance facilities and personnel among the operating locations. The Company
expects this will result in a decrease in the percentage of maintenance costs
incurred at outside shops and a decrease in total maintenance costs. It also may
be possible to close some maintenance facilities in areas where there will be
multiple maintenance facilities.
The Company expects that replacement of older motorcoaches with newer
equipment will reduce maintenance costs largely because late model motorcoaches
are more reliable and have better engine and power train warranties. In
addition, the Company believes that it may be able to negotiate better warranty
terms than the individual operating locations could because of the increased
negotiating power of the Company. The Company intends to purchase most of its
motorcoaches with standard component specifications, particularly engines and
drive trains, thereby reducing the complexity of maintenance and spare parts
management. The Company has entered into a leasing agreement for tires on terms
more favorable than previously available to the operating companies
individually.
FACILITIES
At March 31, 1997, the Company's facilities consisted principally of
offices, garages and maintenance facilities. Some of these are single
facilities, and other facilities have limited operations, which may not include
complete maintenance services. The Company owns eighteen of the facilities on
which motorcoach or taxicab operations are located. The remaining facilities are
leased, including some from related parties. The Company believes that its
facilities are adequate for its current needs. See "Certain Transactions --
Leases of Facilities."
The Company leases its executive and administrative offices in Houston,
Texas.
49
<PAGE>
DRIVERS AND OTHER PERSONNEL
The Company has approximately 7,600 employees, of whom approximately 5,000
are motorcoach drivers and approximately 1,150 are maintenance personnel. The
balance includes administrative personnel, sales personnel, customer service
personnel, fleet managers, dispatchers and safety and training personnel. Of
these employees, approximately 5,300 are full-time employees. The Company's
taxicab and paratransit services are provided through independent contractor
drivers that are not employees of the Company.
The Company has established motorcoach driver retention programs which seek
to maintain a sufficient number of qualified drivers to handle passenger
service. Each operating location historically has had relatively minimal driver
turnover among full-time drivers other than for sightseeing and tour services,
where the need for motorcoach drivers varies seasonally. Safety and
dependability of drivers are critical to the Company's operations. Motorcoach
drivers are required to comply with all applicable Federal and state driver
qualification and safety regulations, including hours of service and medical
qualifications, and to hold a Commercial Driver's License issued in conformity
with regulations of the FHWA. Drivers are also subjected to drug and alcohol
testing requirements imposed by the FHWA, including random, reasonable suspicion
and post-accident testing. Driver applicants are required to have significant
driving experience and to pass medical examinations. Taxicab drivers are subject
to laws and regulations governing driving records, appearance and presentation
which are monitored by local municipalities.
At March 31, 1997, several different unions represented approximately 2,800
employees of the Company, of whom approximately 2,450 were motorcoach drivers.
The Company is a party to a number of different collective bargaining agreements
which expire at various dates through 2000. In the last 10 years, the various
operating companies have not experienced any material work stoppages and the
Company believes that relationships with union representatives and union
employees are satisfactory.
SAFETY
The Company is dedicated to safe operations. The Company vigorously adheres
to the FHWA and comparable state motor carrier safety rules, including rules
concerning safe motor vehicle equipment, driver qualifications and safe
operation of vehicles. The Company maintains drug and alcohol testing programs
for its motorcoach drivers in conformity with FHWA and comparable state
requirements. The Company also addresses accidents and other incidents and takes
follow-up steps intended to reduce the risk of repeat accidents and incidents.
The Company employs safety specialists and maintains safety programs
designed to meet the specific needs of the operating location, including field
spotters and riders who assess motorcoach driver performance. In addition, the
Company employs specialists to perform compliance checks and conduct safety
tests throughout the operations. The Company conducts a number of safety
programs designed to promote compliance with rules and regulations and to reduce
accidents and injury claims. These programs include incentive programs for
accident-free driving, driver safety meetings, distribution of safety bulletins
to drivers and participation in national safety associations.
RISK MANAGEMENT AND INSURANCE
The primary risks in the Company's operations are bodily injury and
property damage to third parties and workers' compensation. The Company
maintains insurance against these risks in amounts which it considers sufficient
and is subject to loss deductibles per incident ranging from $5,000 to $250,000.
The Company is self-insured for the first $100,000 of losses per incident
involving a motorcoach and is self-insured for the first $250,000 of losses per
incident involving a taxicab. If the Company were to experience a significant
increase in the number of claims for which it is self-insured or claims in
excess of its insurance limits, its results of operations and financial
condition would be adversely affected. As such, any claim within the deductible
per incident would be a financial obligation of the Company.
50
<PAGE>
COMPETITION
The portions of the motorcoach and ground transportation industry in which
the Company operates are highly competitive, fragmented and served by numerous
operators, most of which serve only a single area or region. The Company's
competitors include other operators of motorcoaches and other high occupancy and
taxicab and luxury sedan vehicles, rent-a-car companies and, to a more limited
extent, airlines, Amtrak and commuter rail service providers. A number of the
Company's competitors are as large or larger than the Company on a national or
regional basis and some of these competitors have greater financial, technical
and marketing resources and generate greater revenues than the Company in
specific regions. The majority of the Company's motorcoach competitors consist
of small, independent regional or local operators with a strong presence in
their respective markets. The Company believes that as it expands
geographically, it may compete with additional national, regional and local
transportation service providers.
The Company believes that the principal competitive factors in the
motorcoach industry are reliability, customer service and price, as well as
equipment comfort and appearance. In addition, competition with respect to some
services is limited in some locations by the difficulty in obtaining required
state route authorizations. The Company believes that its ownership of route
authorizations provides it with a competitive advantage in certain markets
because of the relative difficulty of obtaining these authorizations.
The Company from time to time competes for acquisition candidates. The
Company believes that its decentralized management philosophy and operating
strategies will make it an attractive acquiror to other motorcoach and ground
transportation companies. However, no assurance can be given that the Company's
acquisition program will continue to be successful or that the Company will be
able to compete effectively in its chosen markets.
REGULATION
As a result of the ICC Termination Act of 1995 (the "Termination Act"),
the Interstate Commerce Commission (the "ICC"), which previously regulated
motorcoach operators engaged in interstate commerce, was abolished effective
January 1, 1996. However, certain of the ICC's regulatory functions were
transferred as of that date to the STB, a new regulatory body established within
the United States Department of Transportation (the "USDOT"), and certain
other functions were transferred to the United States Secretary of
Transportation (the "Secretary"). Under the Termination Act, motorcoach
operators engaged in interstate commerce are generally required to be registered
with the Secretary, who has delegated responsibility for registration to the
Office of Motor Carriers of the FHWA, another body of the USDOT. By virtue of
the Termination Act, persons who held operating authority issued by the ICC
prior to December 31, 1995 were automatically deemed registered with the
Secretary. Most of the Company's operating companies held authority issued by
the ICC prior to December 31, 1995, and, accordingly, were deemed registered
with the FHWA and are now subject to the regulatory requirements of the STB and
the FHWA.
The Bus Regulatory Reform Act of 1982 significantly reduced federal
regulation of the motorcoach industry. The Termination Act further lessened
regulatory requirements, with the result that the Secretary, the STB and the
FHWA have only limited regulatory authority over interstate motorcoach
operations. The level of fares is not subject to federal regulation, and
motorcoach operators are not required to file tariffs. Motorcoach operators are,
however, required by the Termination Act to provide transportation service on
reasonable request and to provide safe and adequate service, equipment and
facilities. They must also maintain minimum amounts of insurance and file
evidence of such insurance with the FHWA. The Secretary and the STB are vested
with enforcement authority, including authority to impose civil penalties, with
respect to violations of applicable regulatory requirements. The Secretary may
also suspend, amend or revoke a registration for willful failure to comply with
the Termination Act, with the regulations of the Secretary, the STB or the FHWA
or with any condition of the operator's registration.
The Termination Act preempts states, their political subdivisions and
multi-state agencies from regulating the scheduling or rates of interstate or
intrastate transportation provided by motorcoach operators
51
<PAGE>
on interstate routes. However, states may require motorcoach operators to
provide notice, not in excess of 30 days, of changes in their schedules. These
preemption provisions do not apply to commuter service.
The Company is subject to extensive FHWA and state regulations with respect
to the qualifications of its drivers and the safety of its vehicles and their
operation. See "Drivers and Other Personnel" and "Safety." In addition, the
high occupancy vehicles operated by the Company are required by FHWA regulations
to meet Federal noise standards established by the Environmental Protection
Agency. The Company believes that it has conducted its operations in substantial
compliance with FHWA regulations, and the Company does not believe that ongoing
compliance with such regulations will require substantial capital expenditures.
Under the ADA, the Company could become obligated to provide accessible vehicles
to persons who are disabled under certain circumstances defined in that statute
and in USDOT regulations. If the Company were required to make its motorcoaches
compatible with ADA regulations, it could result in significant capital
expenditures by the Company. The Company is subject to regulation by the
Occupational Safety and Health Administration with respect to worker and
workplace safety.
Certain states in which the Company operates, such as New Jersey, Nevada
and Pennsylvania, have a comprehensive regulatory scheme in connection with the
operation of high occupancy vehicles and with respect to the safety of operation
and equipment. Although some of the regulatory restrictions of these states have
been preempted by federal legislation, as described above, these states still
maintain strong regulatory control over wholly intrastate routes. Because
certain operations of the Company have been granted authority to provide
commuter service and scheduled intrastate service, the Company has a competitive
advantage. However, there can be no assurance that these states will maintain
their current regulatory postures, and any reduction in regulation of motorcoach
operators could adversely affect the Company.
The Termination Act requires the STB's approval of any transaction under
which a person that is not a regulated motorcoach operator, such as the Company,
acquires control of two or more STB-regulated motorcoach operators. However, the
STB is empowered to exempt persons from this requirement for approval of
motorcoach acquisitions. The Company filed a petition with the STB seeking such
exemption in order to permit the acquisition by the Company of those of the
Founding Companies and their affiliates that are regulated by the STB, and the
exemption was granted and became effective on May 3, 1996. The STB has
subsequently granted three additional petitions filed by the Company seeking
exemption from regulatory approval requirements with respect to the acquisition
of additional federally-regulated interstate motorcoach operators. As of May 15,
1997, when the STB issued a decision granting two of these petitions for
exemption, the Company had achieved regulatory exemption for all of the
acquisition transactions involving federally-regulated motorcoach operators that
it had entered through February 1997.
The Company's taxicab service operations are regulated at the state and
local level. Local regulations focus on the number of vehicles that are
authorized to provide taxicab services and whether new entries into the local
marketplace will be granted authority to do business. These regulatory
authorities also set and periodically review the maximum fares that can be
charged to passengers.
ENVIRONMENTAL MATTERS
COMPLIANCE MATTERS
The Company's operations are subject to various Federal, state and local
environmental laws and regulations governing vehicle emissions, underground and
aboveground fuel tanks and the storage, use and disposal of hazardous materials
and hazardous waste in connection with the Company's in-house maintenance
operations. These laws include the Water Pollution Control Act, the Clean Air
Act, as amended, the Resource Conservation and Recovery Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") and various state and local laws. The Company believes that its
costs for complying with applicable environmental laws and regulations will not
have a material adverse effect on its financial condition, liquidity, results of
operations or competitive position; however, there can be no assurance that the
Company will not incur costs in the future that will have a material adverse
effect on the Company. The motorcoach and ground passenger transportation
services industry may in the future become subject to stricter regulations. For
example, future vehicle purchases made by the
52
<PAGE>
Company may be subject to clean fuel fleet rules promulgated under the Clean Air
Act or comparable state laws.
REMEDIATION MATTERS
In addition to the expense of complying with environmental laws that
regulate the Company's ongoing operations, the Company may be liable for the
cost of investigating and remediating existing and future contamination related
to its operations. Owners and occupiers of sites containing hazardous
substances, as well as generators of hazardous substances who arrange for the
treatment and/or disposal of such substances at off-site locations, are subject
to broad liability under various federal and state environmental laws and
regulations for cleanup costs, damages and other expenses arising out of past
disposal activities at such sites. Many such laws, including CERCLA, impose
joint and several liability regardless of fault or the legality of the original
disposal activity on any party who owns or operates a contaminated site or who
has arranged for the treatment and/or disposal of hazardous substances. There
are or have been underground storage tanks which contain hazardous substances at
most of the Company's facilities. The Company also conducts motorcoach washing
at certain of its facilities and the resulting waste must be disposed of in
accordance with regulatory requirements. In the event of a spill, the Company
would be responsible for the cost of the clean-up, which could be significant.
There have been spills and releases of hazardous substances, including petroleum
and petroleum products, at several of the Company's facilities. At certain
locations, the Company has had to remediate these spills and releases at a
significant cost to the Company. Additional spills and releases of hazardous
substances of which the Company is unaware, including spills and releases of
petroleum and petroleum products, may have occurred at the Company facilities.
With respect to unknown pre-existing contamination at a facility, in most
instances, each of the stockholders of the applicable business acquired by the
Company has agreed to indemnify the Company (up to the amount of consideration
such stockholder received, after satisfaction of a threshold payable by the
Company, which varies depending on the transaction) for liabilities in
connection with such contamination. If and to the extent that any stockholder of
such a business had actual knowledge of a spill or release and did not disclose
it to the Company, such stockholder has agreed to indemnify the Company for all
liabilities in connection with such contamination, not subject to any limit on
such indemnification obligation. Some of the operating companies have disclosed
that from time to time they have spilled or released certain hazardous
substances in the course of operating their businesses.
Capital expenditures and other expenses in 1996 and in the first half of
1997 that are attributable to environmental matters (including both compliance
and remediation matters) were not material in relation to the Company's
consolidated financial position or results of operations. However, there can be
no assurance that the Company will not incur costs or liabilities in the future
that will have a material adverse effect on the Company. The Company has begun
to initiate the implementation of an environmental compliance program at all of
its facilities in an effort to ensure compliance with applicable environmental
laws and regulations and to prevent or reduce future releases of hazardous
substances.
LEGAL PROCEEDINGS
One or more of the operations of the Company (or other operations acquired
in the future by the Company) may become subject to litigation in connection
with the competitive bidding process for a contract to provide transit, commuter
or paratransit services on behalf of a transit authority. Unsuccessful bidders
occasionally will challenge, through a regulatory appeals process or in court,
the awarding of the contract and will often name the successful bidder as an
additional defendant. The cost of defending such an action can be significant,
and if the required competitive bidding procedures were not followed by the
transit authority, the authority could be ordered to begin the process over or
even award the contract to another bidder. The Company is not currently a party
to any such claims or proceedings.
From time to time, the Company is a party to routine litigation incidental
to its business, primarily involving claims for personal injury or property
damage incurred in the transportation of its passengers. The Company is not
aware of any pending claims or threatened claims which, if adversely determined,
might materially affect the Company's operating results or financial condition.
53
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as of April 15, 1997 concerning
the Company's directors, executive officers and certain key employees.
NAME AGE POSITION
Richard H. Kristinik................ 57 Chairman of the Board and Chief
Executive Officer
John Mercadante, Jr................. 52 President and Chief Operating
Officer; Director; President and
Chief Executive Officer of
Adventure
Douglas M. Cerny.................... 38 Senior Vice President, General
Counsel and Secretary
Frank P. Gallagher.................. 53 Senior Vice President -- Corporate
Development; Director; President
and Chief Executive Officer of
Community
Lawrence K. King.................... 40 Senior Vice President and Chief
Financial Officer; Director
Gerald Mercadante................... 50 Senior Vice President -- Northeast
Region Operations; Director;
President of Leisure
Charles D. Busskohl................. 64 Director; Chairman and Chief
Executive Officer of Arrow
Steven S. Harter.................... 34 Director
William J. Lynch.................... 54 Director
Paul M. Verrochi.................... 48 Director
Thomas A. Werbe..................... 45 Director; President of Gray Line SF
Richard H. Kristinik has served as Chairman of the Board of Directors and
Chief Executive Officer of the Company since March 1996. Prior to that time, Mr.
Kristinik was a Partner with Arthur Andersen LLP from 1973 to March 1996,
serving in its Houston office for all those years, except for the period from
1979 to 1984, when he served as Managing Partner of the Tulsa office, and the
period from 1985 to 1989, when he served as Managing Partner of the Denver
office.
John Mercadante, Jr. has been President and Chief Operating Officer and a
director of the Company since the Initial Public Offering. Mr. Mercadante
co-founded Leisure with his brother, Gerald Mercadante, in 1970 and acquired
Adventure in 1988. He has served as Adventure's President and Chief Operating
Officer since 1988. Mr Mercadante is currently the President of the Atlantic
City Bus Operators Association and a director of the New Jersey Motor Bus
Association, both motorcoach trade associations.
Douglas M. Cerny has been Senior Vice President, General Counsel and
Secretary of the Company since January 1996. From February 1994 through January
1996, he was Vice President and General Counsel of Medical Review Systems, Inc.,
a privately held health care cost-containment services company which was
acquired by Equifax, Inc. in March 1995. Between March 1995 and January 1996,
Mr. Cerny provided operational support in the transition of operations to
Equifax, Inc. From July 1988 through February 1994, Mr. Cerny was Vice President
and Corporate Counsel and then Vice President and General Counsel of Allwaste,
Inc., a publicly traded environmental services company.
Frank P. Gallagher has been a Senior Vice President -- Corporate
Development and a director of the Company since the Initial Public Offering. Mr.
Gallagher has served as President and Chief Executive Officer of Community since
1969. Mr. Gallagher currently serves as the President of the New Jersey Motor
Bus Association and President of Bus Park of Atlantic City, a bus parking
cooperative.
Lawrence K. King has served as Senior Vice President and Chief Financial
Officer and a director of the Company since December 1995. From 1992 until
September 1995, Mr. King was Executive Vice President, Secretary, Treasurer and
Chief Financial Officer of SI Diamond Technology, Inc., a publicly traded
technology development company. From 1988 to 1991, he served as Assistant
Secretary and Treasurer of The Permian Corporation, the general partner of
Permian Partners L.P., a publicly traded crude oil, trucking, transportation and
distribution master limited partnership. From 1979 to 1988, Mr. King served in a
number of positions as a certified public accountant with Arthur Andersen LLP.
54
<PAGE>
Gerald Mercadante has been a Senior Vice President -- Northeast Region
Operations and a director of the Company since the Initial Public Offering. Mr.
Mercadante co-founded Leisure in 1970 and has been President and Chief Executive
Officer of Leisure since 1980.
Charles D. Busskohl has been a director of the Company since the Initial
Public Offering. He has been employed by Arrow since 1960 and has served as
Arrow's Chairman for six years and has served as Chief Executive Officer of
Arrow for 34 years. Mr. Busskohl was a founder of the United Motorcoach
Association, a motorcoach trade association.
Steven S. Harter has been a director of the Company since September 1995.
Mr. Harter is President of Notre Capital Ventures II, L.L.C., a consolidator of
highly fragmented businesses. Mr. Harter was Senior Vice President of Notre
Capital Ventures, Ltd. from June 1993 through July 1995 and was the Notre
principal primarily responsible for the initial public offerings of US Delivery
Systems, Inc. and Physicians Resource Group, Inc. From April 1989 to June 1993,
Mr. Harter was Director of Mergers and Acquisitions for Allwaste, Inc. From May
1984 to April 1989, Mr. Harter was a certified public accountant with Arthur
Andersen LLP.
William J. Lynch has been a director of the Company since the Initial
Public Offering. Mr. Lynch is a Managing Director of Capstone Partners, LLC, a
special situations venture capital firm. From October 1989 to March 1996, Mr.
Lynch was a partner of the law firm of Morgan, Lewis & Bockius LLP. Mr. Lynch is
an investor in Notre Capital Ventures II, L.L.C. Mr. Lynch also serves as a
director of StaffMark, Inc.
Paul M. Verrochi has been a director of the Company since the Initial
Public Offering. Since February 1992, he has been a Principal of Exel Holdings,
Ltd., and since March 1996, he has been a Principal of Exel Motorcoach Partners,
LLC, a privately-held investment firm he co-founded. Mr. Verrochi formerly
served as Chairman of the Board of American Medical Response, Inc., a publicly
traded provider of ambulance services, from its inception in February 1992 to
February 1997 when it was acquired by Laidlaw, Inc. From April 1989 to December
1990, Mr. Verrochi was President of Allwaste Asbestos Abatement, Inc., a
subsidiary of Allwaste, Inc. Mr. Verrochi was a founder of American
Environmental Group, a regional asbestos abatement company, and served as
Chairman of its Board of Directors from July 1987 until April 1989, when it was
acquired by Allwaste, Inc.
Thomas A. Werbe has been a director of the Company since the Initial Public
Offering. Mr. Werbe is the President of Gray Line SF and has been a director of
Gray Line SF for more than five years.
The Board of Directors is divided into three classes of four, three and
three directors, respectively, with directors serving staggered three-year
terms, expiring at the annual meeting of stockholders in 1997, 1998 and 1999,
respectively. At each annual meeting of stockholders, one class of directors
will be elected for a full term of three years to succeed that class of
directors whose terms are expiring. All officers serve at the discretion of the
Board of Directors.
The Board of Directors has established an Audit Committee and a
Compensation Committee. The members of the Audit Committee and the Compensation
Committee are Messrs. Harter, Lynch and Verrochi.
DIRECTOR COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
do not receive additional compensation for serving as directors. During 1996,
the Company paid aggregate fees of $30,000 to nonemployee directors of the
Company in connection with the Board of Directors' and committee meetings. Each
director who is not an employee of the Company or one of its subsidiaries
receives a fee of $2,000 for attendance at each Board of Directors' meeting and
$1,000 for each committee meeting (unless held on the same day as a Board of
Directors' meeting). In addition, under the Company's 1996 Non-Employee
Directors' Stock Plan, each non-employee director is automatically granted an
option to acquire 10,000 shares of Common Stock upon such person's initial
election as a director, and, subject to a certain exception, an annual option to
acquire 5,000 shares at each annual meeting of the Company's stockholders
thereafter at which such director is re-elected or remains a director. Each
non-employee director also may
55
<PAGE>
elect to receive shares of Common Stock or credits representing "deferred
shares" in lieu of cash directors' fees. See "-- 1996 Non-Employee Directors'
Stock Plan." Directors are also reimbursed for out-of-pocket expenses incurred
in attending meetings of the Board of Directors or committees thereof incurred
in their capacity as directors.
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE
The Company was incorporated in September 1995, conducted no operations and
generated no revenue prior to the closing of the Initial Public Offering and did
not pay any of its executive officers compensation during 1995.
The following table provides certain summary information concerning
compensation earned by the Company's Chief Executive Officer and each of the
four other most highly compensated executive officers (the "Named Executive
Officers") during the year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
-------------
SECURITIES
UNDERLYING
PRINCIPAL POSITION YEAR SALARY OPTIONS(#)
Richard H. Kristinik................. 1996 $94,355(1) 200,000
Chief Executive Officer.........
John Mercadante, Jr.................. 1996 94,355(2)(3) 100,000
President and Chief Operating
Officer
Lawrence K. King..................... 1996 94,355(1) 100,000
Senior Vice President -- Chief
Financial Officer
Frank P. Gallagher................... 1996 94,355(2) 100,000
Senior Vice
President -- Corporate
Development
Douglas M. Cerny..................... 1996 94,355(1)(3) 100,000
Senior Vice President -- General
Counsel
- ------------
(1) Represents less than one full year's compensation; pursuant to an employment
agreement between the officer and the Company, no compensation was paid to
such officer until May 14, 1996, the date on which the registration
statement with respect to the Company's initial public offering became
effective.
(2) Represents less than one full year's compensation; pursuant to an employment
agreement between the officer and the Company, such officer did not begin to
earn compensation until May 17, 1996, the date of the closing of the
Company's initial public offering. Does not include amounts paid to each
such officer by subsidiaries of the Company prior to the May 17, 1996
mergers between the Company and such subsidiaries.
(3) Messrs. Mercadante and Cerny had relocation and dual housing expenses paid
for by the Company in the amounts of $32,617 and $38,286, respectively,
which are not included in the amounts listed.
Each of Messrs. John Mercadante, Gallagher and Gerald Mercadante has
entered into an employment agreement with the Company and a Founding Company
providing for an annual base salary of $150,000 and a bonus to be determined
annually pursuant to an incentive bonus plan to be established by the Company.
Each employment agreement is for a term of five years, and unless terminated or
not renewed by the Company or not renewed by the employee, the term will
continue thereafter on a year-to-year basis on the same terms and conditions
existing at the time of renewal. Each of these agreements provides that, in the
event of a termination of employment by the Company without cause during the
first three years of the employment term (the "Initial Term"), the employee
will be entitled to receive from the Company an amount equal to his then current
salary for the remainder of the Initial Term or for one year, whichever is
greater. In the event of a termination of employment without cause during the
final two years of the initial five year term of the employment agreement, the
employee will be entitled to receive an amount equal to his then current salary
for one year. In either case, payment is due in one lump sum on the effective
date of termination. In the event of a change in control of the Company (as
defined in the agreement) during the Initial Term, if the employee is not given
at least five days' notice of such change in control, the employee
56
<PAGE>
may elect to terminate his employment and receive in one lump sum three times
the amount he would receive pursuant to a termination without cause during the
Initial Term. In addition, the non-competition provisions of the employment
agreement would not apply. In the event the employee is given at least five
days' notice of such change in control, the employee may elect to terminate his
employment agreement and receive in one lump sum two times the amount he would
receive pursuant to a termination without cause during the Initial Term. In such
an event, the non-competition provisions of the employment agreement would apply
for two years from the effective date of termination. Each of Messrs. Busskohl
and Robert Werbe has entered into an employment agreement with Arrow and Gray
Line SF, respectively, containing substantially similar terms.
Each employment agreement contains a covenant not to compete with the
Company for a period equivalent to the longer of two years immediately following
termination of employment or, in the case of a termination by the Company
without cause in the absence of a change in control, for a period of one year
following termination of employment.
Each of Messrs. Kristinik, Cerny and King has entered into an employment
agreement with the Company providing for an annual base salary of $150,000 and a
bonus to be determined annually pursuant to an incentive bonus plan to be
established by the Company. Each employment agreement is for a term of three
years, and unless terminated or not renewed by the Company or not renewed by the
employee, the term will continue thereafter on a year-to-year basis on the same
terms and conditions existing at the time of renewal. Each of these agreements
provides that, in the event of a termination of employment by the Company
without cause, the employee will be entitled to receive from the Company an
amount equal to one year's salary, payable in one lump sum on the effective date
of termination. In the event of a change in control of the Company (as defined
in the agreement) during the initial three-year term, if the employee is not
given at least five days' notice of such change in control, the employee may
elect to terminate his employment and receive in one lump sum three times the
amount he would receive pursuant to a termination without cause during such
initial term. In addition, the non-competition provisions of the employment
agreement would not apply. In the event the employee is given at least five
days' notice of such change in control, the employee may elect to terminate his
employment and receive in one lump sum three times the amount he would receive
pursuant to a termination without cause during such initial term. In such an
event, the non-competition provisions of the employment agreement would apply
for two years from the effective date of termination.
Each employment agreement contains a covenant not to compete with the
Company for a period equivalent to the longer of two years immediately following
termination of employment or, in the case of a termination by the Company
without cause in the absence of a change in control, for a period of one year
following termination of employment.
1996 LONG-TERM INCENTIVE PLAN
No stock options were granted to, or exercised by or held by any executive
officer in 1995. In March 1996, the Board of Directors and the Company's
stockholders approved the Company's 1996 Long-Term Incentive Plan (the
"Plan"). The purpose of the Plan is to provide directors, officers, key
employees, consultants and other service providers with additional incentives by
increasing their ownership interests in the Company. Individual awards under the
Plan may take the form of one or more of: (i) either incentive stock options
("ISOs") or non-qualified stock options ("NQSOs"); (ii) stock appreciation
rights ("SARs"); (iii) restricted or deferred stock; (iv) dividend
equivalents; and (v) other awards not otherwise provided for, the value of which
is based in whole or in part upon the value of the Common Stock.
The Compensation Committee administers the Plan and generally selects the
individuals who will receive awards and the terms and conditions of those
awards. The maximum number of shares of Common Stock that may be subject to
outstanding awards, determined immediately after the grant of any award, may not
exceed the greater of 1,500,000 shares or 15% of the aggregate number of shares
of Common Stock outstanding. Shares of Common Stock attributable to awards which
have expired, terminated or been canceled or forfeited are available for
issuance or use in connection with future awards.
57
<PAGE>
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any Federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
In connection with the Initial Public Offering, NQSOs to purchase a total
of 510,000 shares of Common Stock of the Company were granted as follows:
200,000 shares to Mr. Kristinik, 100,000 shares to Mr. Cerny, 100,000 shares to
Mr. King and 95,000 shares to other management. In addition, options to purchase
654,517 shares were granted to the employees of the Founding Companies. The
grants of all of the foregoing options were effective as of the Initial Public
Offering and each has an exercise price equal to $14 per share, the initial
public offering price. These options vest at the rate of 20% per year commencing
on June 30, 1997, and expire 10 years from the date of grant or three months
following termination of employment.
In August 1996 Messrs. Mercadante and Gallagher were each granted options
to purchase 100,000 shares of Common Stock of the Company at an exercise price
of $23.75 per share. These options vest at the rate of 20% per year commencing
on September 30, 1997, and expire 10 years from the date of grant or three
months following termination of employment.
The Company has outstanding NQSOs to purchase a total of 2,099,717 shares
of Common Stock as follows: (i) 1,144,217 shares of Common Stock at $14 per
share granted in May 1996; (ii) 492,500 shares of Common Stock at $23.75 per
share and 35,000 shares of Common Stock at $26.75 per share granted in August
1996; and (iii) 108,000 shares of Common Stock at $27.25 per share granted in
December 1996; (iv) 20,000 shares of Common Stock at $28.00 per share granted in
January 1997; and (v) 290,000 shares at $30.00 per share and 10,000 shares at
$29.00 per share granted in February 1997.
1996 NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company's 1996 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which was adopted by the Board of Directors and approved by the
Company's stockholders in March 1996, provides for (i) the automatic grant to
each non-employee director serving at the commencement of the Initial Public
Offering of an option to purchase 10,000 shares; and thereafter (ii) the
automatic grant to each non-employee director of an option to purchase 10,000
shares upon such person's initial election as a director. In addition, the
Directors' Plan provides for an automatic annual grant to each non-employee
director of an option to purchase 5,000 shares at each annual meeting of
stockholders following the Initial Public Offering; provided, however, that if
the first annual meeting of stockholders following a person's initial election
as a non-employee director is within three months of the date of such election,
such person will not be granted an option to purchase 5,000 shares of Common
Stock at such annual meeting. These options will have an exercise price per
share equal to the fair market value of a share at the date of grant. The
options granted to Messrs. Harter, Lynch and Verrochi, effective upon the
commencement of the Initial Public Offering, have an exercise price equal to $14
per share, the initial public offering price. Options granted under the
Directors' Plan will expire at the earlier of 10 years from the date of grant or
one year after termination of service as a director, and options will be
immediately exercisable. In addition, the Directors' Plan permits non-employee
directors to elect to receive, in lieu of cash directors' fees, shares or
credits representing "deferred shares" that may be settled at future dates, as
elected by the director. The number of shares or deferred shares received will
be equal to the number of shares which, at the date the fees would otherwise be
payable, will have an aggregate fair market value equal to the amount of such
fees.
58
<PAGE>
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
In connection with the formation of the Company, the Company issued
approximately 147 shares of Common Stock for $1,000 to Notre Capital Ventures
II, L.L.C., a Texas limited liability company ("Notre"). Mr. Harter is the
President of Notre and a director of the Company. Subsequently, the Company
declared a stock dividend of 9,999 shares of Common Stock for each share of
Common Stock outstanding. In addition, the Company sold 692,000 shares (as
adjusted for the stock dividend) of Common Stock at $.01 per share to various
members of management, including: Richard H. Kristinik -- 200,000 shares of
Common Stock, Lawrence K. King -- 114,000 shares of Common Stock and Douglas M.
Cerny -- 114,000 shares of Common Stock. The Company issued 75,000 shares of
Common Stock to a trust for the benefit of the children of Paul M. Verrochi, who
became a director of the Company upon the commencement of the Initial Public
Offering, and granted options to purchase 10,000 shares of Common Stock,
effective upon the commencement of the Initial Public Offering, to Messrs.
Verrochi and Harter and to William J. Lynch, who also became a director of the
Company upon the commencement of the Initial Public Offering and who is an
investor in Notre. In addition, Notre advanced funds in order to effect the
mergers of the Founding Companies (the "Mergers") and the Initial Public
Offering and had outstanding as of March 31, 1996 advances to the Company in the
aggregate amount of $2.7 million, all of which were on a noninterest-bearing
basis. Portions of Notre's advances were repaid out of the proceeds of the
Initial Public Offering.
Simultaneously with the closing of the Initial Public Offering, the Company
acquired by merger all of the issued and outstanding stock of the six Founding
Companies, at which time each of the Founding Companies became a wholly-owned
subsidiary of the Company. The Founding Companies include Suburban Transit Corp.
and its affiliated entities operating out of New Jersey and New York
("Suburban"), Grosvenor Bus Lines, Inc. operating out of San Francisco ("Gray
Line SF"), Leisure Time Tours operating out of New Jersey, New York and
Philadelphia ("Leisure"), Community Bus Lines, Inc. and its affiliated
entities operating out of New Jersey ("Community"), Cape Transit Corp. doing
business as Adventure Trails and operating out of Atlantic City, New Jersey and
Philadelphia ("Adventure") and Arrow Stage Lines, Inc. operating out of
Phoenix, Arizona ("Arrow"). The aggregate consideration paid by the Company in
the Mergers was approximately $95.2 million, consisting of approximately $23.8
million in cash and 5,099,687 shares of Common Stock. In addition, immediately
prior to the Mergers certain of the Founding Companies made distributions of
approximately $4.5 million, representing S Corporation earnings previously taxed
to their respective stockholders. Also, prior to the Mergers, certain of the
Founding Companies distributed to their respective stockholders approximately
$4.2 million in net book value of assets and approximately $700,000 of related
liabilities.
Pursuant to the agreements entered into in connection with the Mergers, the
stockholders of the Founding Companies agreed not to compete with the Company
for five years, commencing on the date of consummation of the initial public
offering.
Prior to the Initial Public Offering, each of the Founding Companies
incurred indebtedness which was personally guaranteed by its stockholders or by
entities controlled by its stockholders. At December 31, 1995, the aggregate
amount of indebtedness of these Founding Companies that was subject to personal
guarantees was approximately $11.6 million. The Company repaid substantially all
of such indebtedness immediately following the consummation of the Initial
Public Offering and has assumed all remaining payment obligations.
In connection with the Mergers, and as consideration for their interests in
the Founding Companies, certain executive officers, directors, key employees and
holders of more than 5% of the outstanding shares of the Company, together with
their spouses and trusts for which they act as trustees, received cash and
shares of Common Stock of the Company as follows: Mr. Kenneth Kuchin (former
director and officer of the Company) -- $7.3 million and 1,211,219 shares of
Common Stock; Mr. Thomas Werbe -- $2.1 million and 351,038 shares of Common
Stock; Mr. Robert Werbe -- $526,558 and 87,760 shares of Common Stock; Mr.
Gerald Mercadante -- $3.5 million and 1,056,400 shares of Common Stock; Mr.
Gallagher --
59
<PAGE>
$934,036 and 197,810 shares of Common Stock; Mr. John Mercadante -- $2.4 million
and 397,425 shares of Common Stock; and Mr. Busskohl -- $585,892 and 550,451
shares of Common Stock.
In November and December 1996, in connection with a second public offering
and pursuant to registration rights previously granted to each of them by the
Company, Kenneth Kuchin, Douglas M. Cerny, Charles D. Busskohl, the Robert K.
Werbe Grantor Retained Annuity Trust and George D. Kamins (a beneficial owner of
more than 5% of the Company's Common Stock) sold 96,000, 25,000, 137,310, 25,000
and 353,582 shares of the Company's Common Stock, respectively, at a price of
$25.00 per share less underwriting discounts.
LEASES OF FACILITIES
In connection with the Mergers, the Company assumed six leases by Suburban
of properties in South Plainfield, Hightstown and New Brunswick, New Jersey that
are owned by the estate of Mr. Sidney Kuchin and used by Suburban for its
motorcoach operations. Mr. Sidney Kuchin is Mr. Kenneth Kuchin's father and a
former shareholder of Suburban. Suburban is responsible for all real estate
taxes, insurance and maintenance. The terms of the leases are through October
31, 2030 and provide for aggregate annual rentals of approximately $342,000 with
periodic 10% increases every five years commencing November 1, 1998. The Company
believes that the rent for such properties does not exceed the fair market
rental thereof.
In connection with the Mergers, the Company assumed three leases by
Community of properties in Passaic, New Jersey used by Community in its
motorcoach operations that are owned by companies controlled by Mr. Frank P.
Gallagher and members of his family. Community is responsible for all real
estate taxes, insurance and maintenance. The terms of the leases are for five
years and one lease provides for five five-year extensions and one two-year
extension in favor of the Company and two leases provide for seven five-year
extensions in favor of the Company. The leases commenced May 13, 1996 and
provide for aggregate annual rentals of approximately $224,000. The Company
believes that the rent for such properties does not exceed the fair market
rental thereof.
The Company has adopted a policy that, wherever possible, it will not own
any real property. Accordingly, two properties previously owned by Leisure and
used for its motorcoach operations with a net book value of $1.9 million as of
December 31, 1995 were distributed, without payment of consideration to Leisure
or the Company, to an entity controlled by the stockholders thereof, including
Mr. Gerald Mercadante, prior to the Mergers and then leased to the Company under
four leases between Leisure and Mr. Gerdaneu. These leases were negotiated
between the General Counsel of the Company and counsel for Leisure. Two of the
leases have a term of five years with an option in favor of the Company to
extend the leases for seven five-year periods. One of the leases is for ten
years with an option in favor of the Company to extend the lease for three
ten-year periods. The fourth lease is for five years with an option in favor of
the Company to extend the lease for seven five-year periods. These leases
provide for aggregate annual rentals of approximately $77,000. Leisure is
responsible for all real estate taxes, insurance and maintenance. See the Pro
Forma Financial Statements of the Company and the notes thereto.
Certain properties owned by Arrow with a net book value of $1.4 million as
of September 30, 1995 were distributed, without payment of consideration to
Arrow or the Company, to the stockholders thereof, including trusts for which
Mr. Charles Busskohl acts as a trustee, prior to the Mergers and then leased to
the Company under a lease between Arrow and Busskohl Realty. This lease was
negotiated between the General Counsel of the Company and counsel for Arrow and
are for a term of ten years with three renewal options for five years and
provides for aggregate annual rentals of approximately $76,000. Arrow is
responsible for all real estate taxes, insurance and maintenance. See the Pro
Forma Financial Statements of the Company and the notes thereto.
Because the Company does not want to own any real property, it did not
value the properties distributed to the stockholders of Leisure and Arrow or
take any such value into account when negotiating the consideration to be paid
for those Founding Companies. The rent paid by the Company on the leases back to
it of such properties was negotiated as described above based on the historical
cost to Leisure and
60
<PAGE>
Arrow of having those properties in their respective businesses and is believed
by the Company not to exceed the fair market rental thereof.
OTHER TRANSACTIONS
Gray Line SF owed Grosvenor Properties, Ltd., a company owned by Mr. Robert
K. Werbe and his brother, approximately $1.6 million as of October 31, 1994 and
approximately $300,000 as of October 31, 1995. This loan bore interest at the
prime rate plus 1% and was to mature in October 2000. Gray Line SF owed Mr.
Robert K. Werbe approximately $256,000 as of October 31, 1994, and Mr. Robert K.
Werbe owed Gray Line SF approximately $225,000 and $229,000 as of October 31,
1994 and 1995, respectively. These were unsecured, noninterest-bearing and
payable upon demand.
Community owed Ms. Alice Gallagher, a shareholder of Community,
approximately $132,000 and $171,000 as of December 31, 1994 and 1995,
respectively. These loans were unsecured, bore interest at 10.5% and were
payable in monthly installments of approximately $12,000.
Adventure owed Mr. John Mercadante and his sister approximately $315,000 as
of December 31, 1994 and 1995, respectively. These loans were unsecured,
noninterest-bearing and payable upon demand.
Suburban had outstanding accounts receivable from Mr. Kenneth Kuchin
totaling $194,000 and Sidney Kuchin totaling $458,000 as of December 31, 1995.
These receivables were unsecured, noninterest-bearing and payable on demand.
George D. Kamins owed Yellow Cab Service Corporation ("Yellow Cab")
$303,000 as of August 29, 1996. This advance was offset against accrued interest
payable to him in connection with the August acquisition of Yellow Cab. In
addition, approximately $8.1 million of Yellow Cab's indebtedness was subject to
Mr. Kamins' personal guarantee.
The Company had previously negotiated agreements with Exel Holdings, Ltd.
and Exel Motorcoach Partners LLC (collectively referred to as "Exel") whereby
Exel would provide introductions to other motorcoach businesses and other
consulting services for a term of three years. The consideration payable to Exel
was approximately $100,000 per year. In addition, Exel was to be paid a
commission on any acquisition completed by the Company with motorcoach
businesses introduced to it by Exel, based on a formula ranging from 5% of the
first $1.0 million of consideration paid for the acquired business to 1% of the
consideration in excess of $4.0 million paid for such business. In connection
with the acquisition of two businesses in 1996, the Company paid Exel a
commission of $503,000 based on this formula. Mr. Verrochi, who became a
director of the Company upon the commencement of the Initial Public Offering, is
a principal of Exel. The Company and Exel have subsequently agreed to the
termination of this agreement, whereby Exel shall receive, upon completion of
the next acquisition of a motorcoach business identified by Exel with aggregate
consideration paid in excess of $5.0 million, $275,000 in cash and the grant of
a warrant to purchase 100,000 shares of Company Common Stock at an exercise
price of $26 per share. The warrant will be exercisable beginning six months
from the date of the agreement to terminate and expire two years from the date
of the agreement to terminate.
All of the loans described above have been repaid by the Company.
COMPANY POLICY
Subsequent to the Initial Public Offering, any transactions with officers,
directors and holders of more than 5% of the Common Stock require the approval
of a majority of the Board of Directors, including a majority of the
disinterested members of the Board of Directors.
61
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of August 5, 1997
regarding the beneficial ownership of the Common Stock of the Company by (i)
each person known to beneficially own more than 5% of the outstanding shares of
Common Stock; (ii) each of the Company's directors; (iii) each named executive
officer; and (iv) all executive officers and directors as a group. All persons
listed have an address in care of the Company's principal executive offices and
have sole voting and investment power with respect to their shares unless
otherwise indicated.
SHARES
BENEFICIALLY OWNED
----------------------
NAME NUMBER PERCENT
Richard H. Kristinik(1).............. 240,000 1.2%
John Mercadante, Jr.(2).............. 392,425 2.0
Douglas M. Cerny(3).................. 109,000 *
Frank P. Gallagher(4)................ 199,810 1.0
Lawrence K. King(3).................. 134,000 *
Gerald Mercadante(5)................. 951,400 4.9
Charles D. Busskohl(6)............... 401,141 2.1
Steven S. Harter(7).................. 353,095 1.8
William J. Lynch(8).................. 38,468 *
Paul M. Verrochi(9).................. 65,000 *
Thomas A. Werbe(10).................. 326,038 1.8
All executive officers and directors
as a group (11 persons)............ 3,210,377 16.3
- ------------
* Less than 1%.
(1) These shares are held by the Kristinik Family Partnership, of which Mr.
Kristinik is a general partner. Includes 40,000 shares which may be
acquired upon the exercise of options exercisable within 60 days; excludes
160,000 shares which may be acquired upon the exercise of options not
exercisable within 60 days.
(2) Includes 137,774 shares held by Mr. Mercadante's spouse, as to which shares
Mr. Mercadante disclaims beneficial ownership. Includes 20,000 shares which
may be acquired upon the exercise of options exercisable within 60 days;
excludes 80,000 shares which may be acquired upon the exercise of options
not exercisable within 60 days.
(3) Includes 20,000 shares which may be acquired upon the exercise of options
exercisable within 60 days; excludes 80,000 shares which may be acquired
upon the exercise of options not exercisable within 60 days.
(4) Includes 90,885 shares held by Mr. Gallagher's spouse, as to which shares
Mr. Gallagher disclaims beneficial ownership, and 16,039 shares held in a
trust for the benefit of Mr. Gallagher's daughter for which Mr. Gallagher
is a trustee. Includes 20,000 shares which may be acquired upon the
exercise of options exercisable within 60 days; excludes 80,000 shares
which may be acquired upon the exercise of options not exercisable within
60 days.
(5) Includes 186,423 shares held by Mr. Mercadante's spouse, as to which shares
Mr. Mercadante disclaims beneficial ownership.
(6) These shares are held by two family trusts for which Mr. Busskohl is a
trustee.
(7) These shares are held by Harter Investment Partners, Ltd., of which Mr.
Harter is a general partner. Includes 15,000 shares which may be issued
upon exercise of options granted under the Directors' Plan and 33,714
shares held by the Victoria Harter and Phyllis Spisak Educational Trust, of
which Mr. Harter's minor children are beneficiaries, as to which shares Mr.
Harter disclaims beneficial ownership.
(8) Includes 15,000 shares which may be acquired upon exercise of options
granted under the Directors' Plan.
(9) Includes 15,000 shares which may be acquired upon exercise of options
granted under the Directors' Plan and 50,000 shares held in a trust for the
benefit of Mr. Verrochi's children, as to which shares Mr. Verrochi
disclaims beneficial ownership.
(10) These shares are held by the Robert K. Werbe Grantor Retained Annuity Trust
for which Mr. Thomas Werbe is a trustee.
62
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITY
The following is a summary of the Credit Facility and is qualified in its
entirety by reference to such Credit Facility, a copy of which is available on
request. See "Available Information."
The Credit Facility provides for a revolving credit facility of $181
million through a syndicate of eight banks and allows the Company to have
borrowings of up to $40 million (in addition to Subordinated Debt (as defined
therein)) outside the Credit Facility. The Company has recently announced that
it anticipates that such facility will be amended to provide for borrowings of
up to $300 million and additional senior borrowings outside such facility of up
to $80 million. The proceeds of the Credit Facility have been used for working
capital, capital expenditures and acquisitions, including refinancing of
indebtedness related to acquisitions. The Credit Facility is secured by
substantially all of the assets of the Company and matures on August 14, 1999,
at which time all amounts then outstanding become due. Interest on outstanding
borrowings is charged, at the Company's option, at the bank's prime rate plus up
to 1.0% or LIBOR plus 1.0% to 2.25%, both as determined by the ratio of the
Company's funded debt cash flow (as defined). Applicable interest rates will be
increased by 2.0% per annum during the continuance of any specified event of
default under the Credit Facility. A commitment fee ranging from 0.25% to 0.50%
is payable on the unused portion of the Credit Facility. Under the terms of the
Credit Facility, the Company must maintain certain minimum financial ratios. The
Credit Facility restricts the Company's ability to make distributions, including
but not limited to prohibiting the Company from declaring or paying any
dividends. As of March 31, 1997, the Company had a total of $166.8 million
outstanding under the Credit Facility and other sources and had utilized $4.9
million of the facility for letters of credit securing certain insurance
obligations and performance bonds, resulting in a borrowing availability of
$49.3 million under the Credit Facility and other sources. The Company's
obligations under the Credit Facility are guaranteed by substantially all of the
domestic subsidiaries of the Company.
The obligations of the lenders under the Credit Facility to advance funds
is subject to the satisfaction of certain conditions customary in agreements of
this type. In addition, the Company and its subsidiaries are subject to certain
customary affirmative and negative covenants contained in the Credit Facility,
including, without limitation, covenants that restrict, subject to specified
exceptions, (i) incurring additional indebtedness and other obligations; (ii) a
merger or consolidation with any other person, or a liquidation, dissolution or
winding up; (iii) acquisitions; (iv) distributions in respect to its shares of
capital stock; (v) engaging in transactions with affiliates; (vi) investing
funds of the Company; (vii) granting of liens to secure any other indebtedness
(including the Notes) and (viii) changing the character of its lines of
business. Many of these covenants are more restrictive than those in favor of
holders of the Notes as described herein and as set forth in the Indenture.
Moreover, the Credit Facility requires the Company to meet certain
financial tests, including: consolidated Net Worth, as defined therein, plus
consolidated Subordinated Debt, as defined therein, at a level not less than (i)
the greater of 90% of the consolidated Net Worth of the Company as of June 30,
1996, or $35 million, plus (ii) 90% of the Company's cumulative annual
consolidated net earnings, plus (iii) 100% of the net proceeds resulting from
any sale, issuance or assumption of stock or Subordinated Debt (as defined
therein); consolidated Tangible Net Worth, as defined therein, of the Company at
not less than 40% of the consolidated Net Worth of the Company; a ratio of
consolidated Funded Debt, as defined therein, of the Company less the
Subordinated Debt, as defined therein, of the Company to the consolidated
EBITDA, as defined therein, of the Company of no greater than 3.0 to 1.0; and a
Fixed Charge Coverage Ratio, as defined therein, of not less than 1.25 to 1.0.
At March 31, 1997, on a pro forma as adjusted basis (see "Selected Consolidated
Pro Forma Financial Data"), the Company's consolidated Net Worth plus the
consolidated Subordinated Debt exceeded the net worth test by $4.0 million, the
consolidated Tangible Net Worth was 45.7% of the consolidated Net Worth and the
Fixed Charge Coverage Ratio was 1.28. The Company believes it will be in
compliance with such covenants on the date of closing of the Offering. The
Indenture will contain restrictions on the Company's ability to incur additional
indebtedness, and other contractual arrangements to which the Company may become
subject in the future could contain similar restrictions.
63
<PAGE>
The Credit Facility also provides for customary events of default.
Occurrence of any of such events of default could result in acceleration of the
Company's obligations under the Credit Facility and foreclosure on the
collateral securing such obligations, with material adverse results to holders
of the Notes. See "Risk Factors -- Holding Company Structure and Subordination
of Notes and Guarantees."
In September 1996, the Company entered into an interest rate cap agreement
with a bank. The agreement has a term of one year and a notional principal
amount of $50 million. The agreement provides that if the 90-day LIBOR rate
exceeds 6.5% for certain measurement periods, the bank will pay to the Company
the difference between such rate and 6.5%. The cost of the agreement is being
amortized over its term.
CONVERTIBLE SUBORDINATED NOTES
The Company issued $22.5 million of convertible subordinated notes in
August 1996 ($4 million of which were repaid in January 1997) and $18.3 million
of convertible subordinated notes in February 1997. Subsequent to March 31,
1997, the Company issued $3.8 million of additional convertible subordinated
notes. All of such notes were issued as consideration to former owners of
certain acquired businesses. The currently outstanding convertible subordinated
notes bear interest, payable quarterly, at a weighted average interest rate of
5.1% are convertible by the holder into shares of the Company's Common Stock at
a weighted average price of $33.94 per share. The convertible subordinated notes
are redeemable at the option of the Company at various times, ranging from ten
months to three years from the date of issuance. The terms of the currently
outstanding convertible subordinated notes require $30.6 million of principal
payments in 1999 and $10.0 million in 2000.
64
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Exchange Notes will be issued, and the Old Notes were issued, pursuant
to the Indenture between the Company and The Bank of New York, as Trustee. The
following is a summary of material provisions of the Indenture. This summary
does not purport to be complete and is subject to and is qualified in its
entirety by reference to all provisions of the Notes and the Indenture
(including provisions made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended), including the definitions therein of terms
not defined herein. Certain terms used herein are defined below under
" -- Certain Definitions." Copies of the proposed form of Indenture and
Registration Rights Agreement are available as set forth under "Available
Information."
The Exchange Notes will be issued solely in exchange for an equal principal
amount of Old Notes pursuant to the Exchange Offer. The form and terms of the
Exchange Notes will be identical in all material respects to the form and terms
of the Old Notes except that the offering of the Exchange Notes has been
registered under the Securities Act, and the Exchange Notes will therefore not
be subject to transfer restrictions, registration rights and certain provisions
relating to an increase in the stated interest rate on the Old Notes under
certain circumstances. See " -- Registered Exchange Offer; Registration
Rights." The Notes are subject to the terms stated in the Indenture, a copy of
which has been filed as an exhibit to the Registration Statement, and holders of
the Notes are referred thereto for a statement of those terms. The statements
and definitions of terms under this caption relating to the Notes and the
Indenture described below are summaries and do not purport to be complete. Such
summaries make use of certain terms defined in the Indenture and are qualified
in their entirety by express reference to the Indenture. Certain terms used
herein are defined below under " -- Certain Definitions."
The Old Notes and the Exchange Notes will constitute a single series of
debt securities under the Indenture. If the Exchange Offer is consummated,
holders of Old Notes who do not exchange their Old Notes for Exchange Notes will
vote together with holders of the Exchange Notes for all relevant purposes under
the Indenture. In that regard, the Indenture requires that certain actions by
the holders thereunder (including acceleration following an Event of Default)
must be taken, and certain rights must be exercised, by specified minimum
percentages of the aggregate principal amount of the outstanding securities
issued under the Indenture. In determining whether holders of the requisite
percentage in principal amount have given any notice, consent or waiver or taken
any other action permitted under the Indenture, any Old Notes that remain
outstanding after the Exchange Offer will be aggregated with the Exchange Notes,
and the holders of such Old Notes and the Exchange Notes will vote together as a
single series for all such purposes. Accordingly, all references herein to
specified percentages in aggregate principal amount of the outstanding Notes
shall be deemed to mean, at any time after the Exchange Offer is consummated,
such percentages in aggregate principal amount of the Old Notes and the Exchange
Notes then outstanding.
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to Senior Debt. See " -- Ranking and
Subordination." As of the date of the Indenture, all of the Company's
Subsidiaries are Restricted Subsidiaries and all of the Company's domestic
Subsidiaries are Guarantors of the Notes. Under certain circumstances, however,
the Company will be able to designate current and future Subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to any
of the restrictive covenants set forth in the Indenture. See " -- Certain
Covenants."
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all current and future Senior Debt. As of
March 31, 1997, on a pro forma basis giving effect to the Subsequent
Acquisitions, the Offering and the application of the net proceeds therefrom,
the Company would have had Senior Debt of approximately $19.0 million and,
through its Subsidiaries, would have had additional liabilities (including trade
payables and lease obligations) aggregating approximately $40.0 million. The
Indenture will permit the incurrence of additional Senior Debt in the future.
65
<PAGE>
PRINCIPAL, MATURITY AND INTEREST
The Company issued $150.0 million in aggregate principal amount of Old
Notes in the Offering. The Notes are limited to such amount and will mature on
July 1, 2007. Interest on the Notes accrues at the rate of 9 3/8% per annum and
is payable semi-annually in arrears on January 1 and July 1, commencing on
January 1, 1998, to Holders of record on the immediately preceding December 15
and June 15, respectively. Interest on the Notes accrues from the most recent
date to which interest has been paid or, if no interest has been paid, from the
date of original issuance. Interest is computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium, if any, and interest and
Liquidated Damages on the Notes is payable at the office or agency of the
Company maintained for such purpose within the City and State of New York or, at
the option of the Company, payment of interest and Liquidated Damages may be
made by check mailed to the Holders of the Notes at their respective addresses
set forth in the register of Holders of Notes; PROVIDED that all payments of
principal, premium, interest and Liquidated Damages with respect to Notes the
Holders of which have given wire transfer instructions to the Company will be
required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof. Until otherwise designated by the
Company, the Company's office or agency in New York is the office of the Trustee
maintained for such purpose. The Notes are issued in denominations of $1,000 and
integral multiples thereof.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes are jointly and severally
guaranteed (the "Subsidiary Guarantees") by the Guarantors. The Subsidiary
Guarantee of each Guarantor is subordinated to the prior payment in full of all
Senior Debt of such Guarantor, which would include approximately $59.0 million
of Senior Debt outstanding as of March 31, 1997 on a pro forma basis giving
effect to the Subsequent Acquisitions, the Offering and the application of the
net proceeds therefrom, and the amounts for which the Guarantors will be liable
under the guarantees issued from time to time with respect to Senior Debt. The
obligations of each Guarantor under its Subsidiary Guarantee are limited so as
not to constitute a fraudulent conveyance under applicable law. See "Risk
Factors -- Ranking and Fraudulent Conveyance Considerations."
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor, pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes, the Indenture and the Subsidiary Guarantee; (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists; and (iii) the Company would be permitted by virtue of the
Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect
to such transaction, to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the covenant described
above under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock."
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor to a third party or an Unrestricted
Subsidiary in a transaction that does not violate any of the covenants in the
Indenture, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor, then such Guarantor
(in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the capital stock of such Guarantor) or
the corporation acquiring the property (in the event of a sale or other
disposition of all or substantially all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
PROVIDED that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "-- Repurchase
at the Option of Holders -- Asset Sales."
66
<PAGE>
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes and
any other payment obligations of the Company in respect of the Notes (including
any obligation to repurchase Notes) is subordinated in right of payment, as set
forth in the Indenture, to the prior payment in full of all Senior Debt, whether
outstanding on the date of the Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full of all Obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Debt) before the Holders of Notes will be entitled to
receive any payment with respect to the Notes, and until all Obligations with
respect to Senior Debt are paid in full, any distribution to which the Holders
of Notes would be entitled shall be made to the holders of Senior Debt (except
that Holders of Notes may receive and retain Permitted Junior Securities and
payments made from the trust described under "-- Legal Defeasance and Covenant
Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under
"-- Legal Defeasance and Covenant Defeasance") if (i) a default in the payment
of the principal of, premium, if any, or interest on Designated Senior Debt
occurs and is continuing beyond any applicable period of grace or (ii) any other
default occurs and is continuing with respect to Designated Senior Debt that
permits, or with the giving of notice or passage of time or both (unless cured
or waived) will permit holders of the Designated Senior Debt as to which such
default relates to accelerate its maturity and the Trustee receives a notice of
such default (a "Payment Blockage Notice") from the Company or the holders of
any Designated Senior Debt. Payments on the Notes may and shall be resumed (a)
in the case of a payment default, upon the date on which such default is cured
or waived and (b) in case of a nonpayment default, the earlier of the date on
which such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the maturity of
any Designated Senior Debt has been accelerated. No new period of payment
blockage may be commenced unless and until (i) 360 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium, if any, and interest on the Notes that
have come due have been paid in full in cash. No nonpayment default that existed
or was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice. In the event that, notwithstanding the foregoing, the Company makes any
payment or distribution to the Trustee or the Holder of any Note prohibited by
the subordination provisions of the Indenture, then such payments or
distribution will be required to be paid over and delivered forthwith to the
holders (or their representative) of Designated Senior Debt.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency of the Company, Holders of Notes may recover less
ratably than creditors of the Company who are holders of Senior Debt.
67
<PAGE>
OPTIONAL REDEMPTION
Except as otherwise described below, the Notes are not be redeemable at the
Company's option prior to July 1, 2002. Thereafter, the Notes will be subject to
redemption at any time at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Liquidated Damages thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on July 1 of the
years indicated below:
YEAR PERCENTAGE
2002................................. 104.688%
2003................................. 103.125
2004................................. 101.563
2005 and thereafter.................. 100.000%
Notwithstanding the foregoing, at any time on or prior to July 1, 2000, the
Company may (but shall not have the obligation to) redeem, on one or more
occasions, up to an aggregate of 33 1/3% of the aggregate principal amount of
Notes issued at a redemption price equal to 109.375% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the redemption date, with the net cash proceeds of one or more Public
Equity Offerings; PROVIDED that at least 66 2/3% of the aggregate principal
amount of Notes issued remain outstanding immediately after the occurrence of
such redemption; and PROVIDED FURTHER, that such redemption shall occur within
60 days of the date of the closing of such Public Equity Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed or repurchased in an offer
to purchase at any time, selection of Notes for redemption or repurchase will be
made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed, or, if the
Notes are not so listed, on a pro rata basis, by lot or by such other method as
the Trustee shall deem fair and appropriate; PROVIDED that no Notes of $1,000 or
less shall be redeemed or repurchased in part. Notices of redemption may not be
conditional. Notices of redemption or repurchase shall be mailed by first class
mail at least 30 but not more than 60 days before the redemption date or
repurchase date to each Holder of Notes to be redeemed or repurchased at its
registered address. If any Note is to be redeemed or repurchased in part only,
the notice of redemption or repurchase that relates to such Note shall state the
portion of the principal amount thereof to be redeemed or repurchased. A new
Note in principal amount equal to the unredeemed or unrepurchased portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the redemption or repurchase date, interest
ceases to accrue on Notes or portions of them called for redemption or
repurchase.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such
68
<PAGE>
notice is mailed (the "Change of Control Payment Date"), pursuant to the
procedures required by the Indenture and described in such notice. The Company
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the covenant described hereunder by virtue thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; PROVIDED that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture provides that,
prior to complying with the provisions of this covenant, but in any event within
90 days following a Change of Control, the Company will either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of Notes
required by this covenant. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization,
restructuring or similar transaction. Although the existence of a Holder's right
to require the Company to repurchase the Notes in respect of a Change of Control
may deter a third party from acquiring the Company in a transaction that
constitutes a Change of Control, the provisions of the Indenture relating to a
Change of Control in and of themselves may not afford Holders of the Notes
protection in the event of a highly leveraged transaction, reorganization,
recapitalization, restructuring, merger or similar transaction involving the
Company that may adversely affect Holders, if such transaction is not the type
of transaction included within the definition of a Change of Control.
The Existing Credit Facility currently prohibits the Company from
purchasing any Notes prior to their stated maturity, and also provides that
certain change of control events with respect to the Company would constitute a
default thereunder. Any future credit agreements or other agreements relating to
Senior Debt to which the Company becomes a party may contain similar
restrictions and provisions. Moreover, the exercise of by the Holders of their
rights to require the Company to repurchase the Notes could cause a default
under such other indebtedness, even if the Change of Control itself does not,
due to the financial effect of such repurchase on the Company. In the event a
Change of Control occurs at a time when the Company is prohibited from
purchasing Notes, the Company could seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In either
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute a default under
the Existing Credit Facility. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to the Holders of
Notes. Finally, the Company's ability to pay cash to the holders of Notes
following the occurrence of a Change of Control may be limited by the Company's
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases. The
provisions under the Indenture relating to the Company's obligation to make an
offer to
69
<PAGE>
repurchase the Notes as a result of a Change of Control may be waived or
modified with the prior written consent of the Holders of a majority in
principal amount of the Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee, which resolution shall be
conclusive evidence of compliance with this provision) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents, long-term assets that are useful in a
Permitted Business ("Permitted Business Assets") and/or Voting Stock of a
Person primarily engaged in a Permitted Business that becomes a Guarantor, so
long as such Voting Stock constitutes a majority of the Voting Stock of such
Person ("Permitted Business Securities"); PROVIDED that the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet), of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the Company
or such Restricted Subsidiary from further liability and (y) any securities,
notes or other obligations received by the Company or any such Restricted
Subsidiary from such transferee that are converted by the Company or such
Restricted Subsidiary into cash or Cash Equivalents within 180 days of closing
such Asset Sale (to the extent of the cash received), shall be deemed to be cash
for purposes of this provision. Notwithstanding the foregoing, the provisions of
this paragraph will not apply to (i) sales of used coaches or obsolete equipment
in the ordinary course of business or (ii) the trade or exchange by the Company
or any Subsidiary of the Company of any property or assets owned or held by the
Company or such Subsidiary for any property or assets owned or held by another
Person; PROVIDED that the fair market value of the properties traded or
exchanged by the Company or such Subsidiary (including any cash or Cash
Equivalents to be delivered by the Company or such Subsidiary) is reasonably
equivalent to the fair market value of the properties (together with any cash or
Cash Equivalents) to be received by the Company or such Subsidiary as determined
in good faith by (a) any officer of the Company if such fair market value is
less than $5 million and (b) the Board of Directors of the Company (evidenced by
a resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) if such fair market value is equal to or in excess of
$5.0 million.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to repay Senior Debt
or Pari Passu Indebtedness (provided that if the Company shall so reduce
Obligations under Pari Passu Indebtedness, it will equally and ratably reduce
Obligations under the Notes if the Notes are then prepayable or, if the Notes
may not be then prepaid, the Company shall make an offer (in accordance with the
procedures set forth below for an Asset Sale Offer) to all Holders to purchase
at 100% of the principal amount thereof, plus accrued interest to the date of
repurchase, the amount of Notes that would otherwise be prepaid), or, (b) to the
acquisition of Permitted
70
<PAGE>
Business Assets or Permitted Business Securities or the making of a capital
expenditure. Pending the final application of any such Net Proceeds, the Company
may temporarily reduce Senior Debt or otherwise invest such Net Proceeds in any
manner that is not prohibited by the Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of this
paragraph will (after the expiration of the 360-day period specified in the
first sentence of this paragraph) be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company
will be required to make an offer to all Holders of Notes (an "Asset Sale
Offer") to purchase the maximum principal amount of Notes that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to 100%
of the principal amount thereof plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the date of purchase, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero.
The Company's obligation to purchase Notes with Excess Proceeds could
create an event of default under Senior Debt as a result of which any purchase
could, absent a waiver, be blocked by the subordination provisions of the Notes.
Failure to purchase the Notes when required will result in an Event of Default
with respect to the Notes whether or not such a purchase is permitted by the
subordination provisions of the Indenture.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of the Company's or
any of its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise acquire
or retire for value (including, without limitation, in connection with any
merger or consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company; (iii) make any payment
on or with respect to, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to the Notes, except a
payment of interest or principal at Stated Maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless,
at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock";
and
(c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii) and (iv) of the next succeeding
paragraph), is less than the sum (without duplication) of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
71
<PAGE>
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the date of the Indenture of Equity Interests of
the Company (other than Disqualified Stock) or of Disqualified Stock or
debt securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after the date of the Indenture is sold
for cash or otherwise liquidated or repaid for cash, the lesser of (A) the
net cash proceeds of such sale, liquidation or repayment and (B) the
initial amount of such Restricted Investment, plus (iv) the amount
resulting from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries, such amount not to exceed the amount of Investments made by
the Company or any Restricted Subsidiary in such Unrestricted Subsidiary
since the date of the Indenture that was treated as a Restricted Payment
under the Indenture.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of, other Equity Interests of
the Company (other than any Disqualified Stock); PROVIDED that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause (c)
(ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or
other acquisition of subordinated Indebtedness with the net cash proceeds from
an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any
dividend by a Subsidiary of the Company to the holders of its common Equity
Interests on a pro rata basis; (v) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company or
any Subsidiary of the Company held by any member of the Company's (or any of its
Subsidiaries') management, employees or consultants pursuant to any management,
employee or consultant equity subscription agreement or stock option agreement;
PROVIDED that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $1.0 million in any
twelve-month period and no Default or Event of Default shall have occurred and
be continuing immediately after such transaction; (vi) cash payments in lieu of
fractional shares issuable as dividends on preferred securities of the Company
or any of its Restricted Subsidiaries; PROVIDED that such cash payments shall
not exceed $20,000 in the aggregate in any twelve-month period and no Default or
Event of Default shall have occurred and be continuing immediately after such
transaction; (vii) repurchases of Equity Interests deemed to occur upon exercise
of stock options if such Equity Interests represent a portion of the exercise
price of such options; (viii) the payment of the redemption price of rights
issued pursuant to any shareholders' rights plan not in excess of $0.05 per
right and not in excess of $1.0 million in the aggregate since the date of the
Indenture; and (ix) other Restricted Payments in an aggregate amount since the
date of the Indenture not to exceed $5.0 million.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greatest of (x) the net book value of such Investments at the time of such
designation, (y) the fair market value of such Investments at the time of such
designation and (z) the original fair market value of such Investments at the
time they were made. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
72
<PAGE>
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee. Not later
than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock;
PROVIDED, HOWEVER, that the Company or any of the Guarantors may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if
the Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2.0 to 1, if such
incurrence or issuance is on or prior to July 1, 2000, or 2.5 to 1, if such
incurrence or issuance is after July 1, 2000, in each case determined on a pro
forma basis (as set forth in the definition of Fixed Charge Coverage Ratio and
including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company and the Guarantors of Indebtedness
under Credit Facilities and the issuance and creation of letters of credit
thereunder (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Company and the Guarantors
thereunder); PROVIDED that the aggregate principal amount of all
Indebtedness and letters of credit outstanding under all Credit Facilities
after giving effect to such incurrence, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any other
Indebtedness incurred pursuant to this clause (i), does not exceed an
amount equal to $100.0 million less the aggregate amount of all Net
Proceeds of Asset Sales applied to repay any such Indebtedness (or any such
Permitted Refinancing Indebtedness) pursuant to the covenant described
above under the caption "-- Repurchase at the Option of Holders -- Asset
Sales";
(ii) the incurrence by Foreign Subsidiaries of Indebtedness under
Credit Facilities and the issuance and creation of letters of credit
thereunder (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Foreign Subsidiaries
thereunder); PROVIDED that the aggregate principal amount of all
Indebtedness of Foreign Subsidiaries outstanding under Credit Facilities
and letters of credit thereunder after giving effect to such incurrence,
including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any other Indebtedness incurred pursuant to this
clause (ii), does not exceed an amount equal to $40.0 million less the
aggregate amount of all Net Proceeds of Asset Sales applied to repay any
such Indebtedness (or any such Permitted Refinancing Indebtedness) pursuant
to the covenant described under the caption "-- Repurchase at the Option
of Holders -- Asset Sales";
(iii) the incurrence by the Company and the Guarantors of the
Existing Indebtedness;
(iv) the incurrence by the Company of Indebtedness represented by the
Notes and the Subsidiary Guarantees;
73
<PAGE>
(v) the incurrence by the Company or any of the Guarantors of
Indebtedness (in addition to Existing Indebtedness) represented by Capital
Lease Obligations, mortgage financings or purchase money obligations, in
each case incurred for the purpose of financing all or any part of the
purchase price or cost of construction or improvement of property, plant or
equipment used in the business of the Company or such Guarantor, in an
aggregate principal amount not to exceed $7.5 million at any time
outstanding;
(vi) the incurrence by the Company or any of the Guarantors of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance, extend, renew, defease, or replace
Indebtedness (other than intercompany Indebtedness) that was permitted by
the Indenture to be incurred;
(vii) the incurrence by the Company or any of the Guarantors of
intercompany Indebtedness between or among the Company and any of the
Guarantors or between or among Wholly Owned Subsidiaries; PROVIDED,
HOWEVER, that (i) if the Company is the obligor on such Indebtedness, such
Indebtedness is expressly subordinated to the prior payment in full in cash
of all Obligations with respect to the Notes and (ii)(A) any subsequent
issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Guarantor
and (B) any sale or other transfer of any such Indebtedness to a Person
that is not either the Company or a Guarantor shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the Company or
such Guarantor, as the case may be;
(viii) the incurrence by the Company or any of the Guarantors of
Hedging Obligations that are incurred for the purpose of fixing or hedging
(i) interest rate risk with respect to any floating rate Indebtedness that
is permitted by the terms of this Indenture to be outstanding, (ii) the
value of foreign currencies purchased or received by the Company in the
ordinary course of business, or (iii) commodities purchased in the ordinary
course of business for use in a Permitted Business and not for speculation;
(ix) the issuance of preferred stock or the incurrence by the
Company's Unrestricted Subsidiaries of Non-Recourse Debt, PROVIDED,
HOWEVER, that if any such Indebtedness ceases to be Non-Recourse Debt of an
Unrestricted Subsidiary, such event shall be deemed to constitute an
incurrence of Indebtedness by a Restricted Subsidiary of the Company;
(x) Indebtedness in connection with one or more standby letters of
credit, guarantees, performance bonds or other reimbursement obligations,
in each case, issued in the ordinary course of business and not in
connection with the borrowing of money or the obtaining of advances or
credit (other than advances or credit on open account, includible in
current liabilities, for goods and services in the ordinary course of
business and on terms and conditions which are customary in the Permitted
Business, and other than the extension of credit represented by such letter
of credit, guarantee or performance bond itself), not to exceed in the
aggregate at any given time 10% of Total Assets; PROVIDED, that any draw
under or call upon any of the foregoing is repaid in full within 30 days;
(xi) accounts payable or other liabilities of the Company or any
Restricted Subsidiary to trade creditors created or assumed by the Company
or such Subsidiary in the ordinary course of business in connection with
the obtaining of goods and services;
(xii) Indebtedness consisting of obligations in respect of purchase
price adjustments, guarantees or indemnities in connection with the
disposition of assets;
(xiii) the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Guarantor of the Company that was
permitted to be incurred by another provision of this covenant; and
(xiv) the incurrence by the Company or any of the Guarantors of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any other
Indebtedness incurred pursuant to this clause (xiv), not to exceed $5.0
million.
74
<PAGE>
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xiv) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest, the accretion of accreted
value and the payment of interest in the form of additional Indebtedness will
not be deemed to be an incurrence of Indebtedness for purposes of this covenant.
LIENS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien securing Indebtedness or trade payables on any asset
now owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries on its
Capital Stock, or (b) pay any indebtedness owed to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets to
the Company or any of its Restricted Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the date of the Indenture, (b) the Existing Credit Facility as in
effect as of the date of the Indenture, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, PROVIDED that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive with respect to such dividend and other
payment restrictions than those contained in the Credit Facility as in effect on
the date of the Indenture, (c) the Indenture, the Notes and the Subsidiary
Guarantees, (d) applicable law or regulations or any order, ruling or other
determination by a governmental regulatory authority, (e) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Restricted Subsidiaries (through the acquisition of Capital Stock or
through merger or consolidation) as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, PROVIDED that,
in the case of Indebtedness, such Indebtedness was permitted by the terms of the
Indenture to be incurred, (f) by reason of customary non-assignment provisions
in leases, licenses, encumbrances, contracts or similar assets entered into or
acquired in the ordinary course of business and consistent with past practices,
(g) purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired, (h) Permitted Refinancing Indebtedness, PROVIDED
that the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced, (i) any instrument
governing Indebtedness or preferred stock of a Subsidiary in existence on the
date of the Indenture, or (j) any instrument governing Indebtedness of a Foreign
Subsidiary permitted by the covenant described above under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and the Issuance of
Preferred Stock."
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation,
75
<PAGE>
Person or entity unless (i) the Company is the surviving corporation or the
entity or the Person formed by or surviving any such consolidation or merger (if
other than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of the Company under the Notes
and the Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no Default
or Event of Default exists; and (iv) except in the case of a merger of the
Company with or into a Wholly Owned Subsidiary of the Company, the Company or
the entity or Person formed by or surviving any such consolidation or merger (if
other than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
above under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock."
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to or Investment in, or
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
that are no less favorable to the Company or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary with an unrelated Person and (ii) the
Company delivers to the Trustee (a) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $1.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors, which
resolution shall be conclusive evidence of compliance with this provision, and
(b) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5.0 million, an
opinion as to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment banking
firm of national standing; PROVIDED that (A) any employment agreement entered
into by the Company or any of its Restricted Subsidiaries in the ordinary course
of business and consistent with the past practice of the Company or such
Restricted Subsidiary, (B) transactions between or among the Company and/or its
Restricted Subsidiaries, (C) Restricted Payments that are permitted by the
provisions of the Indenture described above under the caption "-- Certain
Covenants-- Restricted Payments," (D) Affiliate Transactions assumed or entered
into in connection with acquisitions of Permitted Businesses with persons who
were not Affiliates prior to such transactions, and (E) Affiliate Transactions
existing on the date of the Indenture, in each case, shall not be deemed
Affiliate Transactions.
SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; PROVIDED that the Company may enter into a sale and leaseback
transaction if (i) the Company could have (a) incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "-- Certain
Covenants -- Incurrence of Additional Indebtedness and Issuance of Preferred
Stock" and (b) incurred a Lien to secure such Indebtedness pursuant to the
covenant described above under the caption "-- Certain Covenants -- Liens,"
(ii) the gross cash proceeds of such sale and leaseback transaction are at
76
<PAGE>
least equal to the fair market value (as determined in good faith by the Board
of Directors and set forth in an Officers' Certificate delivered to the Trustee,
which determination shall be conclusive evidence of compliance with this
provision) of the property that is the subject of such sale and leaseback
transaction and (iii) the transfer of assets in such sale and leaseback
transaction is permitted by, and the Company applies the proceeds of such
transaction in compliance with, the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales."
NO SENIOR SUBORDINATED DEBT
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes, and (ii) no Guarantor will incur,
create, issue, assume, guarantee or otherwise become liable for any Indebtedness
that is subordinate or junior in right of payment to Senior Debt of such
Guarantor and senior in any respect in right of payment to the Subsidiary
Guarantee of such Guarantor; PROVIDED, HOWEVER, that the foregoing limitations
will not apply to distinctions between categories of Indebtedness that exist by
reason of any Liens arising or created in accordance with the provisions of the
Indenture in respect of some but not all such Indebtedness.
AMENDMENT OF CONVERTIBLE NOTES
The Indenture provides that the Company will not amend the subordination
provisions of the convertible notes outstanding on the date of the Indenture in
a manner that is adverse to the Holders of the Notes.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED RESTRICTED
SUBSIDIARIES
The Indenture provides that the Company (i) will not, and will not permit
any Wholly Owned Restricted Subsidiary of the Company to, transfer, convey,
sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned
Restricted Subsidiary of the Company to any Person (other than the Company or a
Wholly Owned Subsidiary of the Company), unless (a) such transfer, conveyance,
sale, lease or other disposition is of all the Capital Stock of such Wholly
Owned Restricted Subsidiary and (b) the cash Net Proceeds from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with the
covenant described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales," and (ii) will not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Guarantor.
BUSINESS ACTIVITIES
The Indenture provides that the Company will not, and will not permit any
Subsidiary to, engage in any business other than Permitted Businesses, except to
such extent as would not be material to the Company and its Subsidiaries taken
as a whole.
ADDITIONAL SUBSIDIARY GUARANTEES
The Indenture provides that if the Company or any of its Restricted
Subsidiaries shall acquire or create another Restricted Subsidiary after the
date of the Indenture, then such newly acquired or created Restricted Subsidiary
(other than a Restricted Subsidiary which is a Foreign Subsidiary) shall execute
a Subsidiary Guarantee and deliver an opinion of counsel, in accordance with the
terms of the Indenture.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes (i) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports, in
each case within the time periods set
77
<PAGE>
forth in the Commission's rules and regulations. In addition, whether or not
required by the rules and regulations of the Commission, at any time after the
effectiveness of the Exchange Offer contemplated by the Registration Rights
Agreement, the Company will file a copy of all such information and reports with
the Commission for public availability within the time periods set forth in the
Commission's rules and regulations (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Company and the Guarantors
have agreed that, for so long as any Notes remain outstanding (unless the
Company is subject to the reporting requirements of the Exchange Act), they will
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in payment when due of
the principal of or premium, if any, on the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (iii) failure by the Company or
any of its Subsidiaries to comply with the provisions described under the
captions "-- Repurchase at the Option of Holders -- Change of Control,"
"-- Repurchase at the Option of Holders -- Asset Sales," "-- Certain
Covenants -- Restricted Payments," "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock" or "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets" and the continuance of
such failure for a period of 30 days after written notice is given to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in aggregate principal amount of the Notes outstanding; (iv) failure
by the Company or any of its Subsidiaries for 60 days after notice by the
Trustee or by the Holders of at least 25% of Notes then outstanding to comply
with any of its other agreements in the Indenture or the Notes; (v) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Subsidiaries (or the payment of which is guaranteed
by the Company or any of its Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $10.0 million or more and any such default is not
cured or waived or any such acceleration is not rescinded, or such Indebtedness
is not repaid, within a period of 10 days from the continuation of such default
beyond the applicable grace period or the occurrence of such acceleration; (vi)
failure by the Company or any of its Subsidiaries to pay final judgments by
courts of competent jurisdiction aggregating in excess of $5.0 million, which
judgments are not paid, discharged or stayed for a period of 90 days (net of
applicable insurance coverage which is acknowledged in writing by the insurer or
which has been determined to be applicable by a final nonappealable
determination by a court of competent jurisdiction); (vii) except as permitted
by the Indenture, any Subsidiary Guarantee of a Significant Subsidiary shall be
held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any Significant Subsidiary
Guarantor, or any Person acting on behalf of any Significant Subsidiary
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee; and (viii) certain events of bankruptcy or insolvency with respect to
the Company or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Guarantor
constituting a Significant Subsidiary or any
78
<PAGE>
group of Guarantors that, taken together, would constitute a Significant
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to July
1, 2002, by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to July 1, 2002, then the premium specified in the
Indenture shall also become immediately due and payable to the extent permitted
by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required within five
business days of becoming aware of any Default or Event of Default, to deliver
to the Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company or any Guarantor under the Notes, the Indenture or the Subsidiary
Guarantees or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of
outstanding Notes to receive payments in respect of the principal of, premium,
if any, and interest and Liquidated Damages on such Notes when such payments are
due from the trust referred to below, (ii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
79
<PAGE>
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and Liquidated Damages on
the outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Subsidiary Guarantees or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and any
existing default or compliance with any provision of the Indenture, the
Subsidiary Guarantees or the Notes may be waived
80
<PAGE>
with the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders"), (iii) reduce the rate of or change
the time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders"), (viii) release any
Significant Subsidiary Guarantor from any of its obligations under its
Subsidiary Guarantee or the Indenture, or amend the provisions of the Indenture
relating to the release of Guarantors, or (ix) make any change in the foregoing
amendment and waiver provisions. In addition, any amendment to the provisions of
Article 10 of the Indenture (which relate to subordination) will require the
consent of the Holders of at least 66 2/3% in aggregate principal amount of the
Notes then outstanding if such amendment would adversely affect the rights of
Holders of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company, the Guarantors and the Trustee may amend or supplement the
Indenture, the Subsidiary Guarantees or the Notes to cure any ambiguity, defect
or inconsistency, to provide for uncertificated Notes in addition to or in place
of certificated Notes, to provide for the assumption of the Company's or a
Guarantor's obligations to Holders of Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, or to comply with requirements of
the Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
BOOK-ENTRY, DELIVERY AND FORM
The Old Notes were initially represented in the form of one registered Note
in global form without coupons (the "Global Old Note"). The Global Old Note
was deposited on the date of the closing of the sale of the Notes (the "Closing
Date") with, or on behalf of, the Depository Trust Company (the "Depository")
and registered in the name of Cede & Co., as nominee of the Depository, or will
remain in the custody of the Trustee pursuant to the FAST Balance Certificate
Agreement between the Depository and the Trustee.
81
<PAGE>
The Exchange Notes also will be issued in the form of one or more Global Notes
(the "Global Exchange Notes" and, together with the Global Old Note, the
"Global Notes"). The Global Exchange Notes will be deposited on the original
date of issuance of the Exchange Notes with, or on behalf of, the Depository and
registered in the name of Cede & Co., as nominee of the Depository.
Notes that are issued as described below under "-- Certificated
Securities" will be issued in the form of registered definitive certificates
(the "Certificated Securities"). Upon the transfer of Certificated Securities,
such Certificated Securities may, unless the Global Note has previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Note representing the principal amount of Notes being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between Participants
through electronic book-entry changes in accounts of its Participants. The
Depositary's Participants include securities brokers and dealers (including the
Initial Purchasers), banks and trust companies, clearing corporations and
certain other organizations. Access to the Depositary's system is also available
to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants" or the "Depositary's Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants may
beneficially own securities held by or on behalf of the Depositary only through
the Depositary's Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with portions of
the principal amount of the Global Note and (ii) ownership of the Notes
evidenced by the Global Note will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Notes evidenced by the Global
Note will be limited to such extent. For certain other restrictions on the
transferability of the Notes, see "Notice to Investors."
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of any
Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by the
Global Note will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any, and interest and
Liquidated Damages, if any, on any Notes registered in the name of the Global
Note Holder on the applicable record date will be payable by the Trustee to or
at the direction of the Global Note Holder in its capacity as the registered
Holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the persons in whose names Notes, including the Global
Note, are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of Notes. The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payments, in amounts proportionate to their respective holdings of
beneficial interests in the relevant security as shown on the records of the
Depositary. Payments by the Depositary's Participants and the Depositary's
Indirect Participants to the beneficial owners of Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Depositary's Participants or the Depositary's Indirect Participants.
82
<PAGE>
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). All such certificated Notes would be subject to the
legend requirements described herein under "Notice to Investors." In addition,
if (i) the Company notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
the form of Certificated Securities under the Indenture, then, upon surrender by
the Global Note Holder of its Global Note, Notes in such form will be issued to
each person that the Global Note Holder and the Depositary identify as being the
beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to Certificated
Securities, the Company will make all payments of principal, premium, if any,
interest and Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no such
account is specified, by mailing a check to each such Holder's registered
address.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchaser entered into the Registration Rights
Agreement on June 24, 1997. Pursuant to the Registration Rights Agreement, the
Company agreed to file with the Commission the Exchange Offer Registration
Statement on the appropriate form under the Securities Act with respect to the
Exchange Notes. This Prospectus forms a part of such Exchange Offer Registration
Statement. Upon the effectiveness of the Exchange Offer Registration Statement,
the Company will offer to the Holders of Old Notes pursuant to the Exchange
Offer who are able to make certain representations the opportunity to exchange
their Transfer Restricted Securities for Exchange Notes. If (i) the Company is
not required to file an Exchange Offer Registration Statement with respect to
the Series B Notes because the Exchange Offer is not permitted by applicable law
or (ii) if any Holder of Transfer Restricted Securities shall notify the Company
within 20 Business Days following the Consummation of the Exchange Offer that
(A) such Holder has been advised by counsel that such Holder may be prohibited
by law or Commission policy from participating in the Exchange Offer or (B) such
Holder has been advised by counsel that it may not resell the Series B Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such Holder or (C)
such Holder is a Broker-Dealer and holds Series A Notes acquired directly from
the Company or one of its affiliates, then the Company and the Guarantors shall
file with the Commission a Shelf Registration Statement to cover resales of the
Notes by the Holders thereof who satisfy certain conditions relating to the
provision of information in connection with the Shelf Registration Statement.
The Company will use its best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the Commission.
For purposes of the foregoing, "Transfer Restricted Securities" means each Old
Note until (i) the date on which such Note has been exchanged by a person other
than a broker-dealer for an Exchange Note in the Exchange Offer, (ii) following
the exchange by a broker-dealer in the Exchange Offer of an Old Note for an
Exchange Note, the date on which such Exchange Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such
83
<PAGE>
sale a copy of the prospectus contained in the Exchange Offer Registration
Statement, (iii) the date on which such Old Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iv) the date on which such Old Note is distributed to
the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company shall file
the Exchange Offer Registration Statement with the Commission on or prior to 45
days after the Closing Date, (ii) the Company will use its best efforts to have
the Exchange Offer Registration Statement declared effective by the Commission
on or prior to 120 days after the Closing Date, (iii) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, the Company will
commence the Exchange Offer and use its best efforts to issue on or prior to 30
business days after the date on which the Exchange Offer Registration Statement
was declared effective by the Commission, Exchange Notes in exchange for all
Notes tendered prior thereto in the Exchange Offer and (iv) if obligated to file
the Shelf Registration Statement, the Company will use its best efforts to file
the Shelf Registration Statement with the Commission on or prior to 45 days
after such filing obligation arises and to cause the Shelf Registration to be
declared effective by the Commission on or prior to 120 days after such
obligation arises. If (a) the Company fails to file any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) any of such Registration Statements is not
declared effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), or (c) the Company fails to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods specified in
the Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will pay
Liquidated Damages to each Holder of Old Notes, with respect to such 90-day
period immediately following the occurrence of the first Registration Default in
an amount equal to $0.05 per week per $1,000 principal amount of Old Notes held
by such Holder. The amount of the Liquidated Damages will increase by an
additional $0.05 per week per $1,000 principal amount of Old Notes with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of $0.50 per week per $1,000
principal amount of Old Notes. All accrued Liquidated Damages will be paid by
the Company on each Damages Payment Date to the Global Note Holder by wire
transfer of immediately available funds or by federal funds check and to Holders
of Certificated Securities by wire transfer to the accounts specified by them or
by mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of Old Notes will be required to make certain representations to
the Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Coach USA, Inc., One
Riverway, Suite 600, Houston, Texas 77056-1903, Attention: Lawrence K. King,
Senior Vice President and Chief Financial Officer.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
84
<PAGE>
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise; provided
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"ASSET SALE" means (i) the sale, lease, conveyance or other disposition
of any assets or rights (including, without limitation, by way of a sale and
leaseback) other than in the ordinary course of business consistent with past
practices (provided that the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company and its Subsidiaries taken as
a whole will be governed by the provisions of the Indenture described above
under the caption "-- Repurchase at the Option of Holders -- Change of
Control" and/or the provisions described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales" and not by the
provisions of the Asset Sale covenant), and (ii) the issue or sale by the
Company or any of its Subsidiaries of Equity Interests of any of the Company's
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions that have a fair market value
(as determined in good faith by the Board of Directors) in excess of $1.0
million or for net cash proceeds in excess of $1.0 million. Notwithstanding the
foregoing: (i) a transfer of assets by the Company to a Guarantor or by a
Guarantor to the Company or to another Guarantor, (ii) an issuance of Equity
Interests by a Guarantor to the Company or to another Guarantor, and (iii) a
Restricted Payment that is permitted by the covenant described above under the
caption "-- Certain Covenants -- Restricted Payments" will not be deemed to be
Asset Sales.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the full faith and credit
of the United States government or any agency or instrumentality thereof having
maturities of not more than one year from the date of acquisition, (iii) demand
or time deposits, certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank deposits,
in each case with any lender party to the Existing Credit Facility or with any
domestic commercial bank having capital and surplus in excess of $500.0 million
and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the
85
<PAGE>
qualifications specified in clause (iii) above, (v) commercial paper having the
highest rating obtainable from Moody's Investors Service, Inc. or Standard &
Poor's Corporation and in each case maturing within one year after the date of
acquisition, and (vi) investments in money market or other mutual funds at least
95% of whose assets comprise securities described in clauses (ii) through (v)
above.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act), (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that any "person" (as defined above) becomes the "beneficial owner" (as
such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except
that a person shall be deemed to have "beneficial ownership" of all securities
that such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of 50% or more of the Voting Stock of the
Company (measured by voting power rather than number of shares), (iv) the first
day on which a majority of the members of the Board of Directors of the Company
are not Continuing Directors or (v) the Company consolidates with, or merges
with or into, any Person, or any Person consolidates with, or merges with or
into, the Company, in any such event pursuant to a transaction in which any of
the outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where the
Voting Stock of the Company outstanding immediately prior to such transaction is
converted into or exchanged for Voting Stock (other than Disqualified Stock) of
the surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person (immediately
after giving effect to such issuance).
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i) an
amount equal to any extraordinary loss plus any net loss realized in connection
with an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation and amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses and charges (excluding any such non-cash expense or
charge to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, minus (v) non-cash items
increasing such Consolidated Net Income for such period, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of a
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in the same proportion) that the Net Income of such
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without prior
approval (that has not been obtained), pursuant to the terms of
86
<PAGE>
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; PROVIDED that (i) the Net Income (but not loss) of any Person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof that is a Guarantor, (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded, and (v) the Net Income (but not loss)
of any Unrestricted Subsidiary shall be excluded, whether or not distributed to
the Company or one of its Subsidiaries.
"CONTINUING DIRECTORS" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"CREDIT FACILITIES" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Existing Credit Facility) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables financing (including through
the sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time. Indebtedness under Credit Facilities
outstanding on the date on which Senior Notes are first issued and authenticated
under the Indenture shall be deemed to have been incurred on such date in
reliance on the exception provided by clause (i) of the definition of Permitted
Debt.
"DEFAULT" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"DESIGNATED SENIOR DEBT" means (i) any Indebtedness outstanding under a
Credit Facility and (ii) any other Senior Debt permitted under the Indenture the
principal amount of which is $20.0 million or more and that has been designated
by the Company as "Designated Senior Debt."
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; PROVIDED, HOWEVER, that a class of Capital Stock shall
not be Disqualified Stock hereunder solely as the result of any maturity or
redemption that is conditioned upon, and subject to, compliance with the
covenant described above under the caption "-- Certain Covenants -- Restricted
Payments."
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXISTING CREDIT FACILITY" means that certain credit facility, dated as
of August 14, 1996, as amended, by and among the Company, as borrower,
NationsBank of Texas, N.A. as agent and the financial institutions named
therein, providing for up to $181.0 million of revolving credit borrowings,
including any
87
<PAGE>
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, extended,
modified, renewed, refunded, replaced or refinanced, in whole or in part, from
time to time whether or not with the same lenders or agents.
"EXISTING INDEBTEDNESS" means up to $40.0 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the Existing Credit Facility) in existence on the date of the
Indenture, until such amounts are repaid.
"FIXED CHARGES" means, with respect to any Person for any period, the
sum, without duplication, of (i) the consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations) and (ii) the consolidated interest expense of
such Person and its Restricted Subsidiaries that was capitalized during such
period, and (iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon) and (iv) the product of (a) all cash
dividend payments on any series of preferred stock of such Person or any of its
Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests (other than Disqualified Stock) of the
Company, times (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation
Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect to such incurrence, assumption, Guarantee or redemption of
Indebtedness, or such issuance or redemption of preferred stock, as if the same
had occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of making the computation referred to above
Consolidated Cash Flow and Fixed Charges shall be calculated on a pro forma
basis, in the manner specified below, with respect to the following events: (i)
acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period shall be calculated
(a) without giving effect to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income and (b) giving effect to pro forma
adjustments relating to such acquisition that would be permitted under
Regulation S-X to be reflected in the pro forma financial statements included in
registration statements on Form S-1 under the Securities Act, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"FOREIGN SUBSIDIARY" means any non-U.S. domiciled Subsidiary.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by
88
<PAGE>
such other entity as have been approved by a significant segment of the
accounting profession, which are in effect from time to time.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"GUARANTORS" means all current and future Subsidiaries of the Company
that execute a Subsidiary Guarantee in accordance with the provisions of the
Indenture, and their respective successors and assigns.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations
of such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or the value of foreign currencies purchased or received by the Company in
the ordinary course of business.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, as well as all indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be (i) the
accreted value thereof, in the case of any Indebtedness that does not require
current payments of interest, and (ii) the principal amount thereof, together
with any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP
PROVIDED that Investments shall not include Hedging Obligations entered into in
accordance with the limitations set forth in clause (viii) of the second
paragraph of the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock." If
the Company or any Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Subsidiary of the Company such that,
after giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "-- Certain Covenants -- Restricted Payments."
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries
89
<PAGE>
and (ii) any extraordinary or nonrecurring gain (but not loss), together with
any related provision for taxes on such extraordinary or nonrecurring gain (but
not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by the Company
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Indebtedness under the Credit Facilities) secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender; and (ii) no default with respect
to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any Indebtedness (other than the
Notes being offered hereby) of the Company or any of its Restricted Subsidiaries
to declare a default on such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity; and (iii) as to which
the lenders have been notified in writing that they will not have any recourse
to the stock or assets of the Company or any of its Restricted Subsidiaries.
"OBLIGATIONS" means any principal, interest(including interest accruing
after the filing of a petition initiating any proceeding pursuant to any
bankruptcy law, whether or not the claim for such interest is allowed as a claim
in such proceeding), penalties, fees, indemnifications, reimbursements, damages
and other liabilities payable under the documentation governing any
Indebtedness.
"PARI PASSU INDEBTEDNESS" means (a) with respect to the Notes,
Indebtedness which ranks PARI PASSU in right of payment to the Notes and (b)
with respect to any Subsidiary Guarantee, Indebtedness which ranks PARI PASSU in
right of payment to such Subsidiary Guarantee.
"PERMITTED BUSINESS" means the provision of charter, tour, sight seeing,
commuter and transit services as well as the provision of airport ground
transportation, paratransit and taxicab and other transportation services.
"PERMITTED INVESTMENTS" means (a) any Investment in the Company or in a
Guarantor; (b) any Investment in Cash Equivalents; (c) any Investment by the
Company or any Guarantor in a Person, if as a result of such Investment (i) such
Person becomes a Guarantor or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Guarantor; (d) any Restricted
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales;" (e) any acquisition of assets solely in exchange for
the issuance of Equity Interests (other than Disqualified Stock) of the Company;
(f) Investments by the Company or any Restricted Subsidiary in any Person which
is, or becomes as a result of such Investment, a Foreign Subsidiary; PROVIDED,
that in no event will the total assets of Foreign Subsidiaries constitute more
than 20% of the total assets of the Company; (g) any Investment in Permitted
Business Assets; (h) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company or any
Subsidiary or in satisfaction of judgments; (i) the acceptance of notes payable
from employees of the Company or its Subsidiaries in payment for the purchase of
Capital Stock by such employees; (j) endorsements of negotiable instruments and
documents in the ordinary course of business; (k) any Investments outstanding on
the date of the Indenture; (l) Investments by the Company or any Restricted
Subsidiary in any wholly owned Unrestricted Subsidiary exclusively engaged in
the business of insuring the Company and Wholly Owned Subsidiaries against risks
arising in their business ("Unrestricted Insurance Subsidiaries"); PROVIDED,
that in no event will the total assets of Unrestricted Insurance Subsidiaries
constitute more than 5% of the total assets of the Company; and (m) other
Investments in any Person having an aggregate fair market value (measured on the
date each
90
<PAGE>
such Investment was made and without giving effect to subsequent changes in
value), when taken together with all other Investments made pursuant to this
clause (e) that are at the time outstanding, not to exceed $10.0 million.
"PERMITTED JUNIOR SECURITIES" means Equity Interests in the Company or
debt securities that are subordinated to all Senior Debt (and any debt
securities issued in exchange for Senior Debt) to substantially the same extent
as, or to a greater extent than, the Notes are subordinated to Senior Debt
pursuant to Article 10 of the Indenture.
"PERMITTED LIENS" means (i) Liens on assets of the Company or any of its
Subsidiaries securing Senior Debt that was permitted by the terms of the
Indenture to be incurred and Liens securing Permitted Refinancing Indebtedness
relating to Indebtedness or Senior Debt referred to in this clause (i) (provided
that such Liens extend to or cover only the property or assets securing the
Indebtedness or Senior Debt being refinanced); (ii) Liens in favor of the
Company; (iii) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any Subsidiary of the Company,
PROVIDED that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with the Company; (iv) Liens on property
existing at the time of acquisition thereof by the Company or any Subsidiary of
the Company, PROVIDED that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory or regulatory obligations, leases, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (v) of the second paragraph of the covenant
entitled "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such Indebtedness;
(vii) Liens existing on the date of the Indenture; (viii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, PROVIDED that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (ix) Liens incurred in the ordinary course of business of
the Company or any Subsidiary of the Company with respect to obligations that do
not exceed $5.0 million at any one time outstanding and that (a) are not
incurred in connection with the borrowing of money or the obtaining of advances
or credit (other than trade credit in the ordinary course of business) and (b)
do not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the Company or
such Subsidiary; (x) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries; (xi) Liens on assets of
Guarantors to secure Senior Guarantor Debt of such Guarantors that was permitted
by the Indenture to be incurred; (xii) Liens incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance or other kinds of social security, old age pension or
public liability obligations or to secure the payment or performance of bids,
tenders, statutory or regulatory obligations, surety, stay, or appeal bonds,
performance bonds or other obligations of a like nature incurred in the ordinary
course of business; (xiii) statutory liens of landlords, mechanics, suppliers,
vendors, warehousemen, carriers or other like Liens arising in the ordinary
course of business; (xiv) judgment Liens not giving rise to an Event of Default
so long as any appropriate legal proceeding that may have been duly initiated
for the review of such judgment shall not have been finally terminated or the
period within which such proceeding may be initiated shall not have expired;
(xv) Liens securing Hedging Obligations permitted to be entered into pursuant to
the debt incurrence covenant; (xvi) survey exceptions, encumbrances, easements
or reservations of, or rights of others for, rights of way, zoning or other
restrictions as to the use of real properties, and minor defects in title which,
in the case of any of the foregoing, were not incurred or created to secure the
payment of borrowed money or the deferred purchase price of property or
services, and in the aggregate do not materially adversely affect the value of
such properties or materially impair use for the purposes of which such
properties are held by the Company or its Subsidiaries; (xvii) judgment and
attachment Liens not giving rise to an Event of Default or Liens created by or
existing from any litigation or legal proceeding that are currently being
contested in good faith by appropriate proceedings and for which adequate
reserves have been made; (xviii) Liens in favor of collecting or payor banks
having a right of setoff, revocation, refund or chargeback with respect to money
or instruments of the Company or any Subsidiary on deposit with or in possession
of such bank; (xix) Liens to secure Non-Recourse Indebtedness and (xx) Liens not
otherwise
91
<PAGE>
permitted by clauses (i) through (xix) that are incurred in the ordinary course
of business of the Company or any Subsidiary of the Company with respect to
obligations that do not exceed $5.0 million at any one time outstanding.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund Indebtedness of the Company or any of its Restricted Subsidiaries;
PROVIDED that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness (or if such Indebtedness is issued at a
price less than the principal amount thereof, the aggregate amount of gross
proceeds therefrom) does not exceed the principal amount of (or accreted value,
if applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith including premiums paid, if
any, to the holders thereof); (ii) such Permitted Refinancing Indebtedness has a
final maturity date at or later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to the Holders of
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iv) such
Indebtedness is incurred either by the Company or by the Restricted Subsidiary
who is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (v) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded was incurred by a Foreign
Subsidiary, then such Indebtedness is incurred by the same or another Foreign
Subsidiary.
"PUBLIC EQUITY OFFERING" means an underwritten public offering of common
stock (other than Disqualified Stock) of the Company, pursuant to an effective
registration statement filed with the Commission in accordance with the
Securities Act other than an offering pursuant to Form S-8 (or any successor
thereto).
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"SENIOR DEBT" means (i) all Indebtedness of the Company or any of its
Subsidiaries outstanding under Credit Facilities and all Hedging Obligations
with respect thereto, (ii) any other Indebtedness of the Company or any of its
Subsidiaries permitted to be incurred by the Company or any of its Subsidiaries
under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes and (iii) all Obligations with
respect to the foregoing. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (w) any liability for federal, state,
local or other taxes owed or owing by the Company, (x) any Indebtedness of the
Company to any of its Subsidiaries or other Affiliates, (y) any trade payables
or (z) any Indebtedness that is incurred in violation of the Indenture (other
than Indebtedness under a Credit Facility that is incurred on the basis of a
representation by the Company to the applicable lenders that it is permitted to
incur such Indebtedness under the Indenture).
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard
92
<PAGE>
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general partners of which are such Person or of
one or more Subsidiaries of such Person (or any combination thereof).
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries; and (e) has at least one director
on its board of directors that is not a director or executive officer of the
Company or any of its Restricted Subsidiaries and has at least one executive
officer that is not a director or executive officer of the Company or any of its
Restricted Subsidiaries; PROVIDED, HOWEVER, that the death or resignation of any
such director or executive officer shall not cause a Subsidiary that would
otherwise be an Unrestricted Subsidiary to be deemed to be a Restricted
Subsidiary unless 10 days have elapsed in which the Company has failed to
appoint or elect a successor or replace such director or executive officer who
satisfies the criteria set forth in this clause (e). Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the Trustee
a certified copy of the Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described above under the
caption "-- Certain Covenants -- Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock," the
Company shall be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period,
and (ii) no Default or Event of Default would be in existence following such
designation.
"VOTING STOCK" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
93
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
Prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions received by any
such person may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter", within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes), other than commissions or concessions of any
broker-dealers, and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the Exchange Offer will be passed
upon for the Company by Douglas M. Cerny, Senior Vice President and General
Counsel of the Company.
94
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
COACH USA, INC. AND SUBSIDIARIES
Report of Independent Public Accountants ...................... F-2
Consolidated Balance Sheets ................................... F-3
Consolidated Statements of Income ............................. F-4
Consolidated Statements of Stockholders' Equity ............... F-5
Consolidated Statements of Cash Flows ......................... F-6
Notes to Consolidated Financial Statements .................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Coach USA, Inc.:
We have audited the accompanying consolidated balance sheets of Coach USA,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1996,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial position of
Coach USA, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 31, 1997
F-2
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
---------------------- MARCH 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 3,411 $ 1,470 $ 6,544
Accounts receivable, less allowance
of $996, $2,096, and $2,213...... 8,890 18,659 22,526
Inventories........................ 3,641 8,758 9,701
Notes receivable, current
portion.......................... 3,045 2,811 4,098
Prepaid expenses and other current
assets........................... 4,540 12,628 14,925
---------- ---------- -----------
Total current assets.......... 23,527 44,326 57,794
PROPERTY AND EQUIPMENT, net............. 65,395 210,754 269,925
NOTES RECEIVABLE, less allowance of
$500.................................. 1,978 4,231 5,013
GOODWILL, net........................... 71 30,142 72,447
OTHER ASSETS, net....................... 11,636 10,497 10,945
---------- ---------- -----------
Total assets.................. $ 102,607 $ 299,950 $ 416,124
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of convertible
subordinated notes............... $ -- $ 4,000 $ --
Current maturities of long-term
obligations...................... 12,065 10,877 6,452
Accounts payable and accrued
liabilities...................... 19,309 36,948 72,131
---------- ---------- -----------
Total current liabilities..... 31,374 51,825 78,583
LONG-TERM OBLIGATIONS, net of current
maturities............................ 43,685 98,106 160,368
CONVERTIBLE SUBORDINATED NOTES, net of
current maturities.................... -- 18,500 36,830
LONG-TERM OBLIGATIONS DUE TO
STOCKHOLDERS, net of current
maturities............................ 16,467 -- --
DEFERRED INCOME TAXES................... 6,702 21,593 28,537
---------- ---------- -----------
Total liabilities............. 98,228 190,024 304,318
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par, 30,000,000
shares authorized, 3,862,369,
17,777,126 and 17,778,107 shares
issued and outstanding,
respectively..................... 39 178 178
Additional paid-in capital......... 5,160 101,325 101,325
Retained earnings (deficit)........ (820) 8,423 10,303
---------- ---------- -----------
Total stockholders' equity.... 4,379 109,926 111,806
---------- ---------- -----------
Total liabilities and
stockholders' equity....... $ 102,607 $ 299,950 $ 416,124
========== ========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------ THREE MONTHS ENDED
PRO FORMA MARCH 31,
COMBINED ----------------------
1994 1995 1996 1996 1996 1997
--------- ---------- ---------- ----------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES................................ $ 88,060 $ 103,403 $ 205,838 $ 250,776 $ 28,294 $ 69,311
OPERATING EXPENSES...................... 65,460 75,002 152,298 189,084 21,234 54,386
--------- ---------- ---------- ----------- ---------- ----------
Gross profit....................... 22,600 28,401 53,540 61,692 7,060 14,925
GENERAL AND ADMINISTRATIVE EXPENSES..... 15,223 16,772 24,471 26,554 4,311 8,238
ACQUISITION RELATED COSTS............... -- -- 1,101 -- -- 117
--------- ---------- ---------- ----------- ---------- ----------
Operating income................... 7,377 11,629 27,968 35,138 2,749 6,570
INTEREST EXPENSE........................ 4,904 6,627 9,467 9,934 1,868 3,199
--------- ---------- ---------- ----------- ---------- ----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS................... 2,473 5,002 18,501 25,204 881 3,371
PROVISION FOR INCOME TAXES.............. 1,130 2,050 7,684 9,958 431 1,402
--------- ---------- ---------- ----------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEMS....... 1,343 2,952 10,817 15,246 450 1,969
EXTRAORDINARY ITEMS, net of income
taxes................................. -- -- 2,723 2,723 -- (89)
--------- ---------- ---------- ----------- ---------- ----------
NET INCOME.............................. $ 1,343 $ 2,952 $ 13,540 $ 17,969 $ 450 $ 1,880
========= ========== ========== =========== ========== ==========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
INCOME BEFORE EXTRAORDINARY
ITEMS............................ $ .35 $ .76 $ .91 $ 1.00 .12 .10
EXTRAORDINARY ITEMS................ -- -- .23 .18 -- --
--------- ---------- ---------- ----------- ---------- ----------
NET INCOME......................... $ .35 $ .76 $ 1.14 $ 1.18 $ .12 $ .10
========= ========== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
---------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993............ 3,863 $ 39 $ 4,954 $ (3,346) $ 1,647
S Corporation dividends paid by
certain Pooled Companies......... -- -- -- (690) (690)
Net income......................... -- -- -- 1,343 1,343
Other.............................. -- -- (30) -- (30)
------ ------ ---------- -------- -------------
BALANCE AT DECEMBER 31, 1994............ 3,863 39 4,924 (2,693) 2,270
S Corporation dividends paid by
certain Pooled Companies......... -- -- -- (1,079) (1,079)
Net income......................... -- -- -- 2,952 2,952
Other.............................. -- -- 236 -- 236
------ ------ ---------- -------- -------------
BALANCE AT DECEMBER 31, 1995............ 3,863 39 5,160 (820) 4,379
Issuance of Common Stock:
Proceeds of stock offerings...... 6,224 62 96,502 -- 96,564
Merger with Predecessor.......... 2,166 22 2,055 (2,053) 24
Acquisition of Founding
Companies..................... 5,099 51 6,323 9,155 15,529
Cash Distribution to Founding
Companies' Shareholders.......... -- -- (23,810) -- (23,810)
Reorganization..................... -- -- 4,402 (4,402) --
Conversion from S Corporation to C
Corporation for Founding
Companies........................ -- -- -- (5,426) (5,426)
Conversion of debt to equity....... 425 4 10,198 -- 10,202
S Corporation dividends paid by
certain Pooled Companies......... -- -- -- (1,838) (1,838)
Adjustment to conform fiscal year
ends of Pooled Companies......... -- -- -- 267 267
Net income......................... -- -- -- 13,540 13,540
Capital contributions equal to
the current income taxes of S
Corporations..................... -- -- 341 -- 341
Other.............................. -- -- 154 -- 154
------ ------ ---------- -------- -------------
BALANCE AT DECEMBER 31, 1996............ 17,777 178 101,325 8,423 109,926
Net income (unaudited)............. -- -- -- 1,880 1,880
Other (unaudited).................. 1 -- -- -- --
------ ------ ---------- -------- -------------
BALANCE AT MARCH 31, 1997 (unaudited)... 17,778 $ 178 $ 101,325 $ 10,303 $ 111,806
====== ====== ========== ======== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 1,343 $ 2,952 $ 13,540 $ 450 $ 1,880
Adjustments to reconcile net income to
net cash provided by operating
activities --
Adjustment to conform fiscal year
ends of Pooled Companies....... -- -- 267 -- --
Extraordinary gain................ -- -- (7,007) -- --
Depreciation and amortization..... 5,937 7,702 13,744 2,213 5,288
(Gain) loss on sale of assets..... 216 (620) (350) -- --
Deferred income tax provision..... 1,206 1,743 7,026 521 1,930
Changes in operating assets and
liabilities, net of effect of
Purchased Companies --
Accounts receivable, net..... 115 (1,337) (944) 37 (56)
Inventories.................. (1,094) (2,593) (4,507) (826) (372)
Notes receivable, net........ 175 (1,828) (1,672) (2,618) (2,069)
Prepaid expenses and other
current assets............. (631) (611) (3,856) 15 (1,149)
Accounts payable and accrued
liabilities................ (1,523) 2,111 (6,761) 1,822 20,278
Other........................ 850 (163) (473) 309 93
--------- --------- ---------- --------- ---------
Net cash provided by
operating activities..... 6,594 7,356 9,007 1,923 25,823
--------- --------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment... (22,926) (14,359) (25,714) (4,058) (31,672)
Proceeds from sales of property and
equipment........................... 1,196 1,961 4,685 -- 2,057
Cash consideration paid for the
Founding Companies, net of cash
acquired............................ -- -- (22,112) -- --
Cash consideration paid for Purchased
Companies, net of cash acquired..... -- -- (12,666) -- (26,128)
Proceeds from sales of investments.... -- -- 1,419 -- --
--------- --------- ---------- --------- ---------
Net cash used in investing
activities............... (21,730) (12,398) (54,388) (4,058) (55,743)
--------- --------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations......................... (12,032) (18,544) (125,638) (2,276) (34,384)
Proceeds from issuance of long-term
obligations......................... 26,276 26,091 74,198 4,048 69,378
Sales of Common Stock................. -- -- 96,564 -- --
S Corporation Dividends paid by
certain Pooled Companies............ (690) (1,079) (1,838) (487) --
Other................................. 286 181 154 -- --
--------- --------- ---------- --------- ---------
Net cash provided by
financing activities..... 13,840 6,649 43,440 1,285 34,994
--------- --------- ---------- --------- ---------
NET INCREASE (DECREASE) IN CASH......... (1,296) 1,607 (1,941) (850) 5,074
CASH AND CASH EQUIVALENTS, beginning of
year.................................. 3,100 1,804 3,411 3,411 1,470
--------- --------- ---------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
year.................................. $ 1,804 $ 3,411 $ 1,470 $ 2,561 $ 6,544
========= ========= ========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest.............. $ 3,524 $ 5,329 $ 9,236 1,647 3,520
Cash paid for income taxes.......... 410 125 4,732 82 477
Assets acquired under capital
leases............................ 1,931 2,404 7,891 2,981 2,355
Convertible debt issued for
Purchased Companies............... -- -- 22,500 -- 18,330
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
In September 1995, Coach USA, Inc. (Coach USA), was founded to create a
national company providing motorcoach transportation services, including charter
and tour services, and related passenger ground transportation services.
In May 1996, Coach USA acquired, simultaneously with the closing of its
initial public offering (the Offering), six established businesses.
Consideration for these businesses consisted of a combination of cash and common
stock of Coach USA (the Common Stock). These six businesses are referred to
herein as the "Founding Companies." Coach USA acquired nine additional
businesses in 1996. Of these nine additional businesses acquired, six were
accounted for as poolings-of-interests and, together with an additional business
acquired in February 1997 accounted for as a pooling-of-interests, are referred
to herein as the "Pooled Companies." The remaining three businesses acquired
in 1996, and two additional businesses acquired in February 1997 were accounted
for as purchases and are referred to herein as the "Purchased Companies" (see
Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Coach USA and the Founding Companies from June 1, 1996, the effective date used
to account for the acquisitions of the Founding Companies, the Purchased
Companies since their date of acquisition, and give retroactive effect to the
acquisitions of the Pooled Companies. The Pooled Companies, the Founding
Companies subsequent to May 31, 1996, and the Purchased Companies since date of
acquisition, are collectively referred to herein as the "Company." All
significant intercompany transactions and balances have been eliminated in
consolidation.
The unaudited pro forma combined statement of income for the year ended
December 31, 1996 includes the accounts of Coach USA and the Founding Companies
from January 1, 1996, the Purchased Companies since their date of acquisition,
and gives retroactive effect to the acquisitions of the Pooled Companies.
Certain pro forma adjustments further discussed in Note 3 have been made to the
unaudited pro forma combined statement of income.
Two of the Pooled Companies have previously reported on an October fiscal
year end. As such, the accounts of these companies for their 1994 and 1995
fiscal years have been consolidated with the accounts of the Company as of
December 31, 1994 and 1995, respectively. Unaudited revenues and net income for
these two companies for the two-month period ended December 31, 1995, were
approximately $6,292,000 and $267,000, respectively. Accordingly, an adjustment
is included in the consolidated statement of stockholders' equity for the net
income attributed to this two-month period.
INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the interim
consolidated financial statements, have been included. The results of operations
for the interim periods are not necessarily indicative of the results for the
entire fiscal year.
F-7
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less as cash equivalents.
INVENTORIES
Inventories consist of motorcoach and taxicab replacement parts and
taxicabs held for sale. Inventory cost for replacement parts is accounted for on
the first-in, first-out basis and inventory cost for taxicabs held for sale or
on short-term leases are accounted for on the specific identification basis, and
both are reported at the lower of cost or market. Taxicabs held for sale are
depreciated over their estimated useful lives of 4.5 years. Depreciation and
amortization expense in the accompanying consolidated financial statements
includes $1,053,000, $1,457,000 and $1,940,000 of depreciation related to
taxicabs held for sale in 1994, 1995 and 1996.
NOTES RECEIVABLE
Notes receivable result from the sale of taxicabs to independent
contractors. The notes bear interest and are due in weekly installments over
periods ranging up to 42 months.
NOTES RECEIVABLE FROM STOCKHOLDERS
The Company had notes receivable from former stockholders of certain of the
Pooled Companies totaling $439,000 at December 31, 1995. These notes receivable
were unsecured, noninterest-bearing and payable on demand and were repaid in
full in connection with the respective mergers with Coach USA.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for maintenance
and repairs, including replacement of engines and certain other significant
costs, are expensed as costs are incurred.
Depreciation on transportation equipment and other assets for financial
reporting purposes is computed on the straight-line basis over the estimated
useful lives of the assets, net of their estimated residual values. Gains or
losses on the sale of equipment are included in operating expenses.
GOODWILL
Goodwill represents the excess of the aggregate price paid by the Company
in acquisitions accounted for as purchases over the fair market value of the net
tangible assets acquired. Goodwill is amortized on a straight-line basis
generally over 40 years.
OTHER ASSETS
Taxicab permits are carried at cost, less accumulated amortization. The
permit costs are amortized using the straight-line method over a period of 40
years. Annual renewal fees are charged to expense as incurred.
The Company applies Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". Management continually evaluates whether events or
circumstances have occurred that indicate that the remaining estimated useful
lives of property and equipment, other identifiable intangible assets and
goodwill may warrant revision or that the remaining balances may not be
recoverable.
F-8
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
The Company provides services to a broad range of geographical regions. The
Company's credit risk primarily consists of receivables from a variety of
customers, including casinos and various other tourism-based companies and
governmental units. In addition, the Company's accounts and notes receivable
include amounts due from independent taxicab contractors. Management performs
ongoing credit evaluations of its customers and independent taxicab contractors
and provides allowances as deemed necessary.
The activity in the allowance for doubtful accounts is as follows (in
thousands):
<TABLE>
<CAPTION>
BEGINNING
BALANCE OF
BALANCE AT FOUNDING AND CHARGED TO BALANCE AT
BEGINNING PURCHASED COSTS AND END OF
OF PERIOD COMPANIES EXPENSES WRITE-OFFS PERIOD
---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994............ $1,088 $-- $ 821 $ (1,049) $ 860
Year ended December 31, 1995............ 860 -- 870 (734) 996
Year ended December 31, 1996............ 996 955 931 (786) 2,096
</TABLE>
REVENUE RECOGNITION
The Company recognizes revenue from recreation, excursion, commuter,
transit and taxicab support services and sales to independent taxicab operators
when such services and sales are performed. The Company recognizes financing
income on notes receivable using the effective interest method over the term of
the notes. Costs associated with the revenues are incurred and recorded as
services and sales are performed.
The Company has a 50 percent interest in a joint venture which provides
various paratransit services to a governmental agency in South Florida. Income
from this joint venture was $1.0 million, $0.6 million and $0.7 million in 1994,
1995 and 1996, respectively, and is included in revenues in the accompanying
consolidated financial statements.
INCOME TAXES
The Company will file a consolidated return for federal income tax
purposes. Income taxes are provided under the liability method considering the
tax effects of transactions reported in the financial statements which are
different from the tax return. The deferred income tax assets and liabilities
represent the future tax consequences of those differences, which will either be
taxable or deductible when the underlying assets or liabilities are realized or
settled.
Certain of the Pooled Companies were S Corporations for income tax purposes
and, accordingly, any income tax liabilities for the periods prior to the
acquisition date are the responsibility of the respective stockholders. For
purposes of these consolidated financial statements, federal and state income
taxes have been provided as if these companies had filed C Corporation tax
returns for the pre-acquisition periods. The current income tax expense of these
S Corporations is reflected in the consolidated financial statements in the
provision for income taxes and as an increase to additional paid-in capital.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-9
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
The computation of net income per common and common equivalent share for
the years ended December 31, 1994 and 1995 and for the three months ended March
31, 1996 includes 3,862,369 shares issued in connection with the acquisitions of
the Pooled Companies.
The computation of net income per common and common equivalent share for
the year ended December 31, 1996 is based upon 11,923,064 weighted average
shares outstanding which includes (a) the 3,862,369 shares discussed above, (b)
the weighted average portion of the 2,165,724 shares issued prior to the Initial
Public Offering, (c) the weighted average portion of the 5,099,687 shares issued
to the stockholders of the Founding Companies, (d) the weighted average portion
of the 4,140,000 shares sold in the Initial Public Offering, (e) the weighted
average portion of the 425,039 shares issued in connection with the conversion
of indebtedness to equity at one of the Pooled Companies, (f) the weighted
average portion of the 2,084,307 shares sold in a secondary stock offering, and
(g) 305,605 shares representing the weighted average portion of shares for the
dilution attributable to outstanding options to purchase common stock, using the
treasury stock method.
The computation of net income per share for the three months ended March
31, 1997 is based upon 18,512,629 weighted average shares outstanding which
include (i) 17,778,107 shares issued and outstanding for the entire three month
period, (ii) 981 shares issued to a minority interest of one of the Pooled
Companies, and (iii) 734,522 shares representing the weighted average portion of
shares for the dilution attributable to outstanding options to purchase common
stock, using the treasury stock method.
The computation of unaudited pro forma combined net income per common and
common equivalent share for the year ended December 31, 1996 is based upon
15,254,806 weighted average shares outstanding which includes (a) the 3,862,369
shares discussed above, (b) the 2,165,724 shares issued prior to the Initial
Public Offering, (c) 5,099,687 shares issued to the stockholders of the Founding
Companies, (d) 1,700,714 of the 4,140,000 shares sold in the Initial Public
Offering to pay the cash portion of the consideration for the Founding
Companies; (e) 118,142 of the 4,140,000 shares sold in the Initial Public
Offering to pay excess S Corporation distributions, (f) the weighted average of
the remaining 2,321,144 shares issued in the Initial Public Offering, (g) the
weighted average portion of 425,039 shares issued in connection with the
conversion of indebtedness to equity at one of the Pooled Companies, (h) the
weighted average portion of the 2,084,307 shares sold in the secondary stock
offering, and (i) 227,743 shares representing the weighted average portion of
shares for the dilution attributable to outstanding options to purchase common
stock, using the treasury stock method.
In March 1996, the Company authorized 500,000 shares of $.01 par value
preferred stock, none of which has been issued.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." SFAS No. 128 revises the methodology to be used in
computing earnings per share (EPS) such that the computations required for
primary and fully diluted EPS are to be replaced with "basic" and "diluted"
EPS. Basic EPS is computed by dividing net income by the weighted average number
of shares of common stock outstanding during the year. Diluted EPS is computed
in the same manner as fully diluted EPS, except that, among other changes, the
average share price for the period is used in all cases when applying the
treasury stock method to potentially dilutive outstanding options.
The Company will adopt SFAS No. 128 effective December 15, 1997, and will
restate EPS for all periods presented. The Company anticipates that the amounts
reported for basic EPS for the years ended December 31, 1994, 1995 and 1996 will
be $0.35, $0.76 and $1.17, and that basic EPS for the unaudited pro forma twelve
months ended December 31, 1996 will be $1.20. The Company anticipates that the
amounts
F-10
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reported for diluted EPS for the years ended December 31, 1994, 1995 and 1996
will be $0.35, $0.76 and $1.14 and that diluted EPS for the unaudited pro forma
twelve months ended December 31, 1996 will be $1.18.
3. BUSINESS COMBINATIONS:
The Founding Companies were merged with Coach USA effective June 1, 1996,
for financial reporting purposes. The unaudited pro forma data presented below
consists of the income statement data as presented in these consolidated
financial statements combined with the Founding Companies, including certain pro
forma adjustments further discussed below, as if the Founding Companies were
combined with the Pooled Companies and Coach USA as of January 1, 1995 (in
thousands):
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------- -------------
(UNAUDITED)
Revenues............................. $ 216,892 $ 250,776
Income before extraordinary items.... 11,140 15,246
Income per share before extraordinary
items.............................. .83 1.00
POOLINGS
During 1996 and through February 28, 1997, the Company acquired all of the
outstanding stock of the Pooled Companies in exchange for 3,862,369 shares of
Common Stock. Six of these companies provide motorcoach transportation services
and one provides primarily taxicab services. These acquisitions have been
accounted for as poolings-of-interests and the results of operations of these
seven companies are included for all periods presented herein.
The consolidated financial statements for 1994 and 1995 represent the
operations of the Pooled Companies prior to their acquisition by the Company.
The combined revenues, income before extraordinary items, and net income of the
Pooled Companies for the preacquisition period in 1996 were $107.7 million, $4.9
million and $4.8 million, respectively. In addition, the Consolidated Statements
of Cash Flows reflect an acquisition by one of the Pooled Companies during the
pre acquisition period in 1996 which was accounted for as a purchase for a total
cash price of $323,000.
The following table reconciles the consolidated revenues and net income of
the Company after giving retroactive effect to the one pooling-of-interests
transaction completed subsequent to year end with the consolidated revenues and
net income previously reported in the Company's 1996 Form 10-K filing (in
thousands, except per share data).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1994 1995 1996
------------------ ------------------ -------------------
NET NET NET
REVENUES INCOME REVENUES INCOME REVENUES INCOME
-------- ------ -------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
As previously reported in
10-K................... $ 68,421 $ 649 $ 83,925 $2,411 $185,728 $12,915
Subsequent Pooling....... 19,639 694 19,478 541 20,110 625
-------- ------ -------- ------ -------- -------
After Subsequent
Pooling................ $ 88,060 $1,343 $103,403 $2,952 $205,838 $13,540
======== ====== ======== ====== ======== =======
Net income per share --
After Subsequent
Pooling............. $ .35 $ .76 $ 1.14
====== ====== =======
</TABLE>
F-11
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PURCHASES
On August 29, 1996, the Company acquired three businesses which were
accounted for as purchases. The aggregate consideration paid in these
transactions was $14.5 million in cash and $22.5 million in the form of
subordinated notes convertible into 750,460 shares of Common Stock. The
accompanying consolidated balance sheet as of December 31, 1996 includes
allocations of the respective purchase prices and is subject to final
adjustment. The allocations resulted in goodwill recognized of $30.3 million
representing the excess of purchase price over fair value of the net assets
acquired. In conjunction with the acquisitions, liabilities were assumed as
follows (in thousands):
YEAR ENDED
DECEMBER 31, 1996
-----------------
Fair value of assets acquired, net of
cash acquired......................... $ 63,963
Goodwill................................ 30,341
Cash paid, net of cash acquired......... (12,343)
Issuance of convertible notes........... (22,500)
-----------------
Liabilities assumed..................... $ 59,461
=================
The following table sets forth further adjustments to the unaudited pro
forma income statement data above to present the effect of the acquisitions of
the Purchased Companies on the Company's results of operations for the years
ended December 31, 1995 and 1996. The following unaudited pro forma income
statement data includes the Founding Companies and the Pooled Companies, plus
all Purchased Companies through December 31, 1996 as if the acquisitions were
effective on the first day of the year being reported (in thousands):
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
(UNAUDITED)
Revenues................................ $252,744 $276,796
Income before extraordinary items....... 12,531 16,153
Income per share before extraordinary
items................................. .94 1.06
Pro forma adjustments included in the preceding tables regarding the
Founding Companies and the Purchased Companies primarily relate to (a) owners'
compensation differential, (b) adjustments to depreciation and amortization due
to the purchase price allocations, (c) adjustments of historical interest
expense related to certain subordinated debt and cash payments related to the
Purchased Companies, (d) elimination of interest on debt converted to equity of
one of the Pooled Companies, (e) elimination of merger costs in connection with
the acquisition of the Pooled Companies, and (f) adjustments to the federal and
state income tax provisions based on the combined operations.
The pro forma combined results presented above are not necessarily
indicative of actual results which might have occurred had the operations and
management teams of the Company, the Founding Companies, the Pooled Companies
and the Purchased Companies been combined at the beginning of the periods
presented.
Through March 31, 1997, the Company acquired two additional companies
accounted for as purchases. The aggregate consideration paid in these
transactions was $34.3 million in cash and $18.3 million of subordinated notes
convertible into 484,239 shares of the Company's Common Stock.
F-12
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following (in
thousands):
DECEMBER 31
--------------------
1995 1996
--------- ---------
Prepaid insurance....................... $ 1,410 $ 2,757
Deferred income tax asset, current...... 1,283 3,392
Prepaid licenses, registrations and
other taxes........................... 918 3,683
Other................................... 929 2,796
--------- ---------
$ 4,540 $ 12,628
========= =========
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
DECEMBER 31
ESTIMATED ----------------------
USEFUL LIVES 1995 1996
------------ ---------- ----------
(YEARS)
Transportation equipment............. 3-15 $ 79,681 $ 241,371
Building and leasehold
improvements....................... 5-31.5 6,624 11,527
Computer equipment................... 5-7 7,960 9,022
Other................................ 3-10 2,519 12,496
---------- ----------
96,784 274,416
Less -- Accumulated depreciation..... (31,389) (63,662)
---------- ----------
$ 65,395 $ 210,754
========== ==========
Included in transportation equipment at December 31, 1995 and 1996, are
approximately $10.9 million and $21.0 million, respectively, of assets held
under capital leases.
6. OTHER ASSETS:
Other assets consist of the following (in thousands):
DECEMBER 31
--------------------
1995 1996
--------- ---------
Taxicab permits, net of accumulated
amortization of $2,194 and $2,298..... $ 4,263 $ 4,159
Noncurrent deferred income tax asset.... 6,089 3,782
Other, net of accumulated amortization
of $672 and $838...................... 1,284 2,556
--------- ---------
$ 11,636 $ 10,497
========= =========
Amortization expense related to other assets for the years ended December
31, 1995 and 1996 was $201,000 and $270,000, respectively.
F-13
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following (in
thousands):
DECEMBER 31
--------------------
1995 1996
--------- ---------
Trade accounts payable.................. $ 3,900 $ 8,721
Accrued insurance claims................ 6,608 13,847
Accrued compensation.................... 2,929 4,422
Due to affiliates....................... 642 --
Property and other taxes................ 941 1,237
Accrued interest payable................ 889 849
Deferred revenue........................ 883 1,448
Other................................... 2,517 6,424
--------- ---------
$ 19,309 $ 36,948
========= =========
8. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
----------------------
1995 1996
---------- ----------
(IN THOUSANDS)
Revolving credit facility with a bank
syndicate, interest at LIBOR plus
1.50% (7.03% at December 31, 1996),
secured by substantially all of the
assets of the Company................. $ -- $ 60,110
Notes payable to finance companies,
interest rates ranging from 7.70% to
15.00%, due in monthly installments of
$567,098, maturing at various dates
through 2011; secured by certain
transportation equipment and real
property.............................. 38,971 20,728
Obligations under capital leases of
certain transportation equipment,
implicit interest rates ranging from
5.00% to 11.00%, due in monthly
installments of $344,508, maturing at
various dates through 2003............ 6,643 18,037
Various notes payable to stockholders,
including $600 of accrued interest
payable in 1996....................... 18,387 259
Other................................... 8,816 9,849
---------- ----------
Total Long-term Obligations............. 72,817 108,983
Less -- Current maturities.............. (12,065) (10,877)
Less -- Accrued Interest................ (600) --
---------- ----------
$ 60,152 $ 98,106
========== ==========
F-14
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, future principal payments of long-term debt and
minimum lease payments under capital lease obligations are as follows (in
thousands):
LONG-TERM CAPITAL LEASE
DEBT OBLIGATIONS
--------- -------------
Year ending December 31 --
1997............................... $ 8,300 $ 4,201
1998............................... 4,998 3,341
1999............................... 65,189 3,221
2000............................... 4,816 3,976
2001............................... 3,247 2,858
Thereafter......................... 4,397 6,404
--------- -------------
$ 90,947 24,001
=========
Less -- Amounts representing
interest......................... (5,964)
-------------
$ 18,037
=============
REVOLVING CREDIT AGREEMENT
In May 1996, the Company entered into a $30 million revolving credit
agreement with one bank. This credit facility was primarily utilized to
refinance certain indebtedness of the Founding Companies not repaid with
proceeds of the Offering.
In August 1996 and February 1997, the Company amended and restated the
credit agreement. The credit agreement, as amended, provides for a revolving
credit facility of $181 million through a syndicate of eight banks and allows
for an additional $40 million of debt outside the credit facility (in addition
to the convertible subordinated notes). The proceeds of the facility are to be
used for working capital, capital expenditures and acquisitions, including
refinancing of indebtedness related to acquisitions. The facility is secured by
substantially all of the assets of the Company and matures in August 1999, at
which time all amounts then outstanding become due. Interest on outstanding
borrowings is charged, at the Company's option, at the bank's prime rate plus up
to 1.0% or the London Interbank Offered Rate ("LIBOR") plus 1.0% to 2.25%,
both as determined by the ratio of the Company's funded debt to cash flow, as
defined. A commitment fee ranging from 0.25% to 0.50% is payable on the unused
portion of the facility. Under the terms of the credit agreement, the Company
must maintain certain minimum financial ratios. The credit agreement prohibits
the payment of cash dividends. As of December 31, 1996, the Company had a total
of $109.0 million outstanding under the revolving and other outside credit
facilities and had utilized $5.0 million of the facility for letters of credit
securing certain insurance obligations and performance bonds, resulting in a
borrowing availability of $16.0 million under the revolving and other outside
credit facilities.
In September 1996, the Company entered into an interest rate cap agreement
with a bank. The agreement has a term of one year and a notional principal
amount of $50 million. The agreement provides that if the 90-day LIBOR rate
exceeds 6.5% for certain measurement periods, the bank will pay to the Company
the difference between such rate and 6.5%. The cost of the agreement is being
amortized over its term.
CONVERTIBLE SUBORDINATED NOTES
In August 1996, the Company issued $22.5 million of convertible
subordinated notes to former owners of the Purchased Companies as partial
consideration of the acquisition purchase price. The convertible subordinated
notes bear interest, payable quarterly, at a weighted average interest rate of
5.0% and are convertible by the holder into shares of the Company's Common Stock
at a weighted average price of $29.98 per share. The convertible subordinated
notes are redeemable for cash at the option of the Company
F-15
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at any time after one year of issuance. The terms of the convertible
subordinated notes require $4.0 million of principal payments in 1997 and $18.5
million in 1999.
Management estimates that the fair value of its debt obligations is
$112,619,000, compared to the historical value of $114,659,000 at December 31,
1996. The estimated fair value was determined by applying an estimated discount
rate to the scheduled cash payments under the obligations.
9. INCOME TAXES:
The Company has implemented SFAS No. 109, "Accounting for Income Taxes,"
which provides for a liability approach to accounting for income taxes. The
provision for income taxes consists of the following (in thousands):
YEAR ENDED DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Current --
Federal............................ $ (129) $ 335 $ 612
State.............................. 53 (28) 171
--------- --------- ---------
(76) 307 783
--------- --------- ---------
Deferred --
Federal............................ 1,115 1,464 5,663
State.............................. 91 279 1,238
--------- --------- ---------
1,206 1,743 6,901
--------- --------- ---------
Provision for income taxes before
extraordinary items................... 1,130 2,050 7,684
--------- --------- ---------
Extraordinary Items --
Current............................ -- -- 1,690
Deferred........................... -- -- 125
--------- --------- ---------
-- -- 1,815
--------- --------- ---------
$ 1,130 $ 2,050 $ 9,499
========= ========= =========
Deferred income taxes result from the effect of transactions which are
recognized in different periods for financial and tax reporting purposes and
relate primarily to depreciation, accrued insurance claims payable and net
operating loss carryforwards. Deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory tax rates to
differences between the financial reporting and the tax bases of existing assets
and liabilities.
F-16
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred income tax liabilities and assets are as follows
(in thousands):
DECEMBER 31
----------------------
1995 1996
---------- ----------
Deferred income tax liabilities --
Property and equipment............. $ 9,529 $ 30,648
Other.............................. 558 679
---------- ----------
Total deferred income tax
liabilities................ 10,087 31,327
---------- ----------
Deferred income tax assets --
Accounts receivable/allowance for
doubtful accounts................ (148) (854)
Accrued liabilities/expenses....... (5,190) (8,574)
Net operating losses............... (3,357) (2,520)
Other assets....................... (2,074) (1,965)
Tax credits........................ (268) (2,775)
Other.............................. (227) (824)
---------- ----------
Total deferred income tax
assets..................... (11,264) (17,512)
Less -- Valuation allowance............. 5 904
---------- ----------
Net deferred income tax
(assets) liabilities....... $ (1,172) $ 14,719
========== ==========
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following (in thousands):
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
Tax at federal statutory rate........ $ 866 $ 1,751 $ 8,064
Add (deduct) --
State income taxes, net of
federal benefit.......... 119 162 983
Nondeductible expenses..... 124 155 383
Tax-exempt income.......... (9) (3) --
Other...................... 30 (15) 69
--------- --------- ---------
$ 1,130 $ 2,050 $ 9,499
========= ========= =========
For purposes of the consolidated federal tax return, the Company has net
operating loss carryforwards available to offset taxable income of the Company
in the future. The net operating loss carryforwards will expire at various dates
from 1997 to 2010. The Company also has tax credit carryforwards which have been
partially offset by a valuation allowance. Certain tax credit carryforwards will
expire at various periods from 1996 through 2002. In connection with the
acquisition of the Pooled Companies, ownership changes occurred resulting in
various limitations on certain tax attributes of the Pooled Companies. However,
the Company expects full utilization of these tax attributes prior to their
expiration.
F-17
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES:
PURCHASE COMMITMENTS
As of December 31, 1996, the Company has entered into commitments to
purchase 108 motorcoaches for approximately $32,636,000. The Company intends to
sell or trade-in a number of older motorcoaches and finance the balance of the
new motorcoaches under the revolving and other outside credit facilities. In
addition, at December 31, 1996, the Company has entered into a commitment to
purchase certain property for approximately $1,050,000.
LEASES
The Company leases certain facilities and equipment under cancelable and
noncancelable operating leases. Rental expense for the years ended December 31,
1994, 1995 and 1996 was $1,808,000, $1,952,000 and $3,594,000, respectively.
Concurrent with the acquisitions of certain Founding and Purchased Companies,
the Company entered into various agreements with previous owners to lease land
and buildings used in the Company's operations. The terms of these leases range
from May 1996 through October 2030 and provide for certain escalations in the
rent expense each year. Included in the 1996 rent expenses above is
approximately $467,000 of rent paid to these related parties. The following
represents future minimum rental payments under noncancelable operating leases
(in thousands):
Year ending December 31 --
1997............................ $ 3,224
1998............................ 2,424
1999............................ 2,182
2000............................ 2,019
2001............................ 1,557
Thereafter...................... 16,260
---------
$ 27,666
=========
CLAIMS AND LAWSUITS
The Company is subject to certain claims and lawsuits arising in the normal
course of business, most of which involve claims for personal injury and
property damage incurred in connection with its operations. The Company
maintains various insurance coverages in order to minimize financial risk
associated with the claims. The Company has provided accruals for certain of
these actions in the accompanying supplemental consolidated financial
statements. In the opinion of management, uninsured losses, if any, resulting
from the ultimate resolution of these matters will not have a material effect on
the Company's financial position or results of operations.
REGULATORY MATTERS
The Surface Transportation Board ("STB") must approve or exempt any
consolidation or merger of two or more regulated interstate motorcoach operators
or the acquisition of one such operator by another. On November 7, 1996, the STB
granted the Company's petition for exemption in connection with the Pooled
Companies acquired in August 1996 and the Purchased Companies. However, future
acquisitions of other motorcoach operators must be approved or exempted from the
need for regulatory approval by the Surface Transportation Board. There can be
no assurance that the Company will be able to obtain such approval or exemption
with respect to future acquisitions, including the acquisitions of businesses in
December 1996 and acquisitions subsequent to year-end.
F-18
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ESTIMATED INSURANCE CLAIMS PAYABLE
The primary risks in the Company's operations are bodily injury and
property damage to third parties and workers' compensation. The Company has
commercial liability insurance policies that provide coverage by the insurance
company, subject to deductibles ranging from $5,000 to $250,000. The Company is
consolidating its insurance program under a program which provides for
deductibles ranging from $100,000 to $250,000. As such, any claim within the
deductible per incident would be the financial obligation of the Company.
The accrued insurance claims payable represents management's estimate of
the Company's potential claims costs in satisfying the deductible provisions of
the insurance policies for claims occurring through December 31, 1996. The
accrual is based on known facts and historical trends. Management believes such
accrual to be adequate.
EMPLOYEE BENEFIT PLANS
The Company maintains certain 401(k) plans which allow eligible employees
to defer a portion of their income through contributions to the plans. The
Company contributed $69,000, $85,000 and $246,000 to its plans during the year
ended December 31, 1994, 1995 and 1996, respectively.
COLLECTIVE BARGAINING AGREEMENTS
The Company is a party to various collective bargaining agreements with
certain of its employees. The agreements require the Company to pay specified
wages and provide certain benefits to its union employees. These agreements will
expire at various times through 2000.
COMMITMENTS
The Company has entered into agreements with Exel Motorcoach Partnership
("Exel") whereby Exel will provide introductions to other motorcoach
businesses and provide other consulting services for a term of three years. The
consideration to be paid to Exel will be approximately $100,000 per year. In
addition, Exel will be paid a commission on any acquisition completed by the
Company with motorcoach businesses introduced to it by Exel, based on a formula
ranging from 5% of the first $1,000,000 of consideration paid for the acquired
business, and decreasing to a level of 1% of the consideration in excess of
$4,000,000 paid for such business. A director of the Company is a principal of
Exel. In connection with several acquisitions, the Company paid Exel commissions
of $503,600 in 1996, based on the formula outlined above.
RISK FACTORS
An investment in shares of Common Stock or debt obligations of the Company
involve a high degree of risk, including, among others, those risks related to
the effects of leverage of the Company, the Company's limited combined operating
history, risks related to acquisition financing and implementation of the
Company's acquisition strategy, seasonality of the motor coach business, fuel
price volatility, potential exposure to environmental liabilities, and reliance
on key personnel.
F-19
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. EMPLOYEE STOCK OPTION PLAN:
The Company's 1996 Long-Term Incentive Plan provides for the granting of
options to key employees to purchase an aggregate of not more than the greater
of 1,500,000 shares or 15% of the total number of shares of the Company's Common
Stock outstanding at the time of grant at fair market value on the date of
grant. One-fifth of granted options generally become exercisable after one year,
and continue to become exercisable in one-fifth increments each year thereafter.
The options expire after ten years from the date of grant if unexercised.
Outstanding options may be canceled and reissued under terms specified in the
plan.
The following table summarizes activity under the Company's stock option
plans:
1996
-----------
Options outstanding, beginning of
year.................................. --
Granted (exercise price per share)
1996 ($14.00 to $27.25).......... 1,807,017
Forfeited (exercise price per
share)
1996 ($14.00 to $23.75).......... (15,500)
-----------
Options outstanding, end of year........ 1,791,517
===========
The Company accounts for its stock-based compensation under Accounting
Principles Board Statement No. 25 "Accounting for Stock Issued to Employees."
Under this accounting method, no compensation expense is recognized in the
supplemental consolidated statements of income if no intrinsic value of the
option exists at the date of grant. In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for Stock Based
Compensation." SFAS No. 123 encourages companies to account for stock based
compensation awards based on the fair value of the awards at the date they are
granted. The resulting compensation cost would be shown as an expense in the
statement of income. Adoption of the standard is required for fiscal years
beginning after December 15, 1995. Companies can choose not to apply the new
accounting method and continue to apply current accounting requirements;
however, disclosure is required as to what net income and earnings per share
would have been had the new accounting method been followed. While the Company
did not adopt SFAS No. 123 for accounting purposes, it has implemented the
disclosure requirements below which include annual pro forma disclosures of its
effects on options granted since the initial grant in May 1996. Had compensation
cost for these plans been determined consistent with SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the following pro
forma amounts (in thousands except per share data):
1996
---------
Net Earnings As reported............................. $ 13,540
Pro forma............................... $ 12,023
Earnings Per Share As reported............................. $ 1.14
Pro forma............................... $ 1.01
The effects of applying SFAS No. 123 in the pro forma disclosure may not be
indicative of future amounts as additional awards in future years are
anticipated. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions:
Expected dividend yield................. 0.00%
Expected stock price volatility......... 34.59% - 34.78%
Risk free interest rate................. 6.43% - 6.96%
Expected life of options................ 10 years
F-20
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options outstanding at December 31, 1996, had exercise prices ranging from
$14.00 to $27.25, a weighted average remaining contractual life of 9.5 years, a
weighted average fair value of $14.29 per option and a weighted average exercise
price of $17.71 per option.
12. EXTRAORDINARY ITEMS:
In connection with the merger of a Pooled Company with Coach USA in August
1996, obligations due to stockholders of $17.2 million were retired in exchange
for shares of Coach USA Common Stock. The transactions resulted in an
extraordinary gain on early extinguishment of debt of approximately $4.2
million, net of taxes, representing the excess of the recorded value of the
obligations exchanged over the market value of the Coach USA Common Stock. This
gain was partially offset by extraordinary losses of approximately $1.5 million,
net of taxes, resulting from early extinguishment of debt at certain other
companies.
13. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED):
Subsequent to March 31, 1997, the Company acquired eight additional
companies. The aggregate consideration for these transactions was $8.5 million
in cash, 1,380,247 shares of the Company's Common Stock, and $3.8 million of
subordinated notes convertible into 102,128 shares of the Company's Common
Stock. The Company has entered into an agreement to acquire an additional
business, which is subject to regulatory approval, for consideration amounting
to 300,000 shares of the Company's common stock.
The Company completed the sale of $150 million 9 3/8% Senior Subordinated
Notes due 2007 during the second quarter of 1997.
The Company has recently announced that it anticipates the $181 million
Credit Facility will be amended to provide for borrowings of up to $300 million
and additional borrowings outside such facility of up to $80 million.
The Company and Exel have subsequently agreed to the termination of the
agreement discussed in Note 10, whereby Exel shall receive, upon completion of
the next acquisition of a motorcoach business identified by Exel with aggregate
consideration paid in excess of $5.0 million, $275,000 in cash and the grant of
a warrant to purchase 100,000 shares of Company Common Stock at an exercise
price of $26 per share. The warrant will be exercisable beginning six months
from the date of the agreement to terminate and expire two years from the date
of the agreement to terminate.
F-21
<PAGE>
================================================================================
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:
BY REGISTERED OR CERTIFIED MAIL:
The Bank of New York
Reorganization Section
101 Barclay Street, 7E
New York, New York 10286
Attention: George Johnson
BY HAND OR OVERNIGHT DELIVERY:
The Bank of New York
101 Barclay Street
Corporate Trust Services Window
Ground Level
New York, New York 10286
Attention: Reorganization Department,
George Johnson
BY FACSIMILE TRANSMISSION:
(for Eligible Institutions only)
(212) 571-3080
Attention: George Johnson
Confirm by Telephone
(212) 815-4997
(Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight delivery, or registered or certified mail.)
------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL
NOR BOTH TOGETHER CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH THE PROSPECTUS RELATES OR
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS OR THE LETTER OF TRANSMITTAL OR BOTH TOGETHER NOR
ANY EXCHANGE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREIN OR THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
================================================================================
================================================================================
$150,000,000
EXCHANGE OFFER
[LOGO] -- COACH USA
9 3/8% SENIOR SUBORDINATED
NOTES DUE 2007, SERIES B
TABLE OF CONTENTS
Page
----
Prospectus Summary ................................................ 1
Risk Factors ...................................................... 12
The Exchange Offer ................................................ 20
Use of Proceeds ................................................... 28
Capitalization .................................................... 29
Selected Consolidated Pro Forma Financial Data .................... 30
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 32
Business .......................................................... 42
Management ........................................................ 54
Certain Transactions .............................................. 59
Principal Stockholders ............................................ 62
Description of Certain Indebtedness ............................... 63
Description of the Notes .......................................... 65
Plan of Distribution .............................................. 94
Legal Matters ..................................................... 94
Index to Financial Statements ..................................... F-1
August 21, 1997
