<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ATLANTIC EXPRESS TRANSPORTATION CORP.
(Exact name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
NEW YORK 4151 13-392-4567
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
7 NORTH STREET
STATEN ISLAND, NEW YORK 10302-1205
(718) 442-7000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
SEE TABLE OF ADDITIONAL REGISTRANTS
------------------------
NATHAN SCHLENKER
CHIEF FINANCIAL OFFICER
7 NORTH STREET
STATEN ISLAND, NEW YORK 10302-1205
(718) 442-7000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C> <C>
PETER R. SILVERMAN, ESQ. ROBERT A. ZUCCARO, ESQ. MICHAEL WORONOFF, ESQ.
SILVERMAN, COLLURA, CHERNIS, & JONES, DAY, REAVIS & POGUE SKADDEN, ARPS, SLATE, MEAGHER
BALZANO P.C. 599 LEXINGTON AVENUE & FLOM
381 PARK AVENUE SOUTH NEW YORK, NEW YORK 10022 300 SOUTH GRAND AVENUE
SUITE 1601 (212) 326-3939 LOS ANGELES, CALIFORNIA 90017
NEW YORK, NEW YORK 10016 (213) 687-5000
(212) 779-8600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT HAS BECOME EFFECTIVE.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE (1) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
10 3/4% Senior Secured Notes due 2004 $150,000,000 100% $150,000,000 $44,250
Guarantees of the 10 3/4% Senior Secured Notes due
2004 $150,000,000 (2) (2) (2)
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(a) under the Securities Act.
(2) Pursuant to Rule 457(n), no separate registration fee is required as no
additional consideration is being paid for Guarantees.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
The address of the principal executive offices of each of the additional
registrants listed below, and the name and address of the agent for service
therefor, is the same as is set forth for Atlantic Express Transportation Corp.
on the facing page of this Registration Statement.
<TABLE>
<CAPTION>
PRIMARY STANDARD I.R.S.
JURISDICTION INDUSTRIAL EMPLOYER
OF CLASSIFICATION IDENTIFICATION
NAME INCORPORATION NUMBER NUMBER
- --------------------------------------------------------------- ------------- ------------------- --------------
<S> <C> <C> <C>
Amboy Bus Co., Inc............................................. New York 4151 11-2501369
Staten Island Bus, Inc......................................... New York 4151 13-2616818
Raybern Capital Corp........................................... New York 4151 11-2556990
Metropolitan Escort Service, Inc............................... New York 4789 13-3129197
Merit Transportation Corp...................................... New York 4119 13-3768298
Temporary Transit Service, Inc................................. New York 4151.1 13-3240973
Atlantic-Hudson, Inc........................................... New York 4111 13-3625121
Courtesy Bus Co., Inc.......................................... New York 4151 13-2975239
K. Corr, Inc................................................... New York 4151 11-2574233
Raybern Equity Corp............................................ New York 4151 11-2543830
Metro Affiliates, Inc.......................................... New York 6512 13-3330142
Midway Leasing Inc............................................. New York 6512 13-3137793
Brookfield Transit, Inc........................................ New York 4119 13-3768247
Atlantic Paratrans, Inc........................................ New York 4119 13-3563789
180 Jamaica Corp............................................... New York 6512 13-3847630
Atlantic Express Coachways, Inc................................ New Jersey 4111 22-2982867
Atlantic Express of Pennsylvania, Inc.......................... Delaware 4151 52-1820389
Atlantic Paratrans of Kentucky Inc............................. Kentucky 4119 13-3852086
Raybern Bus Service, Inc....................................... New York 4151 11-1739412
G.V.D. Leasing Co., Inc........................................ New York 4119 13-2990595
Block 7932, Inc................................................ New York 4119 13-3903439
Atlantic-Conn. Transit, Inc.................................... Connecticut 4151 13-3502325
Atlantic Express of Missouri, Inc.............................. Missouri 4151 13-3823116
Atlantic Express of L.A. Inc................................... California 4151 95-4631639
201 West Sotello Realty, Inc................................... California 6512 95-4662981
Central New York Coach Sales & Service, Inc.................... New York 5012 16-1107009
Jersey Bus Sales, Inc.......................................... New Jersey 5012 16-1333349
Atlantic-Chittenango Real Property Corp........................ New York 6512 16-1540931
Jersey Business Land Co., Inc.................................. New Jersey 6512 22-3553850
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 18, 1997
PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES OF ANY SUCH STATE.
<PAGE>
OFFER TO EXCHANGE
10 3/4% SENIOR SECURED NOTES DUE 2004
FOR ANY AND ALL OUTSTANDING
10 3/4% SENIOR SECURED NOTES DUE 2004 OF
[LOGO]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED.
------------------------
ATLANTIC EXPRESS TRANSPORTATION CORP., A NEW YORK CORPORATION ("ATLANTIC" OR THE
"COMPANY"), A WHOLLY OWNED SUBSIDIARY OF ATLANTIC EXPRESS TRANSPORTATION GROUP
INC. ("AETG"), HEREBY OFFERS (THE "EXCHANGE OFFER"), UPON THE TERMS AND SUBJECT
TO THE CONDITIONS SET FORTH IN THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF
TRANSMITTAL (THE "LETTER OF TRANSMITTAL"), TO EXCHANGE ITS OUTSTANDING 10 3/4%
SENIOR SECURED NOTES DUE 2004 (THE "OLD NOTES"), OF WHICH $150,000,000 AGGREGATE
PRINCIPAL AMOUNT IS OUTSTANDING AS OF THE DATE HEREOF, FOR AN EQUAL AGGREGATE
PRINCIPAL AMOUNT OF NEWLY ISSUED 10 3/4% SENIOR SECURED NOTES DUE 2004 (THE "NEW
NOTES"). THE NEW NOTES ARE BEING OFFERED HEREBY IN ORDER TO SATISFY CERTAIN
OBLIGATIONS OF THE COMPANY UNDER THE REGISTRATION RIGHTS AGREEMENT, DATED
FEBRUARY 4, 1997, AMONG THE COMPANY AND CERTAIN OTHER SIGNATORIES THERETO, AS
AMENDED (THE "REGISTRATION RIGHTS AGREEMENT"). THE FORM AND TERMS OF THE NEW
NOTES WILL BE THE SAME AS THOSE OF THE OLD NOTES EXCEPT THAT THE NEW NOTES WILL
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND CONSEQUENTLY WILL NOT BE SUBJECT TO CERTAIN TRANSFER
RESTRICTIONS, REGISTRATION RIGHTS AND RELATED LIQUIDATED DAMAGES PROVISIONS
APPLICABLE TO THE OLD NOTES. THE NEW NOTES WILL EVIDENCE THE SAME DEBT AS THE
OLD NOTES AND WILL BE ENTITLED TO THE BENEFITS OF AN INDENTURE, DATED AS OF
FEBRUARY 4, 1997, BY AND BETWEEN THE COMPANY AND THE BANK OF NEW YORK, AS
TRUSTEE (THE "TRUSTEE"), AS AMENDED (THE "INDENTURE"). THE INDENTURE PROVIDES
FOR THE ISSUANCE OF BOTH THE OLD NOTES AND THE NEW NOTES. THE OLD NOTES AND THE
NEW NOTES ARE REFERRED TO HEREIN COLLECTIVELY AS THE "NOTES" AND HOLDERS OF THE
NOTES ARE SOMETIMES REFERRED TO HEREIN AS THE "HOLDERS."
THE NEW NOTES WILL MATURE ON FEBRUARY 1, 2004. INTEREST ON THE NEW NOTES WILL BE
PAYABLE SEMI-ANNUALLY ON FEBRUARY 1 AND AUGUST 1, COMMENCING FEBRUARY 1, 1998.
THE NEW NOTES WILL BE REDEEMABLE AT THE OPTION OF THE COMPANY, IN WHOLE OR IN
PART, ON OR AFTER FEBRUARY 1, 2001, AT THE REDEMPTION PRICES SET FORTH HEREIN,
PLUS ACCRUED AND UNPAID INTEREST, IF ANY, TO THE DATE OF REDEMPTION.
NOTWITHSTANDING THE FOREGOING, AT ANY TIME OR FROM TIME TO TIME PRIOR TO
FEBRUARY 1, 2000, THE COMPANY MAY REDEEM UP TO ONE-THIRD OF THE AGGREGATE
PRINCIPAL AMOUNT OF THE NEW NOTES AT THE REDEMPTION PRICE OF 110.75% OF THE
PRINCIPAL AMOUNT THEREOF, PLUS ACCRUED AND UNPAID INTEREST, IF ANY, THROUGH THE
DATE OF REDEMPTION, WITH THE NET CASH PROCEEDS OF ONE OR MORE PUBLIC EQUITY
OFFERINGS (AS DEFINED); PROVIDED, THAT AT LEAST $100.0 MILLION AGGREGATE
PRINCIPAL AMOUNT OF THE NEW NOTES REMAINS OUTSTANDING IMMEDIATELY THEREAFTER.
UPON A CHANGE OF CONTROL (AS DEFINED), THE COMPANY WILL BE REQUIRED TO OFFER TO
REPURCHASE ALL OF THE OUTSTANDING NEW NOTES AT 101% OF THE PRINCIPAL AMOUNT
THEREOF, TOGETHER WITH ACCRUED AND UNPAID INTEREST, IF ANY, TO THE DATE OF
REPURCHASE. SEE "DESCRIPTION OF NOTES."
THE NEW NOTES WILL BE SENIOR SECURED OBLIGATIONS OF THE COMPANY AND WILL RANK
SENIOR IN RIGHT OF PAYMENT TO ALL SUBORDINATED INDEBTEDNESS OF THE COMPANY, AND
PARI PASSU IN RIGHT OF PAYMENT WITH ALL SENIOR INDEBTEDNESS OF THE COMPANY. THE
NEW NOTES WILL BE FULLY AND UNCONDITIONALLY GUARANTEED, JOINTLY AND SEVERALLY,
BY EACH OF THE CURRENT AND FUTURE RESTRICTED SUBSIDIARIES (AS DEFINED) OF THE
COMPANY AND INITIALLY SECURED BY A FIRST PRIORITY SECURITY INTEREST IN AND A
PLEDGE OF ALL OF THE CAPITAL STOCK OF THE COMPANY AND ITS SUBSIDIARIES (AS
DEFINED) AND A SECOND PRIORITY SECURITY INTEREST IN THOSE ASSETS OF THE COMPANY
AND ITS RESTRICTED SUBSIDIARIES (INCLUDING CASH, ACCOUNTS RECEIVABLE, INVENTORY,
AND CERTAIN RELATED ASSETS) SECURING INDEBTEDNESS OUTSTANDING UNDER THE
REVOLVING CREDIT FACILITY (AS DEFINED). HOWEVER, THE NEW NOTES WILL BE
EFFECTIVELY SUBORDINATED TO ALL OTHER SECURED INDEBTEDNESS OF THE COMPANY AND
ITS SUBSIDIARIES, INCLUDING INDEBTEDNESS UNDER THE REVOLVING CREDIT FACILITY, TO
THE EXTENT OF THE ASSETS THAT SECURE SUCH INDEBTEDNESS. THE INDENTURE CONTAINS A
COVENANT THAT PROHIBITS THE COMPANY AND ITS RESTRICTED SUBSIDIARIES FROM
CREATING CONSENSUAL LIENS ON CERTAIN OF THEIR EXISTING VEHICLES. AS OF SEPTEMBER
30, 1997, ON A PRO FORMA BASIS AFTER GIVING EFFECT TO THE EXCHANGE OFFER, THE
COMPANY AND ITS SUBSIDIARIES WOULD NOT HAVE HAD ANY SECURED INDEBTEDNESS
OUTSTANDING, OTHER THAN THE NEW NOTES AND $8.6 MILLION OF OTHER FINANCING.
THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THE EXCHANGE OFFER. THE COMPANY
WILL PAY ALL EXPENSES INCIDENTAL TO THE EXCHANGE OFFER (WHICH SHALL NOT INCLUDE
THE EXPENSES OF ANY HOLDER IN CONNECTION WITH RESALES OF THE NEW NOTES). THE
COMPANY WILL ACCEPT FOR EXCHANGE ANY AND ALL VALIDLY TENDERED OLD NOTES ON OR
PRIOR TO 5:00 P.M. NEW YORK CITY TIME, ON , 1998 (SUCH DATE AND TIME,
IF AND AS EXTENDED, THE "EXPIRATION DATE"). TENDERS OF OLD NOTES MAY BE
WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. THE EXCHANGE OFFER IS NOT
CONDITIONED UPON ANY MINIMUM PRINCIPAL AMOUNT OF OLD NOTES BEING TENDERED FOR
EXCHANGE. OLD NOTES MAY BE TENDERED ONLY IN INTEGRAL MULTIPLES OF $1,000. IN THE
EVENT THE COMPANY TERMINATES THE EXCHANGE OFFER AND DOES NOT ACCEPT FOR EXCHANGE
ANY OLD NOTES, THE COMPANY WILL PROMPTLY CAUSE THE RETURN OF ALL PREVIOUSLY
TENDERED OLD NOTES.
THIS PROSPECTUS HAS BEEN PREPARED FOR USE IN CONNECTION WITH THE EXCHANGE OFFER
AND MAY BE USED BY JEFFERIES & COMPANY, INC. ("JEFFERIES") IN CONNECTION WITH
OFFERS AND SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE NOTES. JEFFERIES
MAY ACT AS PRINCIPAL OR AGENT IN SUCH TRANSACTIONS. SUCH SALES WILL BE MADE AT
PRICES RELATED TO PREVAILING MARKET PRICES AT THE TIME OF SALE.
------------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 14 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES IN THE
EXCHANGE OFFER.
---------------------
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.
--------------------------
, 1998
<PAGE>
[DESCRIPTION OF PHOTOGRAPHS ON INSIDE COVER PAGE]
Four photographs of vehicles used by Atlantic Express Transportation Corp.
in its transportation business with the following captions:
(i) "School Bus Division;"
(ii) "Paratransit Division;"
(iii) "Coach Division;" and
(iv) "Pre-K/Medicaid Operations."
Based on interpretations contained in no action letters issued to third
parties by the staff of the Commission, the Company believes that the New 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 purchases such New Notes directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person who is an affiliate of the Company (within the
meaning of Rule 405 under the Securities Act)), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the holder is acquiring the New 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 New 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 New 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 New 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 New 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 up to 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 this Exchange Offer, there has been no public market for the Notes.
The Company does not intend to list the Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. There can be
no assurance that an active market for the Notes will develop. To the extent
that a market for the Notes does develop, the market value of the Notes will
depend on many factors, including, among other things, prevailing interest
rates, market conditions, general economic conditions, the Company's results of
operations and financial condition, the market for similar securities, and other
conditions. Such conditions might cause the Notes, to the extent that they are
actively traded, to trade at a significant discount from face value. See "Risk
Factors -- Absence of Public Market for the Notes."
Certain totals in this Prospectus may not sum due to rounding adjustments.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING NOTES THERETO) INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES, REFERENCES TO THE
"COMPANY" AND "ATLANTIC" ARE TO ATLANTIC EXPRESS TRANSPORTATION CORP. AND ITS
SUBSIDIARIES, AND, FOR PERIODS PRIOR TO FEBRUARY 4, 1997, THE SUBSIDIARIES OF
ATLANTIC EXPRESS TRANSPORTATION GROUP INC. (TOGETHER WITH ITS PREDECESSORS,
"AETG") ENGAGED IN THE TRANSPORTATION BUSINESS. ATLANTIC CONDUCTS ITS BUSINESS
THROUGH ITS SUBSIDIARIES. REFERENCES TO FISCAL YEARS ARE TO YEARS ENDING JUNE
30.
THE COMPANY
Atlantic is one of the largest providers of school bus transportation in the
United States. The Company has contracts with 63 school districts in New York,
Missouri, California, Pennsylvania, Connecticut and New Jersey. In addition to
its school bus transportation operations (the "School Bus Division"), the
Company provides services to public transit systems for physically or mentally
challenged passengers (the "Paratransit Division"), transportation for
pre-kindergarten children and Medicaid recipients (the "Pre-K/Medicaid
Operations") and express commuter line and charter and tour bus services (the
"Coach Division"). Atlantic has a fleet of approximately 3,800 vehicles
operating from 31 facilities. For the fiscal year ended June 30, 1997, the
Company generated revenues of $166.1 million, approximately 81% of which was
derived from the School Bus Division.
The Company's school bus transportation contracts have provided a relatively
predictable and stable stream of revenues over their terms, which range from one
to five years. Since 1979, Atlantic has achieved a contract renewal rate of
approximately 98%, which management believes is due to (i) its reputation for
passenger safety and providing efficient, on-time service; (ii) its
long-standing relationships with the school districts it services; (iii) the
preference of school districts to maintain continuity of service with their
current proven contractor rather than risk the uncertainty associated with a
replacement; and (iv) the disadvantage of prospective competitors who generally
would have to make substantially greater investments than the Company in new
equipment and who may experience difficulty obtaining suitable parking and
maintenance facilities in Atlantic's primary markets, especially in the New York
greater metropolitan area.
By capitalizing on the stable revenue stream provided by its existing
contracts and its reputation for passenger safety and service, Atlantic has
become one of the fastest growing major school bus companies in the United
States. This growth has resulted from (i) securing additional contracts from
existing and new customers (including replacing underperforming contractors);
(ii) expanding into new markets; and (iii) consummating a series of strategic
acquisitions.
Management believes that three major trends affecting the school bus
transportation industry provide the Company with significant opportunities for
continued growth in its largest division, the School Bus Division. First,
privatization of student transportation is becoming an increasingly attractive
cost-cutting option to school districts, which reportedly operate approximately
two-thirds of the approximately 400,000 school buses in the United States.
Consequently, since 1990, while the total number of school buses in the industry
overall has only grown by 11%, the number of school buses operated by the
private sector has increased by over 60%. Second, continuing consolidation is
occurring among the over 5,000 private contractors representing the remaining
one-third of the industry. Management believes that this consolidation is driven
largely by the inability of smaller companies to absorb the costs of complying
with increasingly stringent government regulations while still providing
commensurate levels of service at competitive prices. Capitalizing on this trend
towards consolidation, the Company has acquired over 20 school bus companies in
the last 15 years. Third, the expected increase in school enrollment,
attributable to a rise in the U.S. birth rate since 1984, will lead to growth in
the school bus transportation industry. In addition, the Company believes that
the demand for school bus transportation is generally insensitive to economic
cycles and is fundamentally strong, with an industry source projecting increases
in school
3
<PAGE>
enrollment each year through 2006. Management believes that resources required
to effectively capitalize on the above-mentioned industry trends favor larger
school bus contractors such as the Company.
BUSINESS STRATEGY
Atlantic believes that the proven strength and experience of its management
team and its reputation for passenger safety and service provide a strong
foundation for continued growth and increased cash flow. To capitalize on the
opportunities presented by Atlantic's business environment, Atlantic's
management team is concentrating on the following areas:
EXPANSION INTO NEW MARKETS. Atlantic seeks to continue expanding its
operations into new geographic markets. In 1993, the Company made its first
major expansion beyond the New York greater metropolitan area by winning a
school bus transportation contract in Philadelphia that generated $5.9 million
of revenues in fiscal 1996. Currently, the Company has school bus operations in
six states. The Company is presently targeting large urban markets in the
midwest, pacific and southeast regions of the United States because management
believes that (i) these areas offer opportunities to win contracts from smaller
regional contractors; (ii) the trend towards privatization in these areas should
result in the availability of additional large contracts; and (iii) the
projected total increase in school enrollment should be larger in major urban
markets in these areas. The Company recently expanded its operations into the
Los Angeles, California market, where it was awarded contracts for up to 150
school buses and an additional 18 vehicle contract. The Company believes there
are significant growth opportunities in this market. In addition, the Company
recently acquired Central New York Coach Sales & Service, Inc., Jersey Bus
Sales, Inc. and related real property (collectively, "Central"). Central is the
leading authorized distributor of school buses manufactured by Blue Bird Body
Company ("Blue Bird"), which is the leading manufacturer of school buses in
North America. Central also currently operates 158 school buses in New Jersey.
The Central acquisition will significantly reduce the Company's capital
expenditures in the purchase of buses and substantially increase the number of
relationships with school districts in the states of New York and New Jersey,
which the Company believes may lead to future business opportunities.
EXPANSION WITHIN EXISTING MARKETS. Atlantic plans to continue strengthening
its presence in its existing markets by aggressively pursuing additional
contracts and by consummating tuck-in acquisitions of smaller contractors.
Management believes that the Company's reputation has enabled it to win
additional contracts in existing markets. The Company has also consummated over
20 tuck-in acquisitions in its existing markets. Management believes that
expansion in regions where it already has established operations, whether
through additional contracts or through tuck-in acquisitions, has enabled it to
capitalize on its existing maintenance, parking and administrative
infrastructure, thereby improving profit margins and reducing capital
expenditure requirements. Most recently, the Company acquired substantially all
of the assets of V. Sabella Bus Co., Inc. ("Sabella"), which operates 87 school
bus routes in New York City. Given the Company's significant presence in this
market, management believes it can achieve significant cost savings as a result
of the Sabella acquisition. In general, the Company plans to benefit from
economies of scale as its business grows by (i) spreading the costs of its
administrative staff and facilities over a larger revenue base and (ii)
capturing savings in expenses such as insurance, workers' compensation and
vehicle and parts purchases.
GROWTH OF THE PARATRANSIT DIVISION. The Paratransit Division is Atlantic's
second largest and fastest growing division. The Paratransit Division's revenues
have increased from $3.4 million in fiscal 1994 to $19.0 million in fiscal 1997.
Management believes the demand for paratransit services in the United States
will continue to grow over the next several years. Pursuant to the Americans
with Disabilities Act of 1990 (the "ADA"), certain public transit systems are
required to provide comparable services to disabled persons who are unable to
use standard public transportation. The ADA required over 500 public transit
systems in the United States to implement fully operational paratransit systems
by January 1997. Because the ADA was enacted in 1990, the paratransit services
industry is relatively young, with most existing contracts awarded in the last
five years. Management believes many small companies that have been providing
4
<PAGE>
paratransit services may be unable to fulfill the complex service requirements
of paratransit contracts, and thus many of the contracts presently held by such
operators may not be renewed. For example, in May 1997, the Company was awarded
a six-month paratransit contract in Montgomery County, Pennsylvania, an area
previously serviced by a smaller company. Since 1990, the Company has gained
substantial experience in satisfying the rigorous demands of paratransit
contracts and plans to compete aggressively to obtain new paratransit contracts
as contracts awarded to other operators expire. Most recently, in July 1997, the
Company was awarded a three-year contract to provide paratransit services in
Philadelphia, Pennsylvania by the Southeastern Pennsylvania Transportation
Authority ("SEPTA").
FOCUS ON PASSENGER SAFETY AND SERVICE. Management has developed a corporate
culture focused on passenger safety and service. For example, Atlantic
participates in the "Safe Bus" program, under which complaints regarding school
bus drivers' performance and safety are registered by an independent party and
forwarded to the Company for remedial action. Furthermore, unlike many of its
competitors, the Company requires its drivers to wear standardized uniforms,
thereby reinforcing its professional image. In addition, all drivers are
required to attend periodic safety workshops and training programs, which
emphasize defensive driving and courteous behavior. Management believes that its
emphasis on passenger safety and service is a competitive advantage and a major
contributor to its success in winning new contracts.
RECENT TRANSACTIONS
ACQUISITION OF CENTRAL. On August 14, 1997, the Company completed the
acquisition of Central, which became effective on July 1, 1997, for total
consideration of $26.5 million of cash less long-term indebtedness, which as of
June 30, 1997, was $4.8 million, and its agreement to issue a $2.2 million
mortgages and notes relating to certain real property. Central is the leading
authorized distributor of Blue Bird school buses in North America, serving the
states of New York and New Jersey. The Company believes Central has a greater
than 45% market share for sales of school buses in its distribution territory.
In addition, Blue Bird is the leading manufacturer of school buses in North
America, with a reported 43% market share. Central also currently operates 158
school buses for school districts in New Jersey.
The Company believes that the Central acquisition will provide it with
significant synergistic opportunities, including an expanded customer base,
reduced capital expenditures and a reduction in the impact of seasonality on the
Company's financial results. For the six months ended June 30, 1997 on a pro
forma basis, approximately 70% of Central's customer base consisted of school
districts in central and upstate New York and New Jersey that operate their own
school buses. The Company currently has minimal operations in those areas and
believes that the relationships gained through the Central acquisition will
enhance the Company's ability to capitalize on the potential privatization in
certain of these markets. If the acquisition of Central had occured on June 30,
1996, the Company believes that it would have reduced capital expenditure
requirements by approximately $1.9 million in the year ended June 30, 1997 by
purchasing buses through Central at more favorable prices. The Company also
believes the Central acquisition will partially offset the seasonal effects of
the Company's school bus operations, as Central's seasonal peak occurs during
the months of July and August, the Company's seasonal low period.
ENTRANCE INTO THE LOS ANGELES MARKET. In May 1997, the Los Angeles Unified
School District (the "LAUSD") awarded the Company contracts for up to 150 school
buses (collectively, the "L.A. Contract") and in July 1997, a private school
awarded an 18 vehicle contract to the Company. The L.A. Contract is a five-year
contract, with service scheduled to commence in September 1997. The entrance
into the Los Angeles market required $12.6 million of capital expenditures,
including $2.9 million for the purchase of real property, $8.5 million for the
purchase of vehicles and $1.2 million for real property improvements. Prior to
September 30, 1997, the Company had made the majority of these capital
expenditures.
The Company believes that the Los Angeles market presents the Company with
significant expansion potential. This market consists of approximately 2,200
school buses, of which approximately 1,250 are
5
<PAGE>
contractor-operated. In addition, the Company believes there are approximately
800 contractor-operated school buses adjacent to the LAUSD and approximately
7,000 contractor-operated school buses elsewhere in California. The
contractor-operated market in Los Angeles is currently serviced by five
principal contractors, the largest of which maintains an approximately 60%
market share. The Company believes that the LAUSD desires to increase the number
of contractors in this market with additional major, national school bus
contractors such as the Company. To the extent the Company is able to obtain
additional school bus routes in the Los Angeles and adjacent markets, the
Company believes that it will have an opportunity to significantly improve its
EBITDA margins and improve its return on investment. These benefits will result
from operating leverage created by the Company's initial capital expenditures
and administrative infrastructure.
NEW PARATRANSIT CONTRACTS. In July 1997, the Company was awarded a
three-year contract to provide paratransit services in Philadelphia,
Pennsylvania by SEPTA (the "SEPTA Contract"). Pursuant to the SEPTA Contract,
SEPTA will provide the Company with all of the required vehicles and, as a
result, the Company will not need to make significant capital expenditures to
fulfill its obligations thereunder.
In May 1997, the Company was also awarded a six-month paratransit contract
in Montgomery County, Pennsylvania.
ACQUISITION OF SABELLA. On April 30, 1997, the Company acquired
substantially all of the assets of Sabella, a New York City school bus
contractor which currently operates 87 school bus routes, for $1.1 million.
The events described above are collectively referred to as the "Recent
Transactions."
RECENT FINANCING ACTIVITY
On February 4, 1997 the Company issued $110,000,000 aggregate principal
amount of its 10 3/4% Senior Secured Notes due 2004 (the "Original Old Notes")
in a private placement. The offering of the Original Old Notes was part of a
refinancing plan designed to extend the maturity of the Company's indebtedness,
provide the Company with additional financing and operating flexibility, and
enhance the Company's financial liquidity. The Company applied the net proceeds
of the offering of the Original Old Notes (i) to repay existing indebtedness;
(ii) to terminate certain operating leases and purchase the vehicles and other
assets leased thereunder; (iii) to acquire a Medicaid Business (as defined) and
purchase additional vehicles to perform the Company's obligations thereunder,
and (iv) for general corporate purposes. See "The Old Notes Offerings."
Upon consummation of the offering of the Original Old Notes, the Company
entered into a $30.0 million revolving credit facility (the "Revolving Credit
Facility"). See "Description of Revolving Credit Facility."
On August 14, 1997, the Company issued an additional $40,000,000 aggregate
principal amount of its 10 3/4% Senior Secured Notes due 2004 (the "Additional
Old Notes," and together with the Original Old Notes, the "Old Notes") in a
private placement. The Company applied the net proceeds of the offering of the
Additional Old Notes to (i) acquire Central; and (ii) to fund the Company's
entrance into the Los Angeles market. See "The Old Notes Offerings."
THE EXCHANGE OFFER
The Company is offering (the "Exchange Offer") to exchange its Old Notes, of
which $150,000,000 aggregate principal amount is outstanding, for an equal
aggregate principal amount of newly issued 10 3/4% Senior Secured Notes due 2004
(the "New Notes"). The form and terms of the New Notes will be the same as those
of the Old Notes except that the New Notes will have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and consequently will
not be subject to certain transfer restrictions, registration rights and related
liquidated damages provisions applicable to the Old Notes.
6
<PAGE>
<TABLE>
<S> <C>
THE EXCHANGE OFFER........................... The Company is offering to exchange an
aggregate of $150,000,000 principal amount of
New Notes for an equal aggregate principal
amount of Old Notes. The Old Notes may be
exchanged only in multiples of $1,000
principal amount. The Company will issue the
New Notes on or promptly after the Expiration
Date (as defined below). See "The Exchange
Offer."
EXPIRATION DATE.............................. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1998,
unless extended in which case the term
"Expiration Date" shall mean the latest date
and time to which the Exchange Offer is
extended.
CONDITIONS TO THE EXCHANGE OFFER............. The Exchange Offer is subject to certain
conditions, which may be waived by the
Company in whole or in part and from time to
time in its sole discretion. See "The
Exchange Offer -- Certain Conditions to the
Exchange Offer." The Exchange Offer is not
conditioned upon any minimum aggregate
principal amount of Old Notes being tendered
for exchange.
PROCEDURES FOR TENDERING OLD NOTES........... Each Holder desiring to accept the Exchange
Offer must complete and sign the Letter of
Transmittal, have the signature thereon
guaranteed if required by the Letter of
Transmittal, and mail or deliver the Letter
of Transmittal, together with the Old Notes
or a Notice of Guaranteed Delivery and any
other required documents (such as evidence of
authority to act satisfactory to the Company
in its sole discretion, if the Letter of
Transmittal is signed by someone acting in a
fiduciary or representative capacity), so
that such materials are received by the
Exchange Agent (as defined) at the address
set forth in "The Exchange Offer -- Exchange
Agent" prior to the Expiration Date. Any
beneficial owner of the Old Notes whose Old
Notes are registered in the name of a
nominee, such as a broker, dealer, commercial
bank or trust company and who wishes to
tender Old Notes in the Exchange Offer,
should instruct such entity or person to
promptly tender on such beneficial owner's
behalf. See "The Exchange Offer -- Procedures
for Tendering Old Notes."
GUARANTEED DELIVERY PROCEDURES............... Holders of Old Notes who wish to tender their
Old Notes and (i) whose Old Notes are not
immediately available; or (ii) who cannot
deliver their Old Notes or any other
documents required by the Letter of
Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the
procedure for book-entry transfer on a timely
basis), may tender their Old Notes according
to the guaranteed
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
delivery procedures set forth in the Letter
of Transmittal. See "The Exchange Offer --
Guaranteed Delivery Procedures."
The Letter of Transmittal provides that each
Holder of Old Notes (other than participating
broker-dealers) will represent to the Company
that, among other things, the New Notes
acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of
business of the person receiving such New
Notes, that neither such Holder of Old Notes
nor any such other person has an arrangement
or understanding with any person to
participate in the distribution of such New
Notes and that neither the Holder nor any
such person is an "affiliate" of the Company,
as defined in Rule 405 under the Securities
Act. Any tendered Old Note not accepted for
exchange for any reason will be returned
promptly after the expiration or termination
of the Exchange Offer. See "The Exchange
Offer."
WITHDRAWAL RIGHTS............................ Tenders of Old Notes may be withdrawn at any
time prior to the Expiration Date. See "The
Exchange Offer -- Withdrawal Rights."
ACCEPTANCE OF OLD NOTES AND DELIVERY OF NEW The Company will accept for exchange any and
NOTES...................................... all Old Notes which are properly tendered in
the Exchange Offer prior to the Expiration
Date. The New Notes issued pursuant to the
Exchange Offer will be delivered promptly
following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange
Offer."
RESALES OF NEW NOTES......................... Based on an interpretation by the staff of
the Securities and Exchange Commission (the
"Commission") set forth in no-action letters
issued to third parties, the Company believes
that New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may
be offered for resale, resold and otherwise
transferred by any Holder thereof (other than
any such Holder which is an "affiliate" of
the Company within the meaning of Rule 405
under the Securities Act) without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided
that such New Notes are acquired in the
ordinary course of such Holder's business and
that such Holder has no arrangement or
understanding with any person to participate
in the distribution of such New Notes, and
provided, further, that each broker-dealer
that receives New Notes for its own account
in exchange for Old Notes must acknowledge
that it
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
will deliver a Prospectus in connection with
any resale of such New Notes. See "Plan of
Distribution." If a Holder of Old Notes does
not exchange such Old Notes for New Notes
pursuant to the Exchange Offer, such Old
Notes will continue to be subject to the
restrictions on transfer contained in the
legend thereon. In general, the Old Notes may
not be offered or sold, unless registered
under the Securities Act, except pursuant to
an exception from, or in a transaction not
subject to, the Securities Act and applicable
state securities laws. See "The Exchange
Offer -- Consequences of Failure to Exchange"
and "Description of Notes."
CONSEQUENCES OF FAILURE TO EXCHANGE.......... Holders of Old Notes who do not exchange
their Old Notes for New 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. In
general, Old Notes may not be offered or
sold, except pursuant to a registration
statement under the Securities Act or any
exemption from registration thereunder and in
compliance with applicable state securities
laws. In the event the Company completes the
Exchange Offer, holders of Old Notes will
have no further rights to registration or
liquidated damages pursuant to the
Registration Rights Agreement between the
Company, the Guarantors (as defined therein)
and Jefferies & Company, Inc. ("Jefferies")
dated February 4, 1997, as amended (the
"Registration Rights Agreement").
CERTAIN TAX CONSIDERATIONS................... There will be no federal income tax
consequences to Holders exchanging Old Notes
for New Notes pursuant to the Exchange Offer
and a Holder will have the same adjusted
basis and holding period in the New Notes as
in the Old Notes immediately before the
exchange. See "Certain U.S. Federal Income
Tax Considerations."
REGISTRATION RIGHTS AGREEMENT................ The Exchange Offer is intended to satisfy the
registration rights of Holders of Old Notes
under the Registration Rights Agreement,
which rights terminate upon consummation of
the Exchange Offer.
EXCHANGE AGENT............................... The Bank of New York is the Exchange Agent.
The address and telephone number of the
Exchange Agent are set forth in "The Exchange
Offer -- Exchange Agent."
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
THE NEW NOTES
SECURITIES OFFERED........................... $150,000,000 aggregate principal amount of
10 3/4% Senior Secured Notes due 2004.
MATURITY DATE................................ February 1, 2004.
INTEREST RATE AND PAYMENT DATES.............. The New Notes will bear interest at a rate of
10 3/4% per annum. Interest on the New Notes
will be payable semi-annually in cash in
arrears on February 1 and August 1 of each
year, commencing February 1, 1998.
GUARANTEES................................... The New Notes will be fully and
unconditionally guaranteed by each of the
current and future Restricted Subsidiaries
(as defined) of the Company (collectively,
the "Guarantors"), jointly and severally
(subject to insolvency and fraudulent
conveyance limitations).
SECURITY..................................... The New Notes will initially be secured by a
first priority security interest in and a
pledge of all of the capital stock of the
Company and its subsidiaries and a second
priority security interest in those assets of
the Company and its Restricted Subsidiaries
(including cash, accounts receivable,
inventory, and certain related assets)
securing indebtedness outstanding under the
Revolving Credit Facility. The indenture
relating to the New Notes (the "Indenture")
contains a covenant that prohibits the
Company and its Restricted Subsidiaries from
creating consensual liens on their existing
vehicles. See "Description of the Revolving
Credit Facility" and "Description of Notes --
Collateral."
RANKING...................................... The New Notes will be senior secured
obligations of the Company and will rank
senior in right of payment to all
subordinated indebtedness of the Company and
PARI PASSU in right of payment with all
senior indebtedness of the Company. However,
the New Notes will be effectively
subordinated to all other secured
indebtedness of the Company and its
subsidiaries, including indebtedness under
the Revolving Credit Facility, to the extent
of the assets that secure such indebtedness.
OPTIONAL REDEMPTION.......................... The New Notes will be redeemable at the
option of the Company, in whole or in part,
on or after February 1, 2001, at the
redemption prices set forth herein, plus
accrued and unpaid interest, if any, to the
date of redemption. Notwithstanding the
foregoing, at any time or from time to time
prior to February 1, 2000, the Company may
redeem up to
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
one-third of the aggregate principal amount
of the New Notes at the redemption price of
110.75% of the principal amount thereof, plus
accrued and unpaid interest, if any, through
the date of redemption, with the net cash
proceeds of one or more Public Equity
Offerings (as defined); provided, that at
least $100.0 million aggregate principal
amount of the New Notes remain outstanding
immediately thereafter. See "Description of
Notes -- Redemption."
MANDATORY REDEMPTION......................... None.
CHANGE OF CONTROL............................ Upon a Change of Control (as defined), the
Company will be required to offer to
repurchase all of the outstanding New Notes
at 101% of the principal amount thereof,
together with accrued and unpaid interest, if
any, to the date of repurchase. See
"Description of Notes -- Repurchase Upon
Change of Control."
CERTAIN COVENANTS............................ The Indenture contains certain covenants
which limit the ability of the Company and
its Restricted Subsidiaries to (i) incur
additional indebtedness; (ii) make restricted
payments; (iii) issue and sell capital stock
of subsidiaries; (iv) enter into certain
transactions with affiliates; (v) create
certain liens; (vi) sell certain assets; and
(vii) merge, consolidate or sell
substantially all of the Company's assets.
See "Description of Notes -- Certain
Covenants."
</TABLE>
For a more detailed discussion of the terms of the New Notes, see
"Description of Notes."
RISK FACTORS
An investment in the New Notes involves a high degree of risk. For a
discussion of certain matters that should be considered by Holders in connection
with the Exchange Offer, see "Risk Factors," commencing on page 14.
Atlantic Express Transportation Corp. is a New York corporation. Its
principal office is located at 7 North Street, Staten Island, New York
10302-1205 (telephone number (718) 442-7000).
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The summary historical financial data of the Company for each of the years
in the three-year period ended June 30, 1997 and for the three-month periods
ended September 30, 1996 and 1997 were derived from the historical consolidated
financial information of the Company included elsewhere in this Prospectus. The
pro forma financial data for the year ended June 30, 1997 was derived from the
"Unaudited Pro Forma Consolidated Financial Information" included elsewhere in
this Prospectus. The summary pro forma financial data is presented for
informational purposes only and does not purport to represent what the Company's
results of operations would actually have been if the Central acquisition or the
offering of "Old Notes" had occurred on the assumed dates or project the
Company's financial position or results of operations at any future date or for
any future periods. The Company's unaudited consolidated financial information
includes all adjustments, consisting of normal recurring accruals, that the
Company considers necessary for a fair presentation of the financial position
and the results of operations for those periods. Operating results for the
three-month period ended September 30, 1997 are not necessarily indicative of
the results for the entire year ending June 30, 1998. The following data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Unaudited Pro Forma Consolidated
Financial Information" and the historical consolidated financial statements of
the Company, including the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(2)
------------------------------------------------------- ---------------
THREE MONTHS ENDED
YEAR ENDED JUNE
YEAR ENDED JUNE 30, SEPTEMBER 30, 30,
------------------------------- ---------------------- ---------------
1995 1996 1997 1996 1997(1) 1997
--------- --------- --------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
($ IN MILLIONS)
OPERATING DATA:
Revenues............................................. $ 114.0 $ 142.6 $ 166.1 $ 25.2 $ 59.2 $ 227.4
Gross profit......................................... 22.6 27.4 30.0 2.3 7.9 40.3
Income (loss) from operations........................ 5.8 7.3 7.4 (2.8) 0.8 11.8
Net Income (loss)(3)................................. 2.6 1.4 (1.7) (2.5) (1.9) (2.6)
OTHER DATA:
EBITDA(4)............................................ 13.4 17.0 17.8 2.6 4.1 25.2
Depreciation and amortization........................ 7.6 9.7 10.4 2.6 3.3 13.4
Total capital expenditures........................... 18.0 20.7 26.3 11.5 18.9 36.3
Number of vehicles(5)................................ 2,116 2,760 3,257 3,101 3,806 3,637
Number of contracts (6).............................. 91 93 97 85 136 140
Ratio of EBITDA to net interest expense (7).......... 1.1 1.6
Ratio of Net Debt (8) to EBITDA...................... 5.5 36.9
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL(1)
---------------
<S> <C> <C> <C> <C> <C> <C>
AT
SEPTEMBER 30,
1997
---------------
<CAPTION>
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 6.3
Net property, plant and equipment..................... 99.1
Total assets.......................................... 204.1
Total debt............................................ 158.6
Total stockholder's equity............................ 25.9
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
12
<PAGE>
- ------------------------------
(1) The financial information as of and for the three months ended September 30,
1997 reflects the acquisition of Central effective July 1, 1997.
(2) The pro forma financial data gives effect to the Central acquisition and the
offering of the Old Notes and the application of the net proceeds therefrom
as if they had occurred on July 1, 1996. See "Unaudited Pro Forma
Consolidated Financial Information." Penalties upon early extinguishment of
debt of approximately $0.9 million and a further $0.9 million write-off of
remaining unamortized deferred finance charges relative to existing
indebtedness have not been reflected in the pro forma financial data for the
year ended June 30, 1997 as these costs are reported net of their related
tax effects as extraordinary items.
(3) Net Income (loss) includes extraordinary income (net of taxes) pertaining to
forgiveness of indebtedness of $1.1 million in 1995 and an extraordinary
loss (net of taxes) pertaining to loss on early extinguishment of debt ($0.6
million) and write-off of deferred finance charges ($0.5 million) for the
year ended June 30, 1997.
(4) EBITDA represents income from operations before depreciation and
amortization. EBITDA is used in certain financial covenants in the Indenture
and is frequently used by securities analysts and is presented here to
provide additional information about the Company's operations. EBITDA is not
a measurement presented in accordance with generally accepted accounting
principles. EBITDA should not be considered in isolation; as a substitute
for net income, cash flow provided by operating activities or other income
or cash flow data prepared in accordance with generally accepted accounting
principles; or as a measure of the Company's profitability or liquidity.
EBITDA as used in this Prospectus may not be comparable to "EBITDA" as
reported by other companies.
(5) Vehicles include the Company's fleet of school buses, paratransit vehicles,
coaches and other service and support vehicles that are either owned, leased
by the Company or provided by municipal authorities as of the last day of
each period. See "Business -- Fleet Management and Maintenance."
(6) Represents the number of contracts as of the last day of each period. See
"Business -- School Bus Division -- Contracts" and "Business -- Paratransit
Division -- Contracts."
(7) Net interest expense is defined as interest expense less interest income,
and does not include amortization of debt issuance costs of $1,276,488 and
$259,801 for the year ended June 30, 1997 and the three months ended
September 30, 1997, respectively.
(8) Net Debt is defined as total debt, excluding premium on issuance of the Old
Notes, less cash and cash equivalents. At September 30, 1997, the Company's
Net Debt was $152.2 million.
13
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE NEW NOTES INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE
INVESTORS SHOULD GIVE CAREFUL CONSIDERATION TO THE SPECIFIC FACTORS SET FORTH
BELOW AND THE OTHER INFORMATION SET FORTH HEREIN, PRIOR TO TENDERING THEIR OLD
NOTES.
BLUE SKY RESTRICTIONS
In order to comply with the securities laws of certain jurisdictions, the
New Notes may not be offered or resold by any Holder unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and the requirements of such
exemption have been satisfied. The Company does not currently intend to register
or qualify the resale of the New Notes in any such jurisdictions. However, an
exemption is generally available for sales to registered broker-dealers and
certain institutional buyers. Other exemptions under applicable state securities
laws may also be available. Holders must ensure their own compliance with
respect to such laws, which could limit the ability of Holders to resell New
Notes.
SIGNIFICANT LEVERAGE
At September 30, 1997, the Company's total debt and stockholder's equity was
$158.6 million and $25.9 million, respectively. The Company also had borrowing
availability under the Revolving Credit Facility of $27.9 million, subject to
the borrowing conditions contained therein. The ratio of EBITDA to net interest
expense would have been 1.6 to 1.0 for the pro forma year ended June 30, 1997
and 1.1 to 1.0 for the three months ended September 30, 1997.
The Company's high level of debt and debt service requirements will have
several important consequences, including (i) a substantial portion of the
Company's cash flow from operations will be dedicated to servicing its
indebtedness; (ii) the covenants contained in the Company's debt instruments
will impose certain restrictions on the Company which, among other things, will
limit its ability to borrow funds; (iii) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions and general corporate purposes may be impaired; and (iv) the
Company's ability to withstand competitive pressures and adverse economic
conditions may be adversely affected.
The Company's ability to meet its debt service obligations and to reduce its
total indebtedness will depend upon its future performance, which will be
subject to general economic conditions, its ability to achieve cost savings and
other financial, business and other factors affecting the operations of the
Company, many of which are beyond its control. If the Company cannot generate
sufficient cash flow from operations in the future to service its debt, it may
be required to refinance all or a portion of such debt (including the Notes),
sell assets or obtain additional financing. There can be no assurance that any
such refinancing or asset sales would be possible or that any additional
financing could be obtained.
COLLATERAL; OTHER SECURED INDEBTEDNESS
In the event of a default under the Notes, the proceeds from the sale of the
collateral securing the Notes may not be sufficient to satisfy in full the
Company's obligations under the Notes. The amount to be received upon such a
sale would depend upon numerous factors, including the timing and the manner of
the sale. In addition, the book value of the collateral, particularly the
outstanding capital stock of the Guarantors, should not be relied upon as a
measure of realizable value.
The Notes will be effectively subordinated to all other secured indebtedness
of the Company and its Subsidiaries, including indebtedness under the Revolving
Credit Facility, to the extent of the assets that secure such indebtedness. As
of September 30, 1997, the Company had $158.6 million of secured indebtedness.
14
<PAGE>
GUARANTEES
The repayment of the New Notes will be fully and unconditionally and
irrevocably guaranteed by the Guarantors (subject to insolvency and fraudulent
conveyance limitations). If the Company becomes insolvent or is liquidated or if
the indebtedness under the Revolving Credit Facility is accelerated, the lender
under the Revolving Credit Facility would be entitled to exercise the remedies
available to a secured lender. Accordingly, such lender will have prior claim on
the assets of the Company and the Guarantors. In such event, it is possible that
there would be no assets remaining from which claims of the holders of New Notes
could be satisfied or, if any assets remained, such assets might be insufficient
to fully satisfy such claims. See "Description of the Notes -- Certain
Covenants" and "-- Fraudulent Transfer Considerations."
RELIANCE UPON AND CONCENTRATION OF SCHOOL BUS TRANSPORTATION CONTRACTS WITH
SCHOOL DISTRICTS
Historically, the Company's school bus transportation contracts have had
terms between one and five years, generally subject to extension upon expiration
at the discretion of the school districts with the agreement of the Company for
additional contract periods. Although since 1979 the Company has achieved a
contract renewal rate of approximately 98%, the decision to renew contracts is
not made solely by the Company and may be based upon factors beyond the
Company's control. Any significant decrease in this historical renewal rate
could have a material adverse effect on the Company. There can be no assurance
that any of the Company's current or future contracts will be extended, or if
extended, that the rates of compensation for such extensions will be acceptable
to the Company. Moreover, there can be no assurance that the school districts
that currently employ the Company's services will not seek to satisfy their
transportation needs in the future by alternative means. A loss of a significant
number of contracts, or those contracts specified in the next paragraph, which
account for a significant percentage of the Company's revenues, would have a
material adverse effect on the Company.
For fiscal 1997, the Company derived 51.3% of its revenues from the Board of
Education of the City of New York (the "New York Board of Education"). For
fiscal 1997, no other customer accounted for more than 7% of the Company's
revenues. The New York Board of Education contracts, most of which originated in
1979, do not expire (because of renewals) until June 30, 2000. The loss of the
foregoing contracts would have a material adverse effect upon the Company. There
can be no assurance that all or some of such contracts will be extended
following their scheduled dates of expiration, or, if extended, that the rate of
compensation will be acceptable to the Company, nor can there be any assurance
that the Company will be able to fulfill its plans to expand and diversify prior
to the dates of such scheduled expirations.
TRANSPORTATION CONTRACT REQUIREMENTS
The Company's school bus transportation contracts generally provide for
performance security in one or more of the following forms: performance bonds,
letters of credit and cash retainages. The contracts also require the
maintenance of minimum amounts of insurance coverage, the maintenance of
appropriate facilities and transportation equipment; and the implementation of
various operating rules and regulations. There can be no assurance that either
letters of credit or performance bonds will continue to be available to the
Company as security for its contracts or, if available, at a cost that does not
adversely affect the Company's margins. The failure of the Company to procure
the required security or maintain required levels of insurance coverage could
result in the default of a school bus transportation contract by the Company and
subject it to damages as a result thereof or prevent the renewal or extension of
such contract. In addition, the number of school buses to be provided under the
Company's contracts generally may be decreased, and hence the revenues generated
under such contracts may decrease based on the requirements of the relevant
school district. All school bus contracts can be terminated by school districts
for certain performance related factors.
15
<PAGE>
FRAUDULENT TRANSFER CONSIDERATIONS
The obligations of any Guarantor under the Indenture and the grant by any
Guarantor of a security interest under the Collateral Agreements (as defined)
may be subject to review under applicable fraudulent transfer or similar laws in
the event of the bankruptcy or other financial difficulty of any such Guarantor.
In the United States, under such laws, if a court in a lawsuit by an unpaid
creditor or representative of creditors of any such person, such as a trustee in
bankruptcy or any such person as debtor in possession, were to find that at the
time such person incurred its obligations under its guarantee or pledged its
assets, it (i) received less than fair consideration or reasonably equivalent
value therefor; and (ii) either (a) was insolvent, (b) was rendered insolvent by
such guarantee or pledge, (c) was engaged in a business or transaction for which
its remaining unencumbered assets constituted unreasonably small capital, or (d)
intended to incur or believed that it would incur debts beyond its ability to
pay such debts as they matured, such court could avoid such obligations under
its guarantee and/or the security interest in its assets and direct the return
of any amounts paid with respect thereto. Moreover, regardless of the factors
identified in the foregoing clauses (i) and (ii), a court could take such action
if it found that the guarantee was entered into or the security interest granted
with actual intent to hinder, delay, or defraud creditors. The measure of
insolvency for purposes of the foregoing will vary depending on the law of the
jurisdiction being applied. Generally, however, an entity would be considered
insolvent if the sum of its debts (including contingent or unliquidated debts)
is greater than all of its property at a fair valuation or if the present fair
salable value of its assets is less than the amount that would be required to
pay its probable liability on its existing debts as they become absolute and
matured.
REORGANIZATION
On March 2, 1992, AETG and certain subsidiaries of the Company filed a
voluntary petition requesting relief from creditors under chapter 11 of the
Bankruptcy Code of 1986, as amended (the "Bankruptcy Code"). A major cause of
the chapter 11 filing was the seizure of the Company's principal bank by the
Federal Deposit Insurance Corporation on the maturity date of the Company's
outstanding notes due to such bank (and the consequent non-renewal of such
notes) during a period when the Company was experiencing liquidity constraints
due to, among other things, certain non-recurring expenses. On August 23, 1993,
the United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court") entered an order confirming a Joint Plan of Reorganization
(the "Plan"). The Plan has been consummated and a final decree closing the
chapter 11 proceeding was entered by the Bankruptcy Court in January 1994. As a
result of the emergence from bankruptcy in fiscal 1994, AETG's consolidated
financial statements recorded forgiveness of debt of $11.1 million (net of
taxes) and certain other nonrecurring items. Accordingly, certain financial
information included elsewhere in this Offering Circular for fiscal 1994 and
prior periods is not directly comparable to financial information for fiscal
1995 and subsequent periods. Although management believes that circumstances
similar to that which gave rise to the chapter 11 proceeding will not recur, no
assurance can be given that such circumstances will not recur. See "Business --
General."
FLUCTUATION IN THE COST OF FUEL
The Company, which operates a fleet of approximately 3,806 vehicles,
consumes substantial quantities of fuel for its operations. The Company's fuel
costs for fiscal 1997 were approximately $6.8 million. Historically, the Company
has been unable to pass through increases in the price of fuel to the school
districts it services. The average fuel cost per gallon for the Company in
fiscal 1997 increased by approximately 19% compared to its average fuel costs in
fiscal 1996. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- General." There can be no assurance that future
market conditions will not result in further increases in the cost of fuel,
which increased costs may have a material adverse effect on the Company.
Historically, the Company has not entered into hedging contracts to protect it
from fluctuations in the cost of fuel, but it may seek to do so in the future.
No
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assurance can be given that such hedging contracts, if entered into, would
adequately protect the Company from fluctuating fuel costs.
LABOR RELATIONS
At September 30, 1997, approximately 72% of the Company's employees were
members of various labor unions and the Company was party to 17 collective
bargaining agreements, four of which, covering approximately 1,400 employees,
expire over the next three years and three of which, covering 184 employees of
the School Bus Division and 281 employees of the Paratransit Division have
already expired. Although no assurance can be given, the Company does not
believe that the expiration of such collective bargaining agreements will have a
material adverse effect on its labor costs. In the third quarter of fiscal 1997,
the Transport Workers Union of America won an election to unionize a subsidiary
of the Company that has approximately 390 employees. No assurance can be given
as to the outcome of negotiations with the representatives of the newly
unionized employees.
Labor contracts are not necessarily co-terminus with school bus
transportation contracts. Although the Company believes that historically it has
had satisfactory labor relations with its employees and their unions, the
Company's inability to negotiate acceptable union contracts in the future or a
deterioration of labor relations could result in strikes or work stoppages and
increased operating costs as a result of higher wages or benefits paid to union
members, which would have a material adverse effect on the Company. In addition,
labor shortages in selected markets could materially adversely affect the
Company's ability to enter or expand in such markets. Although the Company has
had no strikes or work stoppages in the last 10 years, there can be no assurance
that the Company will not have a strike or work stoppage in the future. See
"Business -- Employees."
POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES
The Company's operations are subject to various federal, state and local
environmental laws, ordinances and regulations, including those governing
discharges into the air and water, the storage, handling and disposal of solid
and hazardous wastes, the remediation of soil and groundwater contaminated by
petroleum products or hazardous substances or wastes, and the health and safety
of employees ("Environmental Laws"). The nature of the Company's operations and
the history of industrial uses and presence of asbestos at some of its
facilities expose the Company to the risk of liabilities or claims with respect
to environmental and worker health and safety matters. In connection with its
ownership and operation of its properties, the Company may be potentially liable
for costs in connection with Environmental Laws (including costs of
investigation and remediation), which costs could have a material adverse effect
on the Company. See "Business -- Environmental Matters."
GOVERNMENT REGULATIONS
The Company is required to comply with laws and regulations promulgated by
various federal and state regulatory agencies including, among others, state
motor vehicle agencies, state departments of education, the Federal Highway and
Safety Administration, the Occupational Safety and Health Administration and the
ADA. The Company cannot predict whether new laws or regulations relating to the
Company's transportation services will be adopted and, if adopted, no assurance
can be given that the implementation of such laws or regulations and any
additional compliance costs associated therewith will not have a material
adverse effect on the Company. See "Business -- Government Regulations."
INSURANCE COSTS; CLAIMS
The Company's cost of maintaining automobile liability, 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
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carriers for reasons unrelated to the Company's own claims experience. As an
operator of school buses and other high occupancy vehicles, the Company is
exposed to claims for personal injury or death and property damage as a result
of accidents. Under its present insurance coverage, the Company self insures for
the first $250,000 of losses per accident subject to a maximum aggregate of $3.4
million in claims per year. The Company is also responsible for the first
$250,000 of losses per claim subject to a maximum aggregate of $2.8 million in
claims per year for workers compensation claims. Generally, the Company's
insurance policies must be renewed annually. The Company's ability to continue
to obtain insurance at affordable premiums depends upon its ability to continue
to operate with an acceptable safety record. A significant increase in the
number of claims against the Company, the assertion of one or more claims in
excess of its policy limits or the inability to obtain adequate insurance
coverage at acceptable rates, or at all, could have a material adverse effect on
the Company. In addition, the running of statutes of limitations for personal
injuries to minor children typically is suspended during the children's legal
minority. Therefore, it is possible that accidents causing injuries to minor
children on school buses may not give rise to lawsuits until a number of years
later, which could also have a material adverse effect on the Company. See
"Business -- Risk Management and Insurance."
RISKS RELATED TO THE COMPANY'S GROWTH STRATEGY
The Company intends to grow by winning new school bus contracts (from other
contractors and as a result of privatizations) and through selective
acquisitions. The Company expects that there will be substantial competition for
new contract bidding and for prospective acquisitions. Such competition may
decrease the profitability associated with any new contract and increase the
cost of acquisitions. There can be no assurance that the Company will be able to
identify, acquire or profitably manage additional contracts. In particular,
there can be no assurance that the Company will be able to successfully
integrate the acquisition of Central into the Company without substantial costs,
delay or other operational or financial problems. In addition, there can be no
assurance that either school bus transportation contracts or acquired businesses
will achieve anticipated levels of revenues and earnings. See "Business --
School Bus Industry Overview."
Moreover, in order to expand its school bus fleet, the Company will be
required to invest significant capital. There can be no assurance that adequate
financing will be available to the Company on terms which will enable the
Company to acquire a sufficient number of new vehicles or make capital
expenditures necessary to implement any expansion of service. The Company's
inability to procure the financing necessary to acquire additional school buses
or make needed capital improvements could delay or prevent the Company from
achieving its growth objectives and would have a material adverse effect on the
Company. See "Business -- Fleet Management and Maintenance."
DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL
Domenic Gatto, who is the Chairman of the Board, President and Chief
Executive Officer of the Company and Thomas Denney, who is the President and
Chief Executive Officer of Central, are key to the management and direction of
the Company and Central, respectively. The loss of the services of Mr. Gatto or
Mr. Denney could have a material adverse effect on the Company, and there can be
no assurance that the Company would be able to find replacements for Mr. Gatto
or Mr. Denney with equivalent business experience and skills.
CONTROL OF THE COMPANY
The Board of Directors of the Company is comprised of seven directors, three
of whom are designated by Domenic Gatto and his brothers, Michael Gatto and
Patrick Gatto (collectively, the "Majority Stockholders"), and two of whom are
designated by the holder (the "Preferred Stockholder") of AETG's Series A
convertible preferred stock, par value $0.01 per share (the "Series A Preferred
Stock").
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There are two vacant seats on the Board of Directors, one of which is to be
designated by the Majority Stockholders and one of which is to be designated by
Jefferies.
The Majority Stockholders own a majority of the voting stock of AETG, which
owns all of the outstanding capital stock of the Company. Pursuant to a
stockholders agreement (the "Stockholders' Agreement") among the Majority
Stockholders and the Preferred Stockholder, the Board of Directors of AETG
consists of five directors, three of whom have been designated by the Majority
Stockholders and two of whom have been designated by the Preferred Stockholder.
The Series A Preferred Stock is currently convertible into 45% of the full
voting power of all of AETG's outstanding voting securities, assuming full
conversion thereof. Prior to a Default (as defined in the Stockholders'
Agreement), the Majority Stockholders have the power to direct the affairs of
the Company and to determine the outcome of all matters required to be submitted
to stockholders for approval; provided, that the approval of a supermajority of
the directors of each of AETG and the Company is required before the Company or
any of its subsidiaries may take any action with respect to any Significant
Transaction (as defined in the Stockholders' Agreement). Following any such
Default, the Preferred Stockholder is entitled to vote on stockholder issues as
though it had four times the vote it would have on conversion, and the Board of
Directors of each of AETG and the Company will be increased to a number so that
the ratio of the directors designated by the Preferred Stockholder is maintained
at a level of four to three. There can be no assurance that conditions will not
arise which will result in the Preferred Stockholder obtaining voting control of
AETG, and therefore of the Company.
Beginning on February 28, 1999, the Preferred Stockholder has the right,
subject to certain exceptions, to require AETG to redeem all of the Series A
Preferred Stock then outstanding. However, it is unlikely AETG will have
sufficient cash to make such redemption. In addition to any other rights the
Preferred Stockholder may have if AETG fails to make such redemption, the
Preferred Stockholder will obtain the right to control the following matters
relating to the capitalization of AETG and its subsidiaries (including the
Company and its subsidiaries): (i) the issuance of securities of the Company or
any of its subsidiaries to the public or in a private placement (provided that
it is fair to the stockholders overall); and (ii) the reduction, refunding or
defeasance of the offering of the Notes, or to obtain waivers thereunder
(provided that it is fair to the stockholders overall), in each case, to
facilitate the sale or redemption in whole or in part of the Series A Preferred
Stock then outstanding. See "Ownership of the Company -- Stockholders'
Agreement."
SUBSTANTIAL COMPETITION; INDUSTRY CONSOLIDATION
The school bus transportation industry is highly competitive. Contracts are
generally awarded pursuant to public bidding, where price is the primary
criteria for a contract award. The Company has many competitors in the school
bus transportation business including transportation companies with resources
and facilities substantially greater than that of the Company. Although the
Company has historically been competitive in the market for new contracts as
well as for acquisitions of other companies, there can be no assurance that the
Company will be able to compete effectively in the future. In particular, the
school bus transportation industry is undergoing significant consolidation which
has intensified the competition for contracts and acquisitions. From time to
time, the Company makes unsolicited inquiries with respect to possible
acquisitions and from time to time has received unsolicited inquiries with
respect to a possible acquisition of the Company. Whether such inquiries will
result in further communications, or ultimately, an acquisition, has depended
and will depend upon the facts and circumstances in each case. Any failure to
compete effectively could have a material adverse effect on the Company. See
"Business -- Competition."
LACK OF PUBLIC MARKET
The Old Notes have not been registered under the Securities Act and are
subject to significant restrictions on resale. The New Notes will be new
securities for which there is currently no public market. The Company does not
intend to list the Notes on any national securities exchange or to seek the
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admission thereof to trading in the National Association of Securities Dealers
Automated Quotation System. Jefferies has advised the Company that it currently
intends to make a market in the Notes. However, Jefferies is not obligated to do
so and any market making may be discontinued at any time without notice. In
addition, such market making activity may be limited during the Exchange Offer.
Although the Old Notes sold to qualified institutional buyers are eligible for
trading in the Private Offerings, Resale and Trading through Automatic Linkages
("PORTAL") market, there can be no assurance as to the development of any market
or the liquidity of any market that may develop for the Notes. If a trading
market does not develop or is not maintained, holders of the Notes may
experience difficulty in reselling the Notes or may be unable to sell them at
all. If a market for the Notes develops, any such market may be discontinued at
any time. If a public trading market develops for the Notes, future trading
prices of the Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's results of operations and the market
for similar securities. Depending on prevailing interest rates, the market for
similar securities and other factors, including the financial condition of the
Company, the Notes may trade at a discount from their principal amount.
SEASONALITY; FLUCTUATION IN QUARTERLY OPERATING RESULTS
The School Bus Division, which accounted for over 80% of the Company's
revenues for each of the last three fiscal years, is seasonal in nature and
generally follows the pattern of the school year, with sustained levels of
business during the months of September through June. As a result, the Company
has experienced a substantial decline in revenues during the months of July
through September. The Company's quarterly operating results have also
fluctuated due to a variety of factors, including variation in the number of
school days in each quarter (which is affected by the timing of the first and
last days of the school year, holidays, the month in which spring break occurs
and adverse weather conditions, which can close schools) and the profitability
of the Company's other divisions. In particular, historically the Company has
generated net losses during the first quarter of each fiscal year. Consequently,
interim results are not necessarily indicative of the full fiscal year and
quarterly results may vary substantially, both within a fiscal year and between
comparable fiscal years. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
SCHOOL BUS SALES INDUSTRY; RELIANCE ON BLUE BIRD
Due to the acquisition of Central, the Company is exposed to risks
associated with the school bus sales industry and to risks associated with being
dependent upon Blue Bird as its sole supplier of school and commercial buses.
Central is potentially liable for products liability claims regarding the
products it sells. The ultimate outcome of pending claims, or potential future
claims, against it cannot presently be determined and, because the amount of
Central's product liability insurance coverage varies from year to year, such
claims could have a material adverse effect on the Company. See "-- Insurance
Costs; Claims."
The Company's school bus sales business is substantially dependent upon Blue
Bird. Pursuant to distribution agreements between Central and Blue Bird (the
"Distribution Agreements"), Central has the non-exclusive right to distribute
specified Blue Bird school buses, commercial buses, and certain other products
in portions of New York State and all of New Jersey. During their respective
terms, Central is not permitted to represent any other supplier of goods
competitive to those covered by the Distribution Agreements. The Distribution
Agreements automatically renew on August 31 of each year for an additional
one-year period unless either party gives notice of cancellation on or before
the prior July 31. Blue Bird has the right to terminate the Distribution
Agreements upon a subsequent change of control of Central, which for the
purposes of such agreements, includes Mr. Denney ceasing to function as chief
operating officer of Central in control of its day to day operations. If such
distribution agreement was terminated, Central would lose the ability to sell
Blue Bird buses and other products and the Company expects that its costs for
obtaining additional buses would significantly increase.
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Central also sells Blue Bird buses to third parties. Central's third-party
sales are subject to risks associated with Blue Bird and the public perception
of its products. Adverse publicity or recalls affecting Blue Bird products could
have a material adverse effect on the Company. In addition, disruption in the
timely supply of Blue Bird products, whether due to market-induced shortages,
labor interruptions, manufacturing problems or other factors, could have a
material adverse effect on the Company. The following information with respect
to Blue Bird and bus chassis has been derived from Blue Bird's public filings.
In general, buses consist of a body mounted on a chassis, which includes the
bus engine. A substantial portion of the units sold by Central are "Type C"
buses for which Blue Bird does not manufacture a chassis. Because of the
importance of the Type C bus to Central, the ability of Blue Bird to obtain an
adequate supply of chassis could become critical to Company's ability to compete
in the school bus sales market. There are presently only three major chassis
manufacturers in the United States. In May 1991, Blue Bird and one of these
suppliers, General Motors Corporation ("GM"), entered into a chassis supply
agreement (the "GM Chassis Agreement"). If the GM Chassis Agreement were to be
terminated or if, for any reason, GM were to cease manufacturing chassis or
cease selling them to Blue Bird, there can be no assurance that Central would be
able to meet its demand for Blue Bird school buses.
School bus manufacturers' products must satisfy certain standards applicable
to vehicles established by the National Highway Traffic Safety Administration
(the "NHTSA") and certain products must also satisfy specifications established
by other federal, state and local regulatory agencies, primarily dealing with
safety standards applicable to school buses. In August 1996, the NHTSA announced
its determination that approximately 11,500 school buses were not in compliance
with federal requirements for fuel systems. Of the affected buses, 11,300 were
Blue Bird Type D models in which the chassis were manufactured by Blue Bird,
which failed crash tests when fuel tanks were punctured upon impact. In January
1997, Blue Bird issued a recall of the affected buses, and management of Blue
Bird estimated that the cost of the repairs required to be paid by Blue Bird to
bring the vehicles into compliance would not be material.
FAILURE TO EXCHANGE OLD NOTES
The New Notes will be issued in exchange for Old Notes only after timely
receipt by the Exchange Agent of valid tenders of such Old Notes. Therefore,
holders of Old Notes desiring to tender such Old Notes in exchange for New Notes
should allow sufficient time to ensure timely delivery. Neither the Exchange
Agent nor the Company is under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes for exchange. Old Notes that
are not tendered or are tendered but not accepted will, following consummation
of the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof. In addition, any holder of Old Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Notes will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer who receives New Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or any other trading activities, must acknowledge
that it will deliver a Prospectus in connection with any resale of such New
Notes. See "Plan of Distribution." To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes could be adversely affected. See "The Exchange Offer."
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Original Old Notes were sold by the Company on February 4, 1997 (the
"Closing Date"), and the Additional Old Notes on August 14, 1997, to Jefferies.
Jefferies subsequently resold the Original Old Notes and the Additional Old
Notes to "qualified institutional buyers" (within the meaning of Rule 144A under
the Securities Act ("Rule 144A")) and certain of the Original Old Notes to a
limited number of institutional "accredited investors" (within the meaning of
Rule 501 under the Securities Act) in transactions not requiring registration
under the Securities Act or applicable state securities laws, including sales
pursuant to Rule 144A. As a condition to the sale of the Old Notes, the Company,
the Guarantors and Jefferies entered into the Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, the Company agreed to (i) file
within 90 days after the Closing Date a Registration Statement with the
Commission with respect to the Exchange Offer and the New Notes; and (ii) use
its best efforts to cause such Registration Statement to become effective under
the Securities Act within 150 days after the Closing Date. If applicable law or
interpretations of the Commission do not permit the Company to effect the
Exchange Offer, or if certain Holders of the Notes do not receive freely
tradeable Notes pursuant to the Exchange Offer or if the Exchange Offer is not
consummated within 240 days after the Closing Date, the Company will use its
best efforts to cause to become effective a registration statement (the "Shelf
Registration Statement") with respect to the resale of the Notes and to keep the
Shelf Registration Statement effective until three years after the Closing Date.
The Registration Rights Agreement also provides that unless the Exchange Offer
would not be permitted by a policy of the Commission, the Company will have
commenced the Exchange Offer and will 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 New Notes in exchange for all
Notes tendered prior thereto in the Exchange Offer. A copy of the Registration
Rights Agreement has been filed as an exhibit to the Annual Report on Form 10-K
for the fiscal year ended June 30, 1997 voluntarily filed by the Company with
the Commission. This description of the Registration Rights Agreement is
qualified by reference to such exhibit. The Registration Statement, of which
this Prospectus is a part, is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement.
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 any and all Old Notes
validly tendered and not withdrawn prior to the Expiration Date. As of the date
of this Prospectus, $150,000,000 aggregate principal amount of the Old Notes is
outstanding. This Prospectus, together with the Letter of Transmittal, is first
being sent on or about , 1998, to all Holders of Old Notes known to
the Company. The Company's obligation to accept Old Notes for exchange pursuant
to the Exchange Offer is subject to certain conditions as set forth under "--
Certain Conditions to the Exchange Offer" below. The Company will issue $1,000
principal amount of New 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. See "Risk Factors --
Failure to Exchange Old Notes." However, Old Notes may be tendered only in
integral multiples of $1,000.
The New Notes will evidence the same debt as the Old Notes for which they
are exchanged, and are entitled to the benefits of the Indenture. The form and
terms of the New Notes are the same as the form and terms of the Old Notes
except that the New Notes have been registered under the Securities Act and
hence will not bear legends restricting the transfer thereof.
Holders do not have any appraisal or dissenters' rights under the New York
Business Corporation Law or the Indenture in connection with the Exchange Offer.
The Company intends to conduct the Exchange
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Offer in accordance with the applicable requirements of Regulation 14E under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
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. The Exchange Agent will act as agent for the tendering Holders
for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, such unaccepted tenders of Old Notes will be returned, without
expense to the Holder thereof, as promptly as practicable after the Expiration
Date.
Holders whose Old Notes are not tendered or are tendered but not accepted in
the Exchange Offer will continue to hold such Old Notes and will be entitled to
all the rights and preferences and subject to the limitations applicable thereto
under the Indenture. Following consummation of the Exchange Offer, the Holders
will continue to be subject to the existing restrictions upon transfer thereof
and the Company will have no further obligation to such Holders to provide for
the registration under the Securities Act of the Old Notes held by them. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Old Notes could be
adversely affected. See "Risk Factors -- Failure to Exchange Old Notes."
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 expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses; Solicitation of Tenders."
EXPIRATION DATE; EXTENSIONS AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1998, unless the Company extends the Exchange Offer, in which case
the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a release to the
Dow Jones News Services prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right at its sole discretion (i) to delay accepting
any Old Notes; (ii) to extend the Exchange Offer; (iii) to terminate the
Exchange Offer and not accept Old Notes not previously accepted if any of the
conditions set forth below under "-- Certain Conditions to the Exchange Offer"
shall have occurred and shall not have been waived by the Company, by giving
oral or written notice of such delay, extension or termination to the Exchange
Agent; or (iv) 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 to the Holders. 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 by means of a
Prospectus supplement that will be distributed to all Holders, and the Company
will extend the Exchange Offer for a period of five to 10 business days,
depending upon the significance of the amendment and the manner of disclosure to
Holders, if the Exchange Offer would otherwise expire during such five to 10
business day period. During any extension of the Expiration Date, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company.
The Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
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INTEREST ON THE NEW NOTES
Interest accrues on the Notes at the rate of 10 3/4% per annum and will be
payable in cash semi-annually in arrears on each February 1 and August 1, having
commenced on August 1, 1997. No interest will be payable on the Old Notes on the
date of the exchange for the New Notes and therefore no interest will be paid
thereon to the Holders at such time.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a beneficial owner thereof as set
forth below and the acceptance by the Company thereof will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and the Letter of
Transmittal. At September 30, 1997 substantially all of the Old Notes are held
of record by a nominee of the Depository.
Except as set forth below, a Holder who wishes to tender Old Notes for
exchange pursuant to the Exchange Offer must ensure that a properly completed
and duly executed Letter of Transmittal, including all other documents required
by such Letter of Transmittal, are received by the Exchange Agent at one of the
addresses set forth below under "Exchange Agent" on or prior to the Expiration
Date. In addition (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal; (ii) a timely confirmation
of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes into
the Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date; or
(iii) the Holder must comply with the guaranteed delivery procedures described
below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY, NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or the box
entitled "Special Delivery Instructions" in the Letter of Transmittal; or (ii)
for the account of an Eligible Institution (as defined below). In the event that
a signature on a Letter of Transmittal or a notice of withdrawal, as the case
may be, is required to be guaranteed, such guarantee must be by a firm which is
a member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or by a commercial bank or
trust company having an office or correspondent in the United States or
otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act (collectively, "Eligible Institutions"). If Old Notes are
registered in the name of a person other than the person signing the Letter of
Transmittal, the Old Notes surrendered for exchange must be endorsed by, or be
accompanied by, a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered Holder with the signature thereon guaranteed by an
Eligible Institution.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Notes, such Old Notes must be endorsed by
the registered Holder with signature guaranteed by an Eligible Institution or
accompanied by appropriate powers of attorney with signature guaranteed by an
Eligible Institution, in either case signed exactly as the name or names of the
registered Holder or Holders that appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or
24
<PAGE>
representative capacity, such person should so indicate when signing and, unless
waived by the Company, proper evidence satisfactory to the Company of its
authority so to act must be submitted with the Letter of Transmittal.
By tendering, each Holder will represent to the Company that, among other
things (i) the New Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder; (ii) neither the Holder nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes; (iii) if the Holder is not a
broker-dealer, or is a broker-dealer but will not receive New Notes for its own
account in exchange for Old Notes, neither the Holder nor any such other person
is engaged in or intends to participate in the distribution of such New Notes;
and (iv) neither the Holder nor any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of the Company. If the tendering
Holder is a broker-dealer that will receive New Notes for its own account in
exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, it will be required to acknowledge that
it will deliver a Prospectus in connection with any resale of such New 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.
DELIVERY OF DOCUMENTS TO THE DEPOSITORY OR THE COMPANY DOES NOT CONSTITUTE
DELIVERY TO THE EXCHANGE AGENT.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right in its
sole discretion to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any Holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation of the
terms and conditions of the Exchange Offer as to any particular Old Notes either
before or after the Expiration Date (including the Letter of Transmittal and
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with the tenders of
Old Notes for exchange must be cured within such reasonable period of time as
the Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall any
of them incur any liability for failure to give such notification.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "-- Certain Conditions to the Exchange Offer." For purposes of
the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, and if the Company has given oral or
written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, a properly completed and duly executed Letter of Transmittal
and all other required documents. If any tendered Old Notes are not accepted for
any reason set forth in the terms and conditions of the Exchange Offer or if
25
<PAGE>
certificates representing Old Notes are submitted for a greater principal amount
than the Holder desires to exchange, such unaccepted or non-exchanged Old Notes
will be returned without expense to the tendering Holder thereof (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such non-exchanged Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer promptly after the date of this Prospectus. Any financial
institution that is a participant in the Book-Entry Transfer Facility's systems
may make book-entry delivery of Old Notes by causing the Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's Automated Tender Offer Program ("ATOP") procedures for transfer.
However, the exchange for the Notes so tendered will only be made after timely
confirmation of such book-entry transfer of Notes into the Exchange Agent's
account, and timely receipt by the Exchange Agent of an Agent's Message (as such
term is defined in the next sentence) and any other documents required by the
Letter of Transmittal on or prior to the Expiration Date or pursuant to the
guaranteed delivery procedures described below. The term "Agent's Message" means
a message, transmitted by the Book-Entry Transfer Facility and received by the
Exchange Agent and forming a part of a Book-Entry Confirmation, which states
that the Book-Entry Transfer Facility has received an express acknowledgement
from a participant tendering Notes that are the subject of such Book-Entry
Confirmation that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that the Company may enforce such
agreement against such participant.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution; (ii) prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the Holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within five New York
Stock Exchange ("NYSE") trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificates of all physically tendered Old Notes,
in proper form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent; and (iii) the certificates
for all physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within five NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old
26
<PAGE>
Notes have been transmitted) specify the name in which such Old Notes are
registered, if different from that of the withdrawing Holder. If certificates
for Old Notes have been delivered or otherwise identified to the Exchange Agent,
then, prior to the release of such certificates, the withdrawing Holder must
also submit the serial numbers of the particular certificates to be withdrawn
and a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such Holder is an Eligible Institution. If Old Notes have
been tendered pursuant to the procedure for book-entry transfer described above,
any note of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such 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 exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the Holder thereof without cost to such Holder (or, in the case
of Old Notes tendered by book-entry transfer procedures described above, such
Old Notes will be credited to an account maintained with such Book-Entry
Transfer Facility for the Old Notes) 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 under
"Procedures for Tendering Old Notes" above at any time on or prior to the
Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the Expiration Date, there shall be threatened, instituted or pending any
action or proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental regulatory or
administrative agency or commission (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, or assessing or seeking any damages as a
result thereof; or (ii) resulting in a material delay in the ability of the
Company to accept for exchange or exchange some or all of the Old Notes pursuant
to the Exchange Offer; or any statute, rule, regulation, order or injunction
shall be sought, proposed, introduced, enacted, promulgated or deemed applicable
to the Exchange Offer or any of the transactions contemplated by the Exchange
Offer by any government or governmental authority, domestic or foreign, or any
action shall have been taken, proposed or threatened, by any government,
governmental authority, agency or court, domestic or foreign, that in the
reasonable judgment of the Company might directly or indirectly result in any of
the consequences referred to in clause (i) or (ii) above or, in the reasonable
judgment of the Company, might result in the holders of New Notes having
obligations with respect to resales and transfers of New Notes which exceed
those described herein, or would otherwise make it inadvisable to proceed with
the Exchange Offer.
If the Company determines in good faith that any of the conditions are not
met, the Company may (i) refuse to accept any Old Notes and return all tendered
Old Notes to exchanging Holders; (ii) extend the Exchange Offer and retain all
Old Notes tendered prior to the expiration of the Exchange Offer, subject,
however, to the rights of Holders to withdraw such Old Notes (See "-- Withdrawal
Rights"); or (iii) waive certain of such unsatisfied conditions with respect to
the Exchange Offer and accept all properly tendered Old Notes which have not
been withdrawn or revoked. If such waiver constitutes a material change to the
Exchange Offer, the Company will promptly disclose such waiver by means of a
Prospectus supplement that will be distributed to all Holders.
The foregoing conditions are for the benefit of the Company and may be
asserted by the Company in good faith regardless of the circumstances giving
rise to such condition or may be waived by the Company in whole or in part at
any time and from time to time in its discretion. The failure by the Company at
any
27
<PAGE>
time to exercise the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
Holders have certain rights and remedies against the Company under the
Registration Rights Agreement. Upon the occurrence of certain Registration
Defaults (as defined), the Company will pay liquidated damages to each Holder
during the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $0.05 per week per $1,000 principal
amount of Old Notes held by such Holder. Thereafter, the weekly liquidated
damages amount will increase to $0.10 per $1,000 principal amount of Old Notes
until such Registration Default is cured. All accrued liquidated damages will be
paid in the same manner as interest payments on the Old Notes on semi-annual
damages payment dates that correspond to interest payment dates for the Old
Notes. Following the cure of a Registration Default, the accrual of liquidated
damages will cease. The Company delayed commencing the Exchange Offer to
consummate the Central acquisition and is currently required to pay liquidated
damages to the Holders of the Old Notes.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal should be directed to the
Exchange Agent addressed as follows:
<TABLE>
<S> <C> <C>
BY REGISTERED OR CERTIFIED FACSIMILE TRANSMISSIONS: BY HAND OR OVERNIGHT
MAIL: DELIVERY:
(Eligible Institutions Only)
The Bank of New York (212) 571-3080 The Bank of New York
101 Barclay Street, 7E 101 Barclay Street
New York, New York 10286 TO CONFIRM BY TELEPHONE Corporate Trust Services
Window
Attn: Reorganization Section OR FOR INFORMATION CALL: Ground Level
New York, New York 10286
(212) 815-6333 Attn: Reorganization
Section--
Floor 7E
</TABLE>
DELIVERY 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.
FEES AND EXPENSES; SOLICITATION OF TENDERS
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be $ and
include fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees.
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 New 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 a transfer tax is imposed
28
<PAGE>
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 to the Exchange Agent, the amount of such transfer taxes will be
billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded by the Company at the same carrying value as
the Old Notes, which is face value, 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. The costs of the Exchange Offer will be amortized
over the term of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New 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. 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
intend to register the Old Notes under the Securities Act. The Company believes
that, based upon interpretations contained in no action letters issued to third
parties by the staff of the Commission, New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold or
otherwise transferred by Holders thereof (other than any such Holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such Holders' business and such Holders have no arrangement with any
person to participate in the distribution of such New Notes, and provided,
further, that each broker-dealer that receives New Notes for its own account in
exchange for Old Notes must acknowledge that it will deliver a Prospectus in
connection with any resale of such New Notes. See "Plan of Distribution." If any
Holder (other than a broker-dealer described in the preceding sentence) has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such Holder (i) could not rely on
the applicable interpretations of the staff of the Commission; and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. In addition, to comply
with the securities laws of certain jurisdictions, if applicable, the New Notes
may not be offered or sold unless they have been registered or qualified for
sale in such jurisdiction or an exemption from registration or qualification is
available and is complied with.
29
<PAGE>
THE OLD NOTES OFFERINGS
On February 4, 1997 the Company issued the Original Old Notes to the Initial
Purchaser, who resold the Original Old Notes to "qualified institutional buyers"
(within the meaning of Rule 144A) in transactions meeting the requirements of
Rule 144A and to a limited number of institutional "accredited investors"
(within the meaning of Rule 501 under the Securities Act) in transactions not
involving a public offering. The offering of the Original Old Notes was part of
a refinancing plan designed to extend the maturity of the Company's
indebtedness, provide the Company with additional financing and operating
flexibility, and enhance the Company's financial liquidity. The Company applied
the net proceeds of the offering of the Original Old Notes (i) to repay existing
indebtedness (approximately $73.8 million); (ii) to terminate certain operating
leases and purchase the vehicles and other assets leased thereunder
(approximately $5.9 million); (iii) to acquire a Medicaid business and purchase
additional vehicles to perform the Company's obligations thereunder; and (iv)
the remainder for general corporate purposes.
Upon consummation of the offering of the Original Old Notes, the Company
entered into the Revolving Credit Facility. See "Description of the Revolving
Credit Facility."
On August 14, 1997, the Company issued the Additional Old Notes to the
Initial Purchaser, who resold the Additional Old Notes to "qualified
institutional buyers" (within the meaning of Rule 144A) in transactions meeting
the requirements of Rule 144A. The offering of the Additional Old Notes was part
of a financing plan to fund the acquisition of Central. The Company applied the
net proceeds of the offering of the Additional Old Notes to (i) acquire Central;
and (ii) to fund the Company's entrance into the Los Angeles market.
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of September 30, 1997. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Unaudited Pro Forma Consolidated Financial Information," and
the respective notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
<S> <C>
($ IN MILLIONS)
Cash.......................................................................................... $ 6.3
--------
--------
Debt:
Revolving Credit Facility (1)............................................................... $ 1.6
Existing debt (2)........................................................................... 6.9
The Notes................................................................................... 150.0
--------
Total debt................................................................................ 158.6
Stockholder's equity.......................................................................... 25.9
--------
Total capitalization...................................................................... $ 184.5
--------
--------
</TABLE>
- ------------------------
(1) Borrowings of up to $30.0 million are available to the Company for working
capital and general corporate purposes, subject to the borrowing conditions
contained therein. See "Description of the Revolving Credit Facility."
(2) Consists of $4.7 million indebtedness secured by vehicles and $2.2 million
of notes and mortgages on real property acquired in connection with the
acquisition of Central.
30
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial data for each of the years in the
three-year period ended June 30, 1997 were derived from the audited historical
financial statements of the Company included elsewhere in this Prospectus. The
historical financial data for the year ended June 30, 1993 and for the
three-month periods ended September 30, 1996 and 1997 are unaudited, but in the
opinion of management include all material adjustments necessary for a fair
presentation of the financial position and the results of operations for those
periods. Operating results for the three-month period ended September 30, 1997
are not necessarily indicative of the results for the entire year ending June
30, 1998. The information contained in this table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical consolidated financial statements of the Company,
including the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
SEPTEMBER
YEAR ENDED JUNE 30, 30, 1997
------------------------------------------------------- ---------
1993 1994(1) 1995 1996 1997 1996
--------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
($ IN MILLIONS)
OPERATING DATA:
Revenues.............................................. $ 93.3 $ 101.5 $ 114.0 $ 142.6 $ 166.1 $ 25.2
Income (loss) from operations......................... 5.2 5.6 5.8 7.3 7.4 (2.8)
Income (loss) before extraordinary items.............. 1.1 1.9 1.5 1.4 (0.6) (2.5)
Net Income (loss) 1.1 12.3 2.6 1.4 (1.7) (2.5)
Ratio of earnings to fixed charges (2)................ 1.6x 1.7x 1.5x 1.3x -- --
BALANCE SHEET DATA (AT END OF PERIOD) (3):
Total assets.......................................... 63.1 68.9 83.0 104.4 154.4 118.2
Long-term obligations................................. 11.3 28.9 42.3 59.7 110.5 75.8
Total stockholder's equity............................ 2.5 25.5 28.1 29.5 27.6 27.1
<CAPTION>
1997(4)
-----------
<S> <C>
OPERATING DATA:
Revenues.............................................. $ 59.2
Income (loss) from operations......................... 0.8
Income (loss) before extraordinary items.............. (1.9)
Net Income (loss) (1.9)
Ratio of earnings to fixed charges (2)................ --
BALANCE SHEET DATA (AT END OF PERIOD) (3):
Total assets.......................................... 204.1
Long-term obligations................................. 158.6
Total stockholder's equity............................ 25.9
</TABLE>
- ------------------------
(1) In 1994, certain subsidiaries of the Company emerged from bankruptcy. See
"Risk Factors -- Reorganization." Net income for the year ended June 30,
1994 included $10.4 million extraordinary income pertaining to forgiveness
of indebtedness.
(2) For the year ended June 30, 1997, and for the three-month periods ended
September 30, 1996 and 1997, earnings were inadequate to cover fixed charges
by 1.2 million, $4.2 million and $3.2 million, respectively. Fixed charges
in 1993 and 1994 exclude $4.0 million and $0.7 million of contractual
interest not incurred due to the bankruptcy proceedings and in fiscal 1997
exclude write-off of unamortized deferred finance charges of $0.9 million as
a result of the refinancing transaction. See Note 8 of Notes to Consolidated
Financial Statements.
(3) The Company paid no dividends during any of the periods in the table.
(4) The financial information as of and for the three months ended September 30,
1997 reflect the acquisition of Central effective July 1, 1997.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE "SUMMARY
HISTORICAL AND PRO FORMA FINANCIAL INFORMATION," "UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION" AND THE HISTORICAL CONSOLIDATED FINANCIAL
STATEMENTS OF THE COMPANY, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN
THIS PROSPECTUS.
GENERAL
Atlantic is one of the largest providers of school bus transportation in the
United States. The Company has contracts with 63 school districts in New York,
Missouri, California, Pennsylvania, Connecticut and New Jersey. In addition to
the School Bus Division, the Company provides services to public transit systems
for physically and mentally challenged passengers through the Paratransit
Division, transportation for pre-kindergarten children and Medicaid recipients
through the Pre-K/Medicaid Operations, and express commuter line and charter and
tour bus services through the Coach Division. At September 30, 1997, Atlantic
had a fleet of 3,806 vehicles operating from 31 facilities. The Company
generated revenues of $166.1 million in the fiscal year ended June 30, 1997.
The School Bus Division accounted for 81.3%, 84.4% and 84.4% of the
Company's revenues for each of fiscal 1997, 1996 and 1995, respectively. The
Company's school bus transportation contracts have provided a relatively
predictable and stable stream of revenues over their terms, which range from one
to five years. Since 1979, Atlantic has achieved a contract renewal rate of
approximately 98%, which management believes is due to (i) its reputation for
passenger safety and providing efficient, on-time service; (ii) its
long-standing relationships with the school districts it services; (iii) the
preference of school districts to maintain continuity of service with their
current proven contractor rather than risk the uncertainty associated with a
replacement; and (iv) the disadvantage of prospective competitors, who generally
would have to make substantially greater investments than the Company in new
equipment and who may experience difficulty obtaining suitable parking and
maintenance facilities in Atlantic's primary markets, especially in the New York
greater metropolitan area.
The price per day per vehicle varies, depending upon a wide range of factors
including (i) vehicle type (standard school buses, minivans, or vehicles with
wheelchair lifts); (ii) the nature of service to be provided (transportation of
regular enrollment students or transportation of physically or mentally
challenged students); (iii) special requirements of a particular school district
concerning age of vehicles and/or upgrades on equipment; and (iv) the cost of
labor. Salaries and related labor costs are the most significant factors in the
Company's cost structure. In urban areas, particularly those with a strong union
presence, the cost of providing school bus transportation is substantially
greater than in suburban and rural areas, where unions are generally less
prevalent and salaries are lower. As a result, prices paid by school districts
vary accordingly. School Bus Division revenues have historically been seasonal,
based on the school year and holiday schedules. During the months of September
through June, the Company's fleet of school buses has been generally fully
utilized. Historically, during the summer months, only a portion of the
Company's school buses have been needed to fulfill the Company's summer
contracts for school and camp activities and special trips. The Company conducts
periodic maintenance and overhauls of its school vehicles during the summer
months, which increases costs during a season of lower revenues. See "Risk
Factors-- Seasonality; Fluctuation in Quarterly Operating Results."
The Paratransit Division which accounted for 11.4%, 8.3% and 5.3% of the
Company's revenues in fiscal 1997, 1996 and 1995, respectively, is Atlantic's
second largest and fastest growing division. The terms of the Company's
paratransit contracts range from one to five years. The contracts are awarded by
public transit systems through a public bidding or RFP process. The Company is
generally entitled to a specified charge per hour of vehicle service together
with other fixed charges. The method of contract compensation also varies. See
"Business -- Paratransit Division -- Contracts."
The Company's Pre-K/Medicaid Operations accounted for less than 6% of the
Company's revenues in each of the last three fiscal years. Pre-K contracts are
generally awarded to the lowest responsible bidder in a public bidding process.
Medicaid contracts are generally awarded through negotiations with private
32
<PAGE>
agencies. The Company generally services specific Pre-K bus routes during the
months of September through June, and services Medicaid routes throughout the
year. Pre-K and Medicaid contracts are generally paid based on number of
passengers per trip.
The Coach Division, which accounted for 3.4%, 3.9% and 4.9% of the Company's
revenues in fiscal 1997, 1996 and 1995, respectively, operates luxury coaches
for express commuter services and charter and tour contracts for individual
special events. The Company's contracts for coach services vary based on term
and length of the trip. Coach Division charter and tour revenues are generally a
function of the size and number of coaches utilized rather than the number of
passengers carried.
The principal elements of the Company's costs of sales are labor, fuel,
parts, vehicle insurance, equipment lease expense and rent. Historically, costs
of sales have varied directly in proportion to revenues, and approximately 88.2%
of fiscal 1997 costs of sales were variable costs consisting of direct labor
(primarily driver wages and related employment expenses), fuel costs and
maintenance costs. At September 30, 1997, approximately 72% of the Company's
employees were members of various labor unions and the Company was party to 17
collective bargaining agreements, four of which, covering approximately 1,400
employees, expire over the next three years, and three of which, covering 184
employees of the School Bus Division, and 281 employees of the Paratransit
Division have already expired. In the third quarter of fiscal 1997, the
Transport Workers Union of America won an election to unionize a subsidiary of
the Company that has approximately 390 employees. Management does not expect a
material increase in its labor costs as a result of such unionization, although
no assurance can be given as to the outcome of negotiations with the
representatives of the newly unionized employees. Although the Company believes
that historically it has had satisfactory labor relations with its employees and
their unions, the Company's inability to negotiate acceptable union contracts in
the future or a deterioration of labor relations could result in strikes or work
stoppages and increased operating costs as a result of higher wages or benefits
paid to union members, which would have a material adverse effect on the
Company. See "Risk Factors -- Labor Relations." The average fuel cost for the
Company has increased approximately 19% compared to its average fuel costs in
fiscal 1996. The Company spent approximately $6.8 million on fuel in fiscal
1997. See "Risk Factors -- Fluctuation in the Cost of Fuel." General and
administrative expenses include costs associated with the Company's headquarters
in Staten Island and terminal office and managerial salaries. In fiscal 1997,
the Company increased the size of its staff in its corporate headquarters to
accommodate the Company's growth. Management believes that it currently has
sufficient staff to support anticipated revenues levels. The above cost
increases are anticipated to be offset somewhat as the Company's business grows
and the Company realizes economies of scale by (i) spreading the cost of the
administrative staff and facilities over a larger revenue base; and (ii)
capturing savings in expenses such as vehicle insurance and vehicle parts and
purchases. In addition, the Company obtained a reduction of approximately $1
million in the initial scheduled premium for its workers' compensation coverage
for calendar 1997 compared to calendar 1996. Such reduction was due in part to
the Company's recent claims experience and to recent tort reform and managed
care initiatives in New York State, where most of the Company's employees work.
The Company's ability to permanently obtain the benefit of such premium
reductions is subject to the Company's future claims experience, which cannot be
predicted with certainty. If the Company's workers' compensation claims
experience is significantly adverse, the Company may be required to apply a
portion or all of its premium savings towards policy retentions and future
premiums could increase.
Commencing June 1995, the Company received five-year extensions on all 17 of
its New York Board of Education school bus transportation contracts. To receive
these extensions, the Company agreed to a reduction in its rates in fiscal 1996
and to a ceiling on rate increases in fiscal 1997 and 1998 not to exceed the
applicable Consumer Price Index ("CPI"). Thereafter, the contracts provide that
the Company will receive increases based solely upon the applicable CPI
increase.
33
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, THREE MONTHS ENDED SEPTEMBER 30
------------------------------------------------------------------ ------------------------------------------
1995 1996 1997 1996 1997
-------------------- -------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
($ IN MILLIONS)
Revenues.......... $114.0 100.0% $142.6 100.0% $166.1 100.0% $25.2 100.0% $59.2 100.0%
Gross profit...... 22.6 19.8 27.4 19.3 30.0 18.1 2.3 9.2 7.9 13.4
General and
administrative
costs........... 9.2 8.0 10.4 7.3 12.2 7.3 2.5 9.9 3.8 6.4
EBITDA(1)......... 13.4 11.8 17.0 11.9 17.8 10.7 (0.2) (0.8) 4.1 7.0
Depreciation and
amortization.... 7.6 6.7 9.7 6.8 10.4 6.3 (2.6) 10.2 3.3 5.6
Income (loss) from
operations...... 5.8 5.1 7.3 5.1 7.4 4.5 (0.8) (10.9) 2.8 0.1
Net interest
expense......... 3.1 2.7 5.1 3.6 8.7 5.3 1.5 5.9 4.1 7.0
Income (loss)
before
extraordinary
item............ 1.5 1.3 1.4 1.0 (0.6) (0.4) (2.5) (9.9) (1.9) (3.1)
Net income
(loss).......... 2.6(2) 2.3 1.4 1.0 (1.7) (1.0)(3) (2.5) (9.9) (1.9) (3.1)
</TABLE>
- ------------------------
(1) EBITDA represents income from operations before depreciation and
amortization. EBITDA is used in certain financial covenants in the Indenture
and is frequently used by securities analysts and is presented here to
provide additional information about the Company's operations. EBITDA is not
a measurement presented in accordance with generally accepted accounting
principles. EBITDA should not be considered in isolation; as a substitute
for net income, cash flow provided by operating activities or other income
or cash flow data prepared in accordance with generally accepted accounting
principles; or as a measure of the Company's profitability or liquidity.
EBITDA as used in this Prospectus may not be comparable to "EBITDA" as
reported by other companies.
(2) Includes extraordinary item, forgiveness of indebtedness of $1.1 million net
of $0 of taxes.
(3) Includes extraordinary item, loss on early extinguishment of debt ($0.6
million net of $0.4 million taxes) and write-off of unamortized deferred
finance charges ($0.5 million net of $0.4 million of taxes).
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996.
REVENUES. Revenues were $59.2 million for the three months ended September
30, 1997 compared to $25.2 million for the three months ended September 30,
1996, an increase of $34.0 million or 134.8%. This increase was due primarily to
(i) $28.1 million in revenues of Central as a result of the Central acquisition,
which was effective as of July 1, 1997; (ii) new contracts awarded to and
increases in service requirements of existing contracts in the Paratransit
Division of $1.3 million; (iii) the award of the Los Angeles contract which
added $0.7 million of revenues; (iv) $1.5 million of additional summer contract
revenues; (v) the acquisition of school bus routes in the State of New York in
May 1997 which added $0.7 million of revenues; (vi) the acquisition of a
PreK/Medicaid business in the State of New York which added $.05 million of
revenues; (vii) $1.1 million in contract rate increases and other billings. The
Company's revenues from school bus transportation are significantly curtailed
during the months of July and August due to school holidays while revenues from
the sale and service of buses have historically been significantly higher during
the first three months of the fiscal year. Therefore revenues and results for
the first fiscal quarter are not representative of annual operations.
GROSS PROFIT. Gross profit was $7.9 million for the three months ended
September 30, 1997 compared to $2.3 million for the three months ended September
30, 1996, an increase of $5.6 million or 242.2%. This increase was due primarily
to the increase in revenues described above and gross profit generated by
Central of $3.7 million. As a percentage of revenues, gross profit increased to
13.4% in the first quarter of 1997 from 9.2% in the first quarter of 1996. This
increase was primarily due to a decrease of 1.4% in payroll and benefit
expenses, a 1.0% decrease in parts and tire costs and a 1.5% decrease in lease
costs due to the termination of certain operating leases and the purchase of
assets leased thereunder.
34
<PAGE>
GENERAL AND ADMINISTRATIVE COSTS. General and administrative costs were
$3.8 million for the three months ended September 30, 1997 compared to $2.5
million for the three months ended September 30, 1996, an increase of $1.3
million or 50.1%. This increase was principally related to additional
administrative payroll and benefits related to infrastructure growth and $0.7
million in connection with the Central acquisition. However, general and
administrative costs as a percentage of revenues decreased to 6.4% from 9.9%.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense was $3.3 million for the three months ended September 30, 1997 compared
to $2.6 million for the three months ended September 30, 1996 an increase of
$0.7 million or 28.6%. This increase was due primarily to depreciation expense
of Central of $0.4 million and amortization of goodwill and other items in
relation to the acquisition of Central of $0.2 million.
INCOME (LOSS) FROM OPERATIONS. Income from operations was $0.8 million for
the three months ended September 30, 1997 compared to a loss of $2.8 million for
the three months ended September 30, 1996 an increase of $3.6 million. This
increase was due primarily to increased revenues and higher gross profit margins
offset in part by increases in general and administrative costs.
NET INTEREST EXPENSE. Net interest expense was $4.1 million for the three
months ended September 30, 1997 compared to $1.5 million for the three months
ended September 30, 1996, an increase of $2.6 million or 177.2%. This increase
was primarily due to the interest in connection with the Original Old Notes and
the Additional Old Notes.
NET LOSS. The Company generated a net loss of $1.9 million for the three
months ended September 30, 1997 compared to a net loss of $2.5 million for the
three months ended September 30, 1996 a decrease of $0.6 million.
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996
REVENUES. Revenues were $166.1 million in fiscal 1997 compared to $142.6
million in fiscal 1996, an increase of $23.5 million or 16.5%. This increase was
due primarily to (i) new contracts awarded to the Paratransit Division, which
added $8.0 million of revenues; (ii) $2.1 million in contract rate increases and
other billings; (iii) the acquisition of school bus routes in the State of New
York in October 1995 and May 1997, which added $2.4 million of revenues; (iv)
the award of a new contract in St. Louis, which was initiated in September 1996
and added $8.3 million; (v) $0.7 million of additional summer contracts; (vi)
$1.3 million of additional Pre-K/Medicaid billings; and (vii) additional runs
awarded in Philadelphia, which added $0.7 million in revenue.
GROSS PROFIT. Gross profit was $30.0 million in fiscal 1997 compared to
$27.4 million in fiscal 1996, an increase of $2.6 million or 9.5%. This increase
was due primarily to the increase in revenues described above. As a percentage
of revenues, gross profit decreased to 18.1% in fiscal 1997 from 19.3% in fiscal
1996. This decrease was primarily due to increases in fuel expenses of 0.7% and
in payroll and benefits expenses of 0.6%.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative costs were
$12.2 million in fiscal 1997 compared to $10.4 million in fiscal 1996, an
increase of $1.8 million or 17.3%. The increase was principally related to
additional administrative payroll costs of $0.6 million related to
infrastructure growth and an $0.8 million increase in the bad debt reserve.
However, general and administrative expenses as a percentage of revenues
remained constant at 7.3%.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$10.4 million in fiscal 1997 compared to $9.7 million in fiscal 1996, an
increase of $0.7 million or 7.0%. This increase was due to a net increase in
depreciation in connection with the purchase of new vehicles.
INCOME FROM OPERATIONS. Income from operations was $7.4 million in fiscal
1997 or 4.5% of revenues and $7.3 million in fiscal 1996 or 5.1% of revenues.
35
<PAGE>
NET INTEREST EXPENSE. Net interest expense was $8.7 million for the year
ended June 30, 1997 compared to $5.1 million for the year ended June 30, 1996,
an increase of $3.6 million or 71.4%. This increase was primarily due to $4.9
million of interest in connection with the Original Old Notes issued in the
recent financing activity.
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS. The Company generated a loss
before extraordinary items of $0.6 million in fiscal 1997 compared to income of
$1.4 million in fiscal 1996, a decrease of $2.0 million. This decrease was due
to the following factors: increases in interest expense, depreciation and
amortization, and general and administrative expenses, offset by an increase in
gross profit and increase in benefit from income taxes.
NET INCOME (LOSS). The Company generated a net loss of $1.7 million
(including extraordinary items consisting of loss on early extinguishment of
debt and write off of unamortized deferred financing charges of $0.5 million
each (net of $0.4 million each of taxes) for the fiscal year ended June 30, 1997
compared to $1.4 million net income (with no extraordinary items) for the fiscal
year ended June 30, 1996, a decrease of $3.1 million.
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995
REVENUES. Revenues were $142.6 million in fiscal 1996 compared to $114.0
million in fiscal 1995, an increase of $28.5 million or 25.0%. This increase was
due primarily to (i) the acquisition of certain routes in the State of New York
in May 1995 and October 1995, which added revenues of approximately $10.3
million; (ii) new school bus contracts in St. Louis, which added revenues of
$9.2 million; (iii) the acquisition of Raybern Bus Service, Inc. and related
companies in August 1995, which added revenues of $4.7 million; (iv) the award
of a new Paratransit Division contract in Kentucky, which added $3.4 million of
revenues; and (v) approximately $2.4 million of additional Paratransit Division
revenues in New York City. These increases were partially offset by a decrease
of approximately $1.2 million in revenues in the Company's Pre-K/Medicaid
Division due primarily to lost contracts and a further decrease of approximately
$0.3 million due to a reduction in other billings.
GROSS PROFIT. Gross profit was $27.4 million in fiscal 1996 compared to
$22.6 million in fiscal 1995, an increase of $4.9 million or 21.6%. This
increase was due primarily to the increase in revenues described above. As a
percentage of revenues, gross profit was 19.3% and 19.8% in fiscal 1996 and
fiscal 1995, respectively. Commencing June 1995, the Company received five-year
extensions on all 17 of its New York Board of Education school bus
transportation contracts. To receive these extensions, the Company agreed to a
reduction in its rates in fiscal 1996 and to a ceiling on rate increases in
fiscal 1997 and 1998. Thereafter, the contracts provide that the Company will
receive increases based upon the applicable CPI increase. Consequently, the
Company's gross margins in fiscal 1996 were lower than in fiscal 1995. See "--
General."
GENERAL AND ADMINISTRATIVE COSTS. General and administrative costs were
$10.4 million in fiscal 1996 compared to $9.2 million in fiscal 1995, an
increase of $1.3 million or 14.0%. This increase was due primarily to increased
corporate staff to accommodate growth in the Company's operations, although a
portion of this growth was absorbed by existing staff. As a result, general and
administrative expenses decreased as a percentage of revenues to 7.3% in fiscal
1996 from 8.0% in fiscal 1995.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$9.7 million in fiscal 1996 compared to $7.6 million in fiscal 1995, an increase
of $2.1 million or 27.6%. Depreciation increased $1.5 million due to the
increased level of capital expenditures primarily relating to school buses
acquired in connection with contracts in St. Louis, and amortization increased
$0.6 million due to the purchase of certain school bus route contract rights in
fiscal 1996 and amortization of deferred financing costs.
INCOME (LOSS) FROM OPERATIONS. Income from operations was $7.3 million or
5.1% of revenues in fiscal 1996 and was $5.8 million or 5.1% of revenues in
fiscal 1995.
36
<PAGE>
NET INTEREST EXPENSE. Net interest expense was $5.1 million in fiscal 1996
compared to $3.1 million in fiscal 1995, an increase of $2.0 million or 66.7%.
This increase was due primarily to interest expense in connection with (i)
acquisitions of new subsidiaries; (ii) the purchase of new vehicles; and (iii)
the term loan obtained in October 1994.
NET INCOME (LOSS). The Company generated net income of $1.4 million for
fiscal 1996 compared to $2.6 million (including extraordinary item, forgiveness
of indebtedness of $1.1 million net of $0 of taxes) for fiscal 1995, a $1.2
million decrease.
LIQUIDITY AND CAPITAL RESOURCES
The Company had historically financed both its working capital and capital
expenditures with short-term financing. As a result, the Company had been
subject to significant debt amortization and refinancing requirements which
strained the Company's cash flows, especially during the seasonal low periods.
The offering of the Original Old Notes in February 1997 was part of a
refinancing plan designed to extend the maturity of the Company's indebtedness,
provide the Company with additional financing and operating flexibility, and
enhance the Company's financial liquidity. In August 1997, the Company applied
the net proceeds of the offering of the Additional Old Notes to acquire Central
and to fund the Company's entrance to the Los Angeles market. Management
believes that the sale of the Old Notes together with its cash balance of $6.3
million and its $30 million Revolving Credit Facility of which the Company had
borrowing availability of $27.9 million as at September 30, 1997, will provide
the Company with significantly more liquidity than had previously been
available.
Management anticipates total capital expenditures of $23.9 in fiscal 1998 of
which approximately $18.9 million were made by September 30, 1997 which included
approximately $9.3 million for the purchases of buses for Los Angeles contracts
which were funded from the proceeds of the offering of the Additional Old Notes
and $9.6 million of capital expenditures for additional vehicles and equipment.
In connection therewith, the Company incurred additional purchase money
indebtedness of $6.4 million which included $2.2 million in connection with the
acquisition of Central.
With the current fleet size, management anticipates making approximately
$3.5 million of annual capital expenditures for regular replacement of vehicles
and approximately $2.5 million of annual maintenance capital expenditures.
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES. Net cash used in
operating activities was $3.0 million for the three months ended September 30,
1997 primarily due to a $1.9 million net loss, $3.0 million use of funds for
working capital, a $1.3 million increase in deferred income taxes and $0.3
million of other uses of funds. These uses of funds were partially offset by
$3.6 million of depreciation and amortization. Net cash provided by operating
activities was $4.9 million for fiscal 1997, primarily due to $10.9 million of
depreciation and amortization and a $1.1 million increase in other sources of
funds. This source of funds was offset in part by a $1.6 million net loss and a
$5.5 million use of funds for working capital. Net cash provided by operating
activities was $5.7 million for fiscal 1996, due primarily to net income of $1.4
million and depreciation and amortization of $9.7 million which were offset in
part by $4.7 million of funds used for working capital and $1.1 million of funds
transferred to restricted cash as collateral for a letter of credit.
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES. In July 1997 the
Company acquired Central for $21.5 million (net of $0.2 million cash acquired)
which was funded from the proceeds of the Additional Old Notes and its agreement
to issue a $2.2 million note and mortgage relating to certain real property. For
the three months ended September 30, 1997, the Company made $18.9 million of
capital expenditures to acquire additional vehicles and equipment and to
purchase assets previously leased. Of these capital expenditures $6.4 million
were directly financed and $9.3 million were financed from the proceeds of the
Additional Old Notes. In fiscal 1997, the Company made $26.3 million of capital
expenditures to acquire additional vehicles and equipment, purchase certain
assets previously leased, and for expansion of the Company's corporate
headquarters. Of these capital expenditures, $11.9 million were directly
financed. In
37
<PAGE>
addition, the Company purchased $5.0 million of marketable securities, which
securities are held by Atlantic North. In fiscal 1996, the Company made $20.6
million of capital expenditures, of which $17.4 million were directly financed.
In addition, the Company purchased $3.4 million of contract rights in fiscal
1996, of which $2.7 million were directly financed. The Company operates in a
capital intensive industry which has historically required significant capital
expenditures to attain additional bus routes and purchase additional buses to
service such routes. The Company's maintenance capital expenditures were
approximately $1.7 million in fiscal 1996.
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES. Net cash provided by
financing activities totaled $26.9 million for the three months ended September
30, 1997, due primarily to the net proceeds from the offering of the Additional
Old Notes plus $1.6 million borrowing under the Company's revolving line of
credit, offset by principal payments on borrowings in connection with the
acquisition of Central (payment of all of Central's debt), and $3.0 million in
deferred financing and organization costs. In addition the Company incurred $6.4
million of indebtedness to directly finance capital expenditures for the three
months ended September 30, 1997. Net cash provided by financing activities
totaled $31.2 million for the year ended June 30, 1997, due primarily to the net
proceeds from the offering of the Original Old Notes plus $8.5 million of
additional borrowing (including an increase of $2.9 million in the Company's
revolving line of credit), offset by $79.5 million of principal and debt
amortization requirement and $7.0 million in deferred financing and organization
costs. In addition, the Company incurred $11.9 million of indebtedness to
directly finance capital expenditures for the year ended June 30, 1997. In
fiscal 1996, net cash used in financing activities totaled $5.0 million due to
$12.1 million of principal repayments and debt amortization requirements, which
were offset by $8.1 million of additional borrowings, used to finance normal
working capital needs and $0.8 million of funds transferred to restricted cash.
In addition, the Company incurred $20.1 million of aggregate indebtedness to
directly finance capital expenditures and acquisitions of contract rights.
At September 30, 1997, the Company's total debt and stockholder's equity
were $158.6 million and $25.9 million, respectively. The Company's ability to
meet its debt service obligations and to reduce its total indebtedness will
depend upon its future performance, which will be subject to general economic
conditions, its ability to achieve cost savings and other financial, business
and other factors affecting the operations of the Company, many of which are
beyond its control. If the Company cannot generate sufficient cash flow from
operations in the future to service its debt, it may be required to refinance
all or a portion of such debt (including the Notes), sell assets or obtain
additional financing. There can be no assurance that any such refinancing or
asset sales would be possible or that any additional financing could be
obtained. See "Risk Factors -- Significant Leverage."
IMPACT OF YEAR 2000 ON THE COMPANY'S SYSTEMS
Management is in the process of determining whether all of the Company's
accounting and operational systems are year 2000 compliant. Management does not
expect the costs associated with any required conversions of systems to ensure
year 2000 compliance to be significant.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"), which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which supersedes SFAS No.
14, "Financial Reporting for Segments of a Business Enterprise," establishes
standards for the way that public enterprises report information about
38
<PAGE>
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of any enterprise about which separate
financial information is available that is evaluated regularly by management in
deciding how to allocate resources and in assessing performance.
Both SFAS Nos. 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.
QUARTERLY FINANCIAL INFORMATION; SEASONALITY
The table below sets forth unaudited summary financial information for the
Company for the last 13 quarters. This information has been prepared by the
Company on a basis consistent with its audited financial statements and includes
all adjustments that management considers necessary for a fair presentation of
the results for such quarters.
The Company's operations are seasonal in nature. Historically, the first
quarter of the Company's fiscal year has generated operating losses due to
significantly reduced revenues of the School Bus Division during the summer
months. The Company's school bus contracts generally resume in late August and
early September. The Company's quarterly operating results also fluctuate due to
a variety of factors, including variation in the number of school days in each
quarter (which is affected by the timing of the first and last days of the
school year, holidays, the month in which spring break occurs and adverse
weather conditions, which can close schools) and the profitability of the
Company's other divisions. Consequently, interim results are not necessarily
indicative of the full year and quarterly results may vary substantially, both
within a fiscal year and between comparable fiscal years. For example, in the
fourth quarter of fiscal 1997, in most of the Company's markets, the Company
experienced two additional revenue days and one less payroll day than the same
period in fiscal 1996. This disparity in the school calendar had a positive
impact on operating results in the fourth quarter of fiscal 1997. See "Risk
Factors -- Seasonality; Fluctuation in Quarterly Operating Results."
<TABLE>
<CAPTION>
FISCAL 1996
FISCAL 1995 ----------------------------------------------------
----------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1994 1994 1995 1995 1995 1995 1996 1996
----------- ----------- ------------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
($ IN MILLIONS)
Revenue.............. $ 15.8 $ 31.7 $ 32.9 $ 33.7 $ 18.9 $ 40.7 $ 41.6 $ 41.4
Income (loss) from
operations......... (2.7) 2.6 2.7 3.3 (2.8) 3.8 2.6 3.7
Net income (loss)
before
extraordinary
item............... (2.1) 1.0 1.2 1.4 (2.5) 1.6 0.8 1.5
EBITDA (1)........... (1.1) 4.4 4.6 5.5 (0.5) 6.4 5.2 5.9
<CAPTION>
FISCAL 1997
FISCAL 1998
-------------------------------------------------- -----------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT 30,
1996 1996 1997 1997 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue.............. $ 25.2 $ 45.0 $ 45.5 $ 50.1 $ 59.2
Income (loss) from
operations......... (2.8) 2.4 2.0 5.8 0.8
Net income (loss)
before
extraordinary
item............... (2.5) 0.5 (0.5) 1.9 (1.9)
EBITDA (1)........... (0.2) 5.2 4.7 8.1 4.1
</TABLE>
- ------------------------
(1) EBITDA represents income from operations before depreciation and
amortization. EBITDA is used in certain financial covenants in the Indenture
and is frequently used by securities analysts and is presented here to
provide additional information about the Company's operations. EBITDA is not
a measurement presented in accordance with generally accepted accounting
principles. EBITDA should not be considered in isolation; as a substitute
for net income, cash flow provided by operating activities or other income
or cash flow data prepared in accordance with generally accepted accounting
principles; or as a measure of the Company's profitability or liquidity.
EBITDA as used in this Prospectus may not be comparable to "EBITDA" as
reported by other companies.
Central's school bus distribution business is also seasonal in nature.
Approximately 49% of Central's annual sales have occurred in the quarter ended
September 30 each year, which is typical for the school bus sales industry. In
addition, Central's working capital needs have tended to increase during that
quarter in response to the higher seasonal sales volume and inventory is at its
highest during July and August prior to heavy seasonal school bus deliveries.
The Company believes the Central acquisition will partially offset the seasonal
effects of the Company's school bus operations, as Central's seasonal peak has
tended to occur during the months of July and August, which has been the
Company's seasonal low period.
39
<PAGE>
BUSINESS
GENERAL
Atlantic is one of the largest providers of school bus transportation in the
United States. The Company has contracts with 63 school districts in New York,
Missouri, California, Pennsylvania, Connecticut and New Jersey. In addition to
the School Bus Division, the Company provides services to public transit systems
for physically or mentally challenged passengers through the Paratransit
Division, transportation for pre-kindergarten children and Medicaid recipients
through the Pre-K/Medicaid Operations, express commuter line and charter and
tour bus services through the Coach Division. At September 30, 1997, Atlantic
had a fleet of 3,806 vehicles operating from 31 facilities. For the fiscal year
ended June 30, 1997, the Company generated revenues of $166.1 million,
approximately 81% of which was derived from the School Bus Division.
The Company's school bus transportation contracts have provided a relatively
predictable and stable stream of revenues over their terms, which range from one
to five years. Since 1979, Atlantic has achieved a contract renewal rate of
approximately 98%, which management believes is due to (i) its reputation for
passenger safety and providing efficient, on-time service; (ii) its
long-standing relationships with the school districts it services; (iii) the
preference of school districts to maintain continuity of service with their
current proven contractor rather than risk the uncertainty associated with a
replacement; and (iv) the disadvantage of prospective competitors who generally
would have to make substantially greater investments than the Company in new
equipment and who may experience difficulty obtaining suitable parking and
maintenance facilities in Atlantic's primary markets, especially in the New York
greater metropolitan area.
By capitalizing on the stable revenue stream provided by its existing
contracts and its reputation for passenger safety and service, Atlantic has
become one of the fastest growing major school bus companies in the United
States. This growth has resulted from (i) securing additional contracts from
existing and new customers (including replacing underperforming contractors);
(ii) expanding into new markets; and (iii) consummating a series of strategic
acquisitions.
Management believes that the proven strength and experience of its
management team and its reputation for passenger safety and service provide a
strong foundation for continued growth and increased cash flow. To capitalize on
the opportunities presented by the transportation industry, Atlantic's
management team focuses on the following areas: (i) expansion into new markets;
(ii) expansion into existing markets; (iii) growth of the Paratransit Division;
and (iv) focus on passenger safety and service.
Atlantic was founded in 1964 as a school bus company based in Staten Island,
New York. Domenic Gatto, Chairman of the Board, Chief Executive Officer and
President of the Company, commenced employment with the Company in 1973 and
purchased the Company in 1974, at which time the Company operated only 16 buses.
In 1979, the Company was awarded two major school bus transportation contracts
by the New York Board of Education, which substantially increased the Company's
revenues. These contracts, which were originally awarded for a period of three
years, have been extended successively through fiscal 2000. From 1982 to 1987,
the Company strengthened its presence in New York City through the acquisition
of 14 regional school bus transportation companies which, in aggregate,
contributed approximately $26.3 million of revenues in fiscal 1997. In 1986, the
Company won and purchased additional contracts in New York City, which also have
been extended successively through 2000, and which contributed revenues of
approximately $27.1 million in fiscal 1997. From 1986 to 1989, the Company
further strengthened its presence in New York City through the acquisitions of
four local contractors and expanded its operations to Nassau and Suffolk
counties on Long Island, New York, through a combination of acquisitions and
winning new contracts. From 1990 to 1995, the Company consummated five
additional acquisitions in the New York metropolitan area and three acquisitions
on Long Island, New York, which generated approximately $23.4 million of
revenues in fiscal 1997. In addition to the Company's expansion in the New York
greater metropolitan area, the Company extended its operations to Philadelphia
in 1993,
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<PAGE>
where it was the successful bidder for a new contract, which, when combined with
subsequent acquisitions in 1993 and additional new contracts received in 1996
and 1997, contributed approximately $9.8 million of revenues in fiscal 1997.
Continuing its strategy of expanding its operations outside New York City, the
Company established operations in St. Louis in 1995 and 1996 by winning
contracts, which contributed $17.1 million of revenues in fiscal 1997.
SCHOOL BUS INDUSTRY OVERVIEW
According to the most recently available industry source, an estimated 24
million children ride school buses each school day in the United States, at an
annual cost of approximately $12 billion. Approximately two-thirds of the
approximately 400,000 school buses used to transport these children are operated
by school districts, with the remaining one-third operated by over 5,000 private
contractors. Based on 1996 industry sources, Laidlaw Transit, Inc., a division
of Laidlaw, Inc., is the largest private school bus transportation contractor in
North America, followed by Ryder Student Transportation, a division of Ryder
System, Inc., Durham Transportation Inc. and the Company follow, based on fleet
size. Management believes that, if measured by revenues, it would be the third
largest school bus contractor because of its significant operations in
higher-priced urban markets, especially in New York City.
Management believes that three major trends, described below, affecting the
school bus transportation industry provide the Company with significant
opportunities for continued growth.
PRIVATIZATION. Privatization of student transportation is becoming an
increasingly attractive cost-cutting option to school districts. Management
believes that, by outsourcing school bus transportation and related regulatory
compliance activities, school boards can focus more of their efforts on
education. Consequently, since 1990, while the total number of school buses in
the industry overall has only grown by approximately 10%, the number of school
buses operated by the private sector has increased by over 60%. According to a
recent industry survey, 65 school districts converted portions of their
transportation operations to the private sector in the 1995-96 school year.
School bus transportation contractors, including the Company, are increasing
their efforts to persuade school boards that contracting for student
transportation services will conserve scarce public dollars while providing safe
and reliable service.
CONSOLIDATION. According to an industry source, in 1996, the 10 largest
contractors accounted for approximately 50% of school buses in the private
sector, with the remaining 50% reportedly operated by approximately 5,000
regional contractors. Continuing consolidation is occurring among private
contractors, driven largely by the inability of smaller companies to absorb the
costs of complying with increasingly stringent government regulations while
still providing commensurate levels of service at competitive prices.
EXPECTED INCREASE IN SCHOOL ENROLLMENT. The U.S. Department of Education
has projected a substantial increase in public school enrollment in the 10-year
period between 1996 and 2006. In addition, the 1996 school year is projected to
set a new national record for public school enrollment of 51.7 million students.
This growth, which is attributable to a rise in the birth rate since 1984, has
been termed the "baby boom echo." Through 2006, an estimated 6,000 additional
schools would be required to accommodate the projected increase in enrollment.
An estimated 33 states are expected to face substantial rising enrollments, with
a 14% increase in the west and a 6% increase in the south, while the north and
mid-west are estimated to remain relatively stable. An enrollment increase of 6%
has been projected in New York City. The school bus transportation industry will
need to grow accordingly to accommodate the expected increase in school
enrollment.
Management believes that resources required to effectively capitalize on the
above-mentioned industry trends favor larger school bus contractors like the
Company. In addition, management believes that the demand for school bus
transportation is generally insensitive to economic cycles and is fundamentally
strong, with industry sources projecting increases in public and private school
enrollment each year through 2006 from the record level projected in 1996.
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SCHOOL BUS DIVISION
The School Bus Division is Atlantic's largest division. The Company has
contracts to provide school bus transportation in 54 school districts located in
New York, Missouri, California, Pennsylvania, Connecticut and New Jersey. The
Company's revenues from school bus operations have increased at a compound
annual growth rate of 14.3%, from $90.3 million in fiscal 1994 to $135.0 million
in fiscal 1997.
SERVICES. The Company generally provides services for transportation of
open enrollment ("Regular Education") students through the use of standard
school buses, and transportation for physically or mentally challenged ("Special
Education") students through the use of an assortment of vehicles, including
standard school buses, passenger vans, and lift-gate vehicles, which are capable
of accommodating wheelchair bound students. In most jurisdictions serviced by
the Company, escorts are required to accompany drivers on Special Education
vehicles.
CONTRACTS. The Company's school bus transportation contracts are awarded by
school districts based on public bidding or request for proposal ("RFP")
process. The Company's school bus transportation contracts have provided a
relatively predictable and stable stream of revenues over their terms, which
range from one to five years. Since 1979, Atlantic has achieved a contract
renewal rate of approximately 98%. Compensation under school bus transportation
contracts is generally based upon a daily rate per vehicle which is established
either by public bidding or by proposal and negotiation with respect to RFP
contracts. Contracts in New York City provide for the payment of the daily
vehicle rate (which encompasses all costs of the Company, including driver and
escorts) for days of scheduled performance in accordance with the school
calendar and provides for payment in the event of school cancellation as a
result of inclement weather or other emergencies. The number of vehicles
required is determined by the school districts, initially pursuant to its bid
specifications and/or RFP, and is subject to change.
Commencing June 1995, the Company received five-year extensions on all 17 of
its school bus transportation contracts with the Board of Education of the City
of New York (the "New York Board of Education"). To receive these extensions,
the Company agreed to a reduction in its rates in fiscal 1996 and to a ceiling
on the increases in fiscal 1997 and 1998. Thereafter, the contracts provide that
the Company will receive increases based upon the applicable CPI increase.
The Company's school bus transportation contracts generally provide for
performance security in one or more of the following forms: performance bonds,
letters of credit and cash retainages. Under current arrangements, the Company
secures the performance of its New York Board of Education contracts through the
use of performance bonds plus cash retainages of 5% of amounts due to the
Company. In most instances, the Company has opted to satisfy its security
performance requirements by posting performance bonds. At September 30, 1997,
the Company had provided performance bonds aggregating $43.3 million. The
Revolving Credit Facility provides for the issuance of letters of credit. See
"Risk Factors -- Transportation Contract Requirements" and " -- Reliance Upon
and Concentration of School Bus Transportation Contracts with School Districts."
CUSTOMERS. The Company has longstanding relationships with many of the
school districts which it services. School districts with which the Company does
business generally appoint a business manager and/ or transportation supervisor
to oversee school bus transportation operations. Larger school districts have
separate bureaus or divisions which regulate and supervise the provision of
school bus transportation services. Passenger safety, timeliness and quality of
service are among the factors used by school bus transportation administrators
to evaluate the Company.
In the Company's experience, unless a school district is dissatisfied with
the services of a school bus transportation contractor, school districts tend to
extend existing contracts rather than solicit bids from potential replacement
contractors, unless applicable law or the terms of the contract otherwise
require. Management believes that replacing an existing contractor through a
bidding process generally has resulted in higher prices to districts than
contract extensions because of the significant start-up costs that a
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replacement contractor faces. Bidding also exposes a school district to
uncertainty in the quality of service which would be provided by a new
contractor.
Historically, school districts awarded school bus transportation contracts
through a public bidding process by which such contracts were required to be
awarded to the lowest responsible bidder, without regard to quality of service.
However, management believes that due, in part, to the poor performance of
certain low-priced school bus transportation contractors, school districts will
increasingly rely on a RFP process, which enables school administrators to
broaden the factors considered when awarding a contract. Factors such as
passenger safety, timeliness and quality of service, among others, are generally
considered under the RFP process. In 1996, the State of New York (where the
Company has its largest concentration of school bus transportation contracts)
adopted legislation which, for the first time, permits school districts in the
State of New York to select school bus transportation contractors through a RFP
process. Management believes that because of the reputation it has developed in
the school bus transportation industry, it is well-positioned to obtain
contracts which are awarded by the RFP process as well as by public bidding.
The Company's 17 contracts with the New York Board of Education have been
successively extended through fiscal 2000. The New York Board of Education
accounted for 46.1%, 49.8%, and 57.0% of the Company's revenues in fiscal 1997,
1996 and 1995, respectively. No other customer contributed greater than 7% of
the Company's revenues during these periods. See "Risk Factors -- Reliance Upon
and Concentration of School Bus Transportation Contracts with School Districts."
PARATRANSIT DIVISION
The Paratransit Division is Atlantic's second largest and fastest growing
division. The Paratransit Division's revenues have increased from $3.4 million
in fiscal 1994 to $19.0 million in fiscal 1997. Management believes the demand
for paratransit services in the United States will continue to grow over the
next several years. Pursuant to the Americans with Disabilities Act of 1990 (the
"ADA"), certain public transit systems are required to provide comparable
services to disabled persons who are unable to use standard public
transportation. The ADA required over 500 public transit systems in the United
States to implement fully operational paratransit systems by January 1997.
Because the ADA was enacted in 1990, the paratransit services industry is
relatively young, with most existing contracts having been awarded in the last
five years. The larger public transit systems in the United States rely
predominantly upon the private sector to perform paratransit services, while
approximately one-half of the small and medium size systems outsource
paratransit transportation services. Management believes many small companies
that have been providing paratransit services may be unable to fulfill the
complex service requirements of paratransit contracts, and thus many of the
contracts presently held by such operators may not be renewed. The Company has
gained substantial experience in satisfying the rigorous demands of such
contracts and plans to compete aggressively to obtain new paratransit contracts
in the next five years as contracts awarded expire. With the exception of
relatively minor contributions for some vehicle acquisition costs, the ADA
requirement to provide paratransit services was an unfunded mandate by the
federal government. An industry source estimates that the annual cost of
providing paratransit services in the United States is approximately $1 billion.
Better known national paratransit providers include Laidlaw Transit, Inc.,
Ryder ATE, a division of Ryder Systems Inc., Southeast Transit Management Inc.
and the Company. In addition, paratransit services are also provided by several
hundred smaller local paratransit companies and by local municipalities.
To achieve passenger safety and to satisfy paratransit contract
requirements, the Company has instituted a comprehensive driver training course
which encompasses defensive driving, passenger sensitivity, first aid and CPR
procedures, passenger assistance techniques and a comprehensive knowledge of
disabilities of the passengers which the Company transports. The Company has
also developed and implemented complex and comprehensive routing and scheduling
programs in order to provide its
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paratransit services in accordance with rapid response times which are
contractually mandated. Paratransit services are primarily funded by public
transit systems.
SERVICES. The Company's paratransit services are rendered based upon
advance call-in requests for transportation, which are generally scheduled by
the Company. At September 30, 1997, the Company had approximately 348 vehicles
consisting of full-size four-door sedan automobiles and lift-equipped vans to
service its paratransit transportation contracts. The Paratransit Division has
developed a substantial degree of expertise in developing and providing
transportation services required by its physically or mentally challenged
passengers in this developing segment of the transportation industry.
CONTRACTS. The terms of the Company's paratransit contracts range from one
to five years. The scope of services and contract requirements vary considerably
from one jurisdiction to another. The three general components of paratransit
transportation services are (i) providing the actual transportation services;
(ii) reserving passenger requests for service; and (iii) sorting and scheduling
passenger requests for service. Some of the Company's customers require the
Company to perform all three components of service while other customers perform
one or more of such functions themselves. Paratransit vehicles are either
provided by the transit agency or the Company depending upon the terms of a
particular contract. The Company is generally entitled to a specified charge per
hour of vehicle service. Paratransit users pay the Company a fixed amount per
trip determined by the local transit system governmental entity (which may be
equal to or based upon prevailing public transportation fees in the jurisdiction
in question), which is credited against the monthly contract price due from the
local transit system.
CUSTOMERS. The Company presently performs paratransit services under
contracts with public transit systems in New York City; Yonkers, New York;
Louisville, Kentucky; Atlantic City, New Jersey; and Bucks County and Montgomery
County, Pennsylvania. Management believes that its New York City Transit
Authority contract is one of the largest paratransit contracts awarded to date
in the United States.
PRE-K/MEDICAID OPERATIONS
The Company provides transportation for physically or mentally challenged
children between the ages of three and five, to and from pre-kindergarten
facilities located in the New York City metropolitan area. At September 30,
1997, the Company transported approximately 155 children each school day with
approximately 13 vehicles pursuant to contracts with the New York City
Department of Transportation. Each vehicle requires the presence of an escort
who is responsible to assist the children on and off the bus. Escorts are
employed and trained by the Company. The Company is compensated on a per child
basis at rates which were determined pursuant to public bidding. In September
1997, the Company returned five contracts utilizing 18 vehicles and transporting
187 children and elected to extend the balance of its contracts.
The Company also performs contracts with private, not-for-profit
organizations, which are funded under Medicaid, for the transportation of
physically or mentally challenged passengers to and from rehabilitation
facilities. At September 30, 1997, the Company utilized 84 vehicles in the
performance of these contracts and receives compensation based upon a daily rate
per person transported, which rates of compensation vary based upon ambulatory
and nonambulatory passengers.
The Company generated approximately 3.9% of its revenues in fiscal 1997 from
its Pre-K/Medicaid Operations.
COACH DIVISION
The Company provides express commuter, charter and tour bus transportation
services with a fleet of 32 luxury motor coaches and 15 mini coaches.
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For the year ended June 30, 1997, express commuter services were provided to
approximately 700 passengers from a "Park and Ride" facility (which is leased
from an affiliate company in AETG's entertainment business) in Staten Island,
New York to and from Manhattan on a daily basis. See "Certain Transactions."
Charter and tour bus operations include single day and multi-day charters
throughout the continental United States and Canada. In addition, the Company
operates scheduled line services between New York City and Atlantic City under
contractual arrangements with tour operators. Luxury coaches are generally
contracted for individual special events. The Company's contracts for coach
services vary based on duration and length of trip. This segment of the
Company's operations generated 3.4% of the Company's revenues in fiscal 1997.
REORGANIZATION
In March 1992, Atlantic Express Inc., the predecessor in interest to AETG,
and certain subsidiaries of the Company filed a voluntary petition requesting
relief from creditors under chapter 11 of the Bankruptcy Code. In August 1993,
the Bankruptcy Court entered an order confirming the Plan. The Plan has been
consummated and a final decree closing the chapter 11 proceeding was entered by
the Bankruptcy Court in January 1994. As part of the reorganization, on August
23, 1993, Atlantic Express Inc. (which operated in two industries:
transportation and entertainment), transferred all of its assets and liabilities
to AETG, which became the new parent company. On January 30, 1997, AETG
transferred all operating assets and liabilities pertaining to the
transportation operations to the Company, which became the parent company of the
companies operating in the transportation industry. A major cause of the chapter
11 filing was the seizure of the Company's principal bank by the Federal Deposit
Insurance Corporation on the maturity date of the Company's outstanding notes
due to such bank (and the consequent non-renewal of such notes) during a period
when the Company was experiencing liquidity constraints due to, among other
things, certain non-recurring expenses. The chapter 11 proceedings did not
adversely affect the Company's relationship with any of the school districts
which it serviced at the time of, or subsequent to, the chapter 11 proceedings.
All transportation contracts of the Company were performed without interruption
and have since been further extended by each of such school districts. Moreover,
the Company has not encountered difficulty in bidding for or negotiating
contracts with new school districts as a result of the chapter 11 proceedings.
See "Risks Factors -- Reorganization."
PREFERRED STOCKHOLDER
In February 1994, an investor group represented by Wafra Investment Advisory
Group, Inc. ("Wafra") purchased Series A Preferred Stock from AETG, in exchange
for $12.75 million in cash and common stock, no par value of AETG (the "Common
Stock"), valued at $2.95 million on the date of purchase. The Preferred Stock
represents 100% of the authorized preferred stock and, upon full conversion, 45%
of the issued and outstanding Common Stock. Wafra is a multi-disciplined
investment manager with over $1.3 billion of capital under management, $200
million of which is committed to direct equity investments. Prior to any such
conversion, all of the Common Stock is owned by the Majority Stockholders. See
"Ownership of the Company."
RECENT TRANSACTIONS
ACQUISITION OF CENTRAL. On August 14, 1997, the Company completed the
acquisition of Central, which became effective on July 1, 1997, for total
consideration of $26.5 million of cash less long-term indebtedness, which as of
June 30, 1997, was $4.8 million, and its agreement to issue a $2.2 million
mortgages and notes relating to certain real property. The Company funded the
acquisition of Central by using a portion of the proceeds from the sale of the
Additional Notes. See "The Old Notes Offerings."
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Central is the leading authorized distributor of Blue Bird school buses in
North America, serving the states of New York and New Jersey. The Company
believes Central has a greater than 45% market share for sales of school buses
in its distribution territory. In addition, Blue Bird is the leading
manufacturer of school buses in North America, with a reported 43% market share.
Central also currently operates 158 school buses for school districts in New
Jersey.
The Company believes that the Central acquisition will provide it with
significant synergistic opportunities, including an expanded customer base,
reduced capital expenditures and a reduction in the impact of seasonality on the
Company's financial results. For the year ended June 30, 1997 on a pro forma
basis, approximately 70% of Central's customer base consisted of school
districts in central and upstate New York and New Jersey that operate their own
school buses. The Company currently has minimal operations in those areas and
believes that the relationships gained through the Central acquisition will
enhance the Company's ability to capitalize on the potential privatization in
certain of these markets. If the acquisition of Central had occured on June 30,
1996, the Company believes that it would have reduced capital expenditure
requirements by approximately $1.9 million in the year ended June 30, 1997 by
purchasing buses through Central at more favorable prices. The Company also
believes the Central acquisition will partially offset the seasonal effects of
the Company's school bus operations, as Central's seasonal peak occurs during
the months of July and August, the Company's seasonal low period. The Company
intends to continue to operate the businesses of Central. Mr. Thomas Denney, the
President and Chief Executive Officer of Central since July 1978, will continue
in such positions with Central.
ENTRANCE INTO THE LOS ANGELES MARKET. In May 1997, the LAUSD awarded the
Company the L.A. Contract and in July 1997, a private school awarded an 18
vehicle contract to the Company. The L.A. Contract is a five-year contract, with
services commencing in September 1997. The entrance into the Los Angeles market
required $12.6 million of capital expenditures, including $2.9 million for the
purchase of real property, $8.5 million for the purchase of vehicles and $1.2
million for real property improvements. At September 30, 1997, the Company had
made a majority of these capital expenditures.
The Company believes that the Los Angeles market presents the Company with
significant expansion potential. This market consists of approximately 2,200
school buses, of which approximately 1,250 are contractor-operated. In addition,
the Company believes there are approximately 800 contractor-operated school
buses adjacent to the LAUSD and approximately 7,000 contractor-operated school
buses elsewhere in California. The contractor-operated market in Los Angeles is
currently serviced by five principal contractors, the largest of which maintains
an approximately 60% market share. The Company believes that the LAUSD desires
to increase the number of contractors in this market with additional major,
national school bus contractors such as the Company. To the extent the Company
is able to obtain additional school bus routes in the Los Angeles and adjacent
markets, the Company believes that it will have an opportunity to significantly
improve its EBITDA margins and improve its return on investment. These benefits
will result from operating leverage created by the Company's initial capital
expenditures and administrative infrastructure.
NEW PARATRANSIT CONTACTS. In July 1997, the Company was awarded the SEPTA
Contract, a three-year contract to provide paratransit services in Philadelphia,
Pennsylvania. Pursuant to the SEPTA Contract, SEPTA will provide the Company
with all of the required vehicles and, as a result, the Company will not need to
make significant capital expenditures to fulfill its obligations thereunder. In
May 1997, the Company was also awarded a six-month paratransit contract in
Montgomery County, Pennsylvania.
ACQUISITION OF SABELLA. On April 30, 1997, the Company acquired
substantially all of the assets of Sabella, a New York City school bus
contractor which currently operates 87 school bus routes, for $1.1 million. The
Company believes the financial performance of this acquired business can be
improved by taking advantage of other operational efficiencies.
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FOCUS ON PASSENGER SAFETY AND SERVICE
Management has developed a corporate culture focused on passenger safety and
service. Atlantic participates in the "Safe Bus" program, under which complaints
regarding school bus drivers' performance and safety are registered by an
independent party and forwarded to the Company for remedial action. Unlike many
of its competitors, the Company requires its drivers to wear standardized
uniforms, thereby reinforcing its professional image. In addition, all drivers
are required to attend periodic safety workshops and training programs, which
emphasize defensive driving and courteous behavior. Management believes that its
emphasis on passenger safety and service is a competitive advantage and a major
contributor to its success in winning new contracts.
FLEET MANAGEMENT AND MAINTENANCE
At September 30, 1997, the Company had a fleet of 3,806 vehicles and the
average age of the Company's fleet, exclusive of vehicles provided by SEPTA, was
6.4 years (6.9 years for school buses, which account for 62.1% of the Company's
fleet). School buses have an average useful life of approximately 16 years.
At September 30, 1997, the fleet was maintained by the Company's trained
mechanics at its 31 facilities. The Company has a comprehensive preventive
maintenance program for its equipment to minimize equipment down time and
prolong equipment life. Programs implemented by the Company include standard
maintenance, regular safety checks, lubrication, wheel alignments and oil and
filter changes, all of which are performed on a regularly scheduled basis by the
Company's mechanics.
The following is a breakdown of the Company's fleet of vehicles at September
30, 1997:
<TABLE>
<CAPTION>
LIFT/ SERVICE
RAMP AND
SCHOOL MINIVANS EQUIPPED SUPPORT
BUSES AND CARS VEHICLES COACHES VEHICLES TOTAL
------ -------- -------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Owned................................... 2,162 720 362 33 60 3,337
Leased.................................. 129 75 112 14 17 347
Total................................... 2,291 795 474 47 77 3,684
------ -------- -------- ------- --- -----
------ -------- -------- ------- --- -----
Average age (years)..................... 6.9 5.4 5.5 5.6 5.8 6.4
------ -------- -------- ------- --- -----
------ -------- -------- ------- --- -----
</TABLE>
In addition to the vehicles in the table above, the Company will operate 122
vehicles provided by SEPTA pursuant to the SEPTA contract.
The Company used $5.8 million of the net proceeds of the offering of the
Original Old Notes to terminate certain operating leases and purchase
approximately 230 related vehicles and other assets. Currently, the Company's
operating leases have terms which range from five to seven years and require
fixed monthly payments. The leases generally have fixed rates which are
negotiated on the lease origination date.
EMPLOYEES
At September 30, 1997, the Company had over 5,800 employees to provide
transportation services, consisting of approximately 4,240 drivers, 820 escorts
and 370 mechanics. In addition, there were approximately 410 employees in
executive, operations, clerical and sales functions. The Company's school bus
drivers and escorts are required to undergo background checks, drug and alcohol
testing and fingerprinting as a condition for employment on school buses. All
drivers are licensed to drive school buses and/or motor coaches in accordance
with federal and state licensing requirements.
The Company requires its drivers to complete a thorough and comprehensive
training process in addition to satisfying federal and state requirements. In
some states, such as New York, a special subclass
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of license is required for school bus drivers. The Company's paratransit drivers
are also required to complete special training. Drivers undergo a 20 hour basic
training course once a year and a two hour refresher class twice per year. In
addition, drivers are required to be fingerprinted and pass a defensive driving
test, as well as physical, oral and written tests. Further, all drivers must
pass a pre-employment drug test as well as random drug and alcohol tests during
the course of each year. Pursuant to federal and state law, each year the
Company is required to randomly test 50% of its drivers for drug use and 25% for
alcohol use.
At September 30, 1997, approximately 72% of the Company's employees were
members of various labor unions and the Company was a party to 17 collective
bargaining agreements, four of which, covering approximately 1,400 employees,
expire over the next three years and three of which, covering 184 employees of
the School Bus Division and 281 employees of the Paratransit Division have
already expired. In the third quarter of fiscal 1997, the Transport Workers
Union of America won an election to unionize a subsidiary of the Company that
has approximately 355 employees. Management does not expect a material increase
in its labor costs as a result of such unionization, although no assurance can
be given as to the outcome of negotiations with the representatives of the newly
unionized employees. See "Risk Factors -- Labor Relations." Management believes
that its relations with its employees are satisfactory. The Company has had no
strikes or work stoppages in the past 10 years.
At September 30, 1997, approximately 30% of the Company's school bus
drivers, escorts and mechanics were represented by Local 1181 of the Amalgamated
Transit Union, which primarily represents personnel rendering services on behalf
of the New York Board of Education. Labor agreements with Local 1181 require
contributions to the Local 1181 welfare fund and pension plan on behalf of
drivers, mechanics and certain escorts. All contracts awarded by the New York
Board of Education during the past 17 years contain employee protection
provisions and require continued contributions to the Local 1181 pension plan
and welfare fund for rehired employees opting to remain in such plan and such
fund. Pursuant to a plan amendment approved by the Pension Benefit Guarantee
Corporation, withdrawal liability for contributing employers to the plan, such
as the Company, is essentially eliminated, provided that withdrawal is based
upon the loss of New York Board of Education contracts and that the successor
contractor becomes a contributing employer to the plan.
Pursuant to the Central acquisition, the Company employs an additional 141
school bus drivers and seven escorts, and a staff of seven full-time mechanics
for its school bus contract operations. Central's drivers are paid an hourly
wage rate. At July 1, 1997, Central had 124 employees engaged in the school bus
sales business consisting of approximately 16 employees in executive, operations
and clerical functions, 14 employees engaged in sales, 88 full-time and
part-time mechanics and six employees engaged in other business-related
activities. None of Central's employees are members of labor unions and Central
is not party to any collective bargaining agreements. Management of Central
believes that its relations with its employees are satisfactory. Central has had
no strikes or work stoppages in its 22 year history.
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FACILITIES
The Company is headquartered in Staten Island, New York. Subsidiaries of the
Company, after giving effect to the Recent Transactions, provide transportation
services and sales from 31 facilities (of which six are owned, 22 leased and
three which are partially owned and partially leased) in seven states. The
facilities are utilized for bus storage, repair and maintenance and/or
administrative purposes. The following table outlines the facilities owned or
leased by the Company or its subsidiaries at September 30, 1997.
<TABLE>
<CAPTION>
SQUARE
AREA FACILITY LOCATION OWNERSHIP FOOTAGE TYPE OF OPERATION
- -------------------------- -------------------------- ----------- ---------------- --------------------------
<S> <C> <C> <C> <C>
New York.................. 7 North Street Owned 131,000 Coach
Staten Island
52 Bayview Ave. Leased 37,500 School Bus
Staten Island
141 East Service Road West Leased 300,250 Coach
Shore Expressway Staten
Island
46-81 Metropolitan Ave. Owned 203,000 School Bus/Paratransit
Ridgewood Pre-K/Medicaid
107-10 180th St. Jamaica Leased 221,000 School Bus
1752 Shore Parkway Leased 225,000 School Bus
Brooklyn
1380-86 Ralph Avenue Leased 186,840 School Bus
Brooklyn
Exterior St. Owned/ 177,000 School Bus
The Bronx Leased
c/o Somers Jr. High School Leased 87,120 School Bus
Route 202 Somers
870 Nepperhan Ave. Yonkers Leased 33,500 Paratransit
Gnarled Hollow Road Owned/ 128,763 School Bus
Setauket Leased
1575 Route 112 Leased 65,000 School Bus
Port Jefferson Station
Lawson Blvd. Owned/ 720,000 School Bus
Oceanside Leased
1620 New Highway Leased 161,172 School Bus
Farmingdale(1)
New York (cont.).......... 91 Baiting Place Road Leased 130,680 School Bus
Farmingdale
7765 Lakeport Rd. Owned(2) 372,337 Central-Sales
Chittenango
2926 Lakeville Road Avon Leased 6,000 Central-Repair Facility
New Jersey................ 2701 Fire Road Leased 12,000 Paratransit
Egg Harbor Township
2015 Route 206 Bordentown Owned(2) 217,824 Central-Sales
107 How Lane Leased 6,800 Central-School Bus
New Brunswick
230 Red Lion Road Leased 307,650 Central-School Bus
South Hampton
Pennsylvania.............. 3740 East Thompson St. Leased 54,425 School Bus/Paratransit
Philadelphia
6940 Norwitch Dr. Leased 2,000 School Bus/Paratransit
Philadelphia(1)
6971 Norwitch Dr. Leased 90,291 School Bus/Paratransit
Philadelphia
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
SQUARE
AREA FACILITY LOCATION OWNERSHIP FOOTAGE TYPE OF OPERATION
- -------------------------- -------------------------- ----------- ---------------- --------------------------
<S> <C> <C> <C> <C>
Connecticut............... 57 South St. Leased 78,408 School Bus
Ridgefield
Kentucky.................. 925 West Broadway Leased 42,385 Paratransit
Louisville
Missouri.................. 2711 South Second Street Owned 148,104 School Bus
St. Louis
5411 Brown Ave. Leased 208,696 School Bus
St. Louis
1808 So. 3rd St. Leased 115,200 School Bus
St. Louis
3675 Chouteau Avenue Leased 256,000 School Bus
St. Louis
California................ 201 W. Sotello St. Owned 158,973 School Bus
Los Angeles
</TABLE>
- ------------------------
(1) These leases are occupied on a statutory month-to-month basis.
(2) The Company has exercised its options to acquire ownership of these
properties.
RISK MANAGEMENT AND INSURANCE
The Company maintains various forms of liability insurance against claims
made by third parties for bodily injury or property damage resulting from
operations. Such insurance consists of (i) general liability insurance of $50
million per occurrence with no deductible against claims resulting from other
(e.g., non-automobile) liability exposures; (ii) automobile liability insurance
of up to $50 million per occurrence, subject to a $250,000 deductible per
occurrence and an aggregate annual deductible of $3.4 million; and (iii)
statutory workers' compensation and employers' liability insurance, subject to
an aggregate annual deductible of $2.8 million ($250,000 per occurrence). Beyond
the deductibles and per occurrence limits mentioned herein, the automobile
liability coverage provides indemnity for an unlimited number of occurrences and
the general liability coverage provides $50 million aggregate coverage per
location. The Company's insurance policies provide coverage for a one year term
and are, therefore, subject to annual renewal.
The Company self-insures its annual automobile and workers compensation
insurance deductibles through Atlantic North Casualty Company ("Atlantic
North"), a wholly owned captive insurance company chartered in Vermont. The
Company believes it is able to (i) reduce the premium expense paid to its third-
party insurance carriers and (ii) increase its investment income through the
retention and investment of premium income in excess of amounts paid under
claims in any given period. Atlantic North's total claims liability is partially
funded by premium income and receivables from the Company, which, in turn, are
limited to the amount of the combined deductibles on the Company's automobile
and workers compensation insurance policies (currently $6.2 million annually).
The Company's former automobile liability insurance carrier for the states
of New York, New Jersey and Pennsylvania has been declared insolvent by the
state departments of insurance for those states. Claims made under policies
issued by such carrier will be paid from property/casualty security funds
administered by the respective state departments of insurance. The Company,
which is in the initial phase of a review of all outstanding claims made during
the applicable policy periods (February 28, 1994 through February 28, 1997)
believes that there is sufficient coverage under the respective casualty
security funds to cover all outstanding claims. See "Risk Factors--Insurance
Costs; Claims."
The Company obtained a reduction of approximately $1 million in the initial
scheduled premium for its workers' compensation coverage for calendar 1997
compared to calendar 1996. Such reduction was due in part to the Company's
recent claims experience and to recent tort reform and managed care initiatives
in New York State, where most of the Company's employees work. The Company's
ability to permanently
50
<PAGE>
obtain the benefit of such premium reductions is subject to the Company's future
claims experience, which cannot be predicted with certainty. If the Company's
workers' compensation claims experience is significantly adverse, the Company
may be required to apply a portion or all of its premium savings towards policy
retentions and future premiums could increase.
In addition, the Company maintains catastrophic coverage of $20 million per
occurrence, for an unlimited number of occurrences, subject to a $100,000
deductible per occurrence. This insurance provides replacement cost coverage for
losses on the Company's fleet and insurance against business interruptions
resulting from the occurrence of natural catastrophes. The Company also
maintains property insurance for the replacement cost of all of its real and
personal property.
COMPETITION
The school bus transportation industry is highly competitive. The Company
competes on the basis of its reputation for passenger safety, quality of service
and price. Management believes it is competitive in each of these areas.
Contracts are generally awarded pursuant to public bidding, where price is the
primary criteria for a contract award. The Company has many competitors in the
school bus transportation business including transportation companies with
resources and facilities substantially greater than those of the Company. The
Company competes with Laidlaw Transit, Inc., a division of Laidlaw, Inc., the
largest private transportation contractor in North America, Ryder Student
Transportation, a division of Ryder System, Inc., the second largest company in
the industry and Durham Transportation Inc., in addition to other regional and
local companies. See "Risk Factors -- Substantial Competition."
ENVIRONMENTAL MATTERS
The Company's operations are subject to a broad range of Environmental Laws.
In addition, a number of the Company's facilities are located in metropolitan
areas where there is a long history of industrial and/or commercial use. The
Company is taking into account the requirements of such Environmental Laws in
the improvement, modernization, expansion and start-up of its facilities and
therefore has retained a consultant to implement a program to assure that
existing facilities comply with such requirements. As with most transportation
companies, the Company could incur significant costs related to environmental
compliance or remediation; these costs, however, most likely would be incurred
over a period of years. Compliance with Environmental Laws or more vigorous
enforcement policies of regulatory agencies, or stricter or different
interpretations of such laws and future regulatory action regarding soil or
groundwater, may require material expenditures by the Company.
Under various Environmental Laws a current or previous owner of real estate
or operations conducted thereon may be liable for the costs of removal or
remediation of certain hazardous substances or petroleum products on, under or
in such property, without regard to whether the owner or operator knew of, or
caused, the presence of the contaminants. The presence of, or failure to
properly remediate, such substances, may adversely affect the ability to sell or
rent such real estate or to borrow using such real estate as collateral. Persons
who generate, arrange for the disposal or treatment of, or dispose hazardous
substances may be liable for the costs of investigation, remediation or removal
of such hazardous substances at or from the disposal or treatment facility
regardless of whether such facility is owned or operated by such person.
Finally, the owner of a site may be subject to common law claims by third
parties based on damages and costs resulting from environmental contamination
emanating from a site.
Certain federal, state and local laws, regulations and ordinances govern the
removal, encapsulation or disturbance of asbestos-containing material ("ACM")
when such materials are in poor condition or in the event of building
remodeling, renovation or demolition. Such laws may impose liability for the
release of ACM and may provide for third parties to seek recovery from owners or
operators of real estate for personal injury associated with ACM. The Company
has not undertaken an environmental assessment or ACM survey at all of its
facilities. However, based on previous inquiries, the Company is aware that ACM
51
<PAGE>
is present at various facilities, some of which may be in a condition requiring
removal or encapsulation at this time.
Underground storage tanks ("USTs") are located at many of the Company's
properties. In the case of USTs operated by previous owner-operators, the
Company has not evaluated whether such USTs were closed in accordance with
applicable legal requirements. The Company has retained a consultant to assist
it in implementing a compliance program to assure that its USTs conform to
applicable legal requirements that become effective in 1998. The Company
estimates the costs of implementing such program will not exceed $500,000. In
addition, property owned and/or operated by the Company may be impacted by
offsite issues, such as leaking USTs or previous or current industrial
operations. Except in certain instances in connection with the removal of a UST,
the Company has not undertaken an analysis of the condition of the subsurface
soils at its properties.
In connection with its ownership and operation of its properties, the
Company may be potentially liable for costs in connection with the matters
discussed above (including costs of investigation and remediation), which costs
could have a material adverse effect on the Company. With respect to Central's
facilities, the Company has sought to reduce the impact of such costs by
obtaining certain representations and indemnities from the sellers of Central.
The indemnity covers environmental matters to the extent that such matters
exceed $200,000 and involve a maximum of $1,000,000. To be indemnified, the
Company must assert any claims within four years of the consummation of the
Central acquisition. The Company has no assurance that the sellers will perform
their indemnification obligations.
GOVERNMENT REGULATIONS
The Company is subject to a wide variety of federal, state and municipal
laws and regulations concerning vehicle standards and equipment maintenance;
qualification, training and testing of employees; and qualification and
maintenance of operating facilities. The Company's vehicles are subject to
federal motor vehicle safety standards established by the National Highway
Traffic Safety Administration ("NHTSA"). Specific standards are promulgated by
the NHTSA with regard to school buses pursuant to the School Bus Safety Act of
1974. The Company's vehicles are also subject to the laws and regulations of
each state in which it operates, which are often more stringent than applicable
federal requirements. For example, in New York State, in addition to federal
standards, regulations promulgated by the New York State Department of Motor
Vehicles and the New York State Department of Transportation ("NYSDOT") require
that school buses be equipped with high back seats, lefthand emergency door
exits, 16 gauge side panels and illuminated school bus signs. All school buses
and paratransit vehicles are required to be inspected twice annually by NYSDOT
inspectors in accordance with a rigorous set of standards covering each
mechanical component of the vehicles.
The Company's employees are subject to various federal and state laws and
regulations pertaining to driver qualifications, and drug, alcohol and substance
abuse testing. The Commercial Motor Vehicle Safety Act of 1986 requires drivers
of commercial vehicles, including school buses, motor coaches and paratransit
vehicles, to obtain a commercial drivers license. Many states have additional
licensing requirements for subclasses of drivers such as school bus drivers
and/or paratransit drivers. Under regulations enacted at the state and/or local
levels, the Company's school bus drivers and paratransit drivers are required to
complete certain minimum basic training and follow-up refresher classes
annually. Pursuant to regulations promulgated by the United States Department of
Transportation under the Drug Free Workplace Act of 1988, the Company's drivers
are required to undergo pre-employment drug and alcohol testing, and the Company
is required to conduct random testing for drug and/or alcohol abuse. Similar
drug and alcohol abuse testing is also required under various state laws. The
Company's operating and maintenance facilities for its School Bus Division,
Paratransit Division and Pre-K/Medicaid Operations are also required to be
maintained in accordance with regulations promulgated by various federal and
state agencies including departments of education, departments of motor vehicles
and state departments of transportation.
52
<PAGE>
LEGAL PROCEEDINGS
The Company's subsidiaries have been and are subject to claims for personal
injury or property damage, which are routine and incidental to transportation
operations. These claims are generally defended by counsel designated by the
Company's liability insurance carrier. The Company does not believe that any
such currently pending claims will have material adverse effect on the Company.
The Company is a plaintiff in a multi-party action against the New York
Board of Education. The action, which is pending in the Supreme Court of the
State of New York, New York County, concerns the method of calculation for
increases to the daily rate of compensation paid to the Company under contract
extension agreements. The New York Board of Education has claimed in preliminary
audits that transportation contractors, including the Company, received contract
payments in prior years which exceeded the amount to which the contractors were
entitled in accordance with contract rate adjustment procedures. Following the
commencement of the litigation, the Company and other school bus contractors
agreed that on a prospective basis, contractors would accept the lower contract
rate which the New York Board of Education calculated to be due (based upon
cumulative rate adjustments) and that the difference would be held in escrow by
the New York Board of Education. A favorable result in the pending action would
result in a prospective increase in the Company's daily rate of compensation and
the release to the Company of the funds presently held in escrow. An unfavorable
result would not affect the rates of payment which the Company is presently
receiving, but could result in a liability of up to $1.0 million to the New York
Board of Education for claimed overpayments for past years. The Company does not
believe that such pending litigation will have a material adverse effect on the
Company.
53
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the members of
the Board of Directors and executive officers of the Company. Directors serve
for a term of one year or until their successors are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------------- ------------- ---------------------------------------------------
<S> <C> <C>
Domenic Gatto...................................... 48 Chairman of the Board, President and Chief
Executive Officer
Michael Gatto...................................... 41 Executive Vice President, Secretary, Treasurer and
Director
Patrick Gatto...................................... 36 Executive Vice President and Director
Nathan Schlenker................................... 59 Chief Financial Officer
Noel Cabrera....................................... 38 Executive Vice President
Jerome Dente....................................... 52 Director of New York School Bus Operations
David Kessler...................................... 57 Vice President and Director of the Paratransit
Division
John Shea.......................................... 48 Director
Peter Petrillo..................................... 37 Director
</TABLE>
The Company has expanded its Board of Directors to seven seats consisting of
two directors designated by the Preferred Stockholder, three directors
designated by the Majority Stockholders, one director to be designated by the
Majority Stockholders and one director to be designated by Jefferies. Neither
the Majority Stockholders or Jefferies has yet designated a director to fill its
respective vacancy on the Board of Directors.
DOMENIC GATTO, CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER. Mr. Gatto has been President, Chief Executive Officer and Chairman of
the Board of the Company and AETG since their formations. Mr. Gatto, a Vietnam
veteran, began his career in the school bus business as a bus driver and has
been responsible for the development of all facets of the business of the
Company and AETG.
MICHAEL GATTO, EXECUTIVE VICE PRESIDENT, SECRETARY, TREASURER AND
DIRECTOR. Mr. Gatto has been Executive Vice President, Secretary, Treasurer and
a Director of the Company since its formation and has held the positions of Vice
President, Secretary, Treasurer and Director of AETG since 1982. He has been
employed in various capacities by AETG since 1979. Mr. Gatto oversees the
overall day to day operations of the Company's school bus transportation
terminals in the New York greater metropolitan area.
PATRICK GATTO, EXECUTIVE VICE PRESIDENT AND DIRECTOR. Mr. Gatto has been
Executive Vice President and a Director of the Company since its formation and
has held the positions of Vice President and Director of AETG since 1990 and has
been employed by AETG since 1982 in various capacities. Mr. Gatto oversees the
paratransit and maintenance operations of the Company and coordinates certain
facets of the Company's school bus operations in the New York greater
metropolitan area.
NATHAN SCHLENKER, CHIEF FINANCIAL OFFICER. Mr. Schlenker has been Chief
Financial Officer of the Company since its formation, and has held such position
at AETG since 1991. Prior to 1991 Mr. Schlenker was the Vice President of
Finance of Feuer Leather Corporation, an international leather manufacturer and
marketing firm. From 1973 until 1985, Mr. Schlenker was a partner of Ekstein,
Ekstein & Schlenker, a firm of certified public accountants.
NOEL CABRERA, EXECUTIVE VICE PRESIDENT. Mr. Cabrera has been Executive Vice
President of the Company since its formation, a Vice President of AETG since
1994 and Executive Vice President of AETG since July 1996. Mr. Cabrera joined
AETG in 1990 as a management analyst. He was previously employed as a consultant
for Manasia Enterprises, a New York based consulting firm, and as a project
manager for the Office of the President of the Republic of the Philippines with
respect to financing of industrial projects.
54
<PAGE>
JEROME DENTE, CHIEF OPERATIONS OFFICER. Mr. Dente was appointed Chief
Operations Officer in December 1997. From 1994 to December 1997, Mr. Dente was
the Director of New York School Bus Operations for the Company since 1994. Prior
to 1994 Mr. Dente served 28 years as a Transportation Officer in the United
States Army, achieving the rank of Colonel. Mr. Dente received a Master of
Science in Transportation Management from Florida Institute of Technology, a
Master of Arts in Strategic Studies from the U.S. Naval War College and a
Bachelors of Science from Widener University.
DAVID KESSLER, VICE PRESIDENT AND DIRECTOR OF THE PARATRANSIT DIVISION. Mr.
Kessler has been Vice President and Director of the Paratransit Division since
1994. He has been employed by AETG since 1989. Mr. Kessler received a Master of
Public Affairs/Master of Science in Engineering from Princeton University and a
Bachelors of Science in Engineering from Cornell University.
JOHN SHEA, DIRECTOR. Mr. Shea has been a director of AETG since February
1994 and the Company since its formation. Since 1991 he has been responsible for
merchant banking and direct equity investments at Wafra. From 1984 to 1991, Mr.
Shea was responsible for direct equity investments at Lambert Brussels Capital
Corporation. He is a director of CAPMAC Holdings Inc. and Capital Markets
Assurance Corporation.
PETER PETRILLO, DIRECTOR. Mr. Petrillo has been a director of AETG and the
Company since January 1997. Since January 1995, he has been a Vice President in
the merchant banking and direct equity investments group at Wafra. From January
1991 to December 1994, Mr. Petrillo was a partner at Claymore Partners Ltd., a
strategic and turnaround consulting firm.
All of the members of the Board of Directors and executive officers, other
than Messrs. Dente, Shea and Petrillo, were executive officers of the Company's
predecessors in March 1992, when certain subsidiaries of the Company filed a
voluntary petition requesting relief from creditors under chapter 11 of the
Bankruptcy Code. See "Risk Factors -- Reorganization." There are no family
relationships between any of the aforementioned persons, except that Messrs.
Domenic Gatto, Michael Gatto and Patrick Gatto are brothers.
DIRECTOR COMPENSATION AND ARRANGEMENTS
Directors who are employees of the Company or one of its subsidiaries or
affiliates of the Preferred Stockholder do not receive additional compensation
for serving as directors. It is currently contemplated that only one director of
the Company (the independent director of the Company to be designated by
Jefferies) will receive $25,000 as compensation for services as a director. See
"Ownership of the Company -- Stockholders' Agreement."
55
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Domenic Gatto which provides
for his continued employment with the Company as President, Chief Executive
Officer and Chairman of the Board of Directors until January 15, 2002, unless
earlier terminated, subject to extension by the Board of Directors for up to
three years. The agreement provides for an annual base salary at the rate of
$510,935 (effective January 15, 1997), subject to annual increases, commencing
on January 15, 1998, by a percentage equal to the percentage increase in the
Regional CPI (as defined) provided that such increase shall in no event be more
than 5% nor less than 3% of the base salary. In the event that the employment
agreement is not renewed by the Company, Mr. Gatto is entitled to severance pay
equal to six months of his base salary as of the date of his termination. The
employment agreement between AETG and Mr. Gatto will continue in effect, and has
been amended to provide that no compensation will be provided for the employment
of Mr. Gatto as President, Chief Executive Officer and Chairman of the Board of
Directors of AETG.
Michael Gatto and Patrick Gatto are each employed as Executive Vice
Presidents of the Company, and as Directors, and Michael Gatto is also employed
as Secretary and Treasurer of the Company pursuant to employment agreements
having terms expiring January 15, 2002, unless earlier terminated, subject to
extension by the Board of Directors for up to three years. The employment
agreements for Michael Gatto and Patrick Gatto include terms similar to the
employment agreement of Domenic Gatto, except that under each such agreement the
annual base salary is $340,252 effective as of January 15, 1997. The employment
agreements between AETG and each of Michael Gatto and Patrick Gatto will
continue in effect, and have been amended to provide that no compensation will
be provided for the employment of Michael Gatto and Patrick Gatto as Vice
President, Secretary, Treasurer, and Director of AETG and Vice President and
Director of AETG, respectively.
The Company employs Nathan Schlenker as Chief Financial Officer pursuant to
an employment agreement having a term commencing on January 15, 1997, and
expiring on January 15, 1998, unless earlier terminated, subject to extension by
the Board of Directors for up to three years. The agreement provides for base
salary of $191,227 per annum, subject to the same annual percentage increases as
provided for in the employment agreement of Domenic Gatto. Upon the expiration
of the employment agreement, Mr. Schlenker is entitled to severance pay in the
amount of $2,000 per month for 96 months, plus reimbursement for 60 months of
certain medical insurance costs, provided that the amount of such reimbursements
shall not exceed $3,000 per year. A previous employment agreement between AETG
and Mr. Schlenker, due to expire on February 28, 1998, has been terminated
effective January 15, 1997, by operation of the First Amendment to the
Stockholders' Agreement and by a separate consent to terminate signed by Mr.
Schlenker.
56
<PAGE>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1)
<TABLE>
<CAPTION>
FISCAL OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(2) SALARY BONUS COMPENSATION INCOME(5)
- ---------------------------------------------------------- ----------- --------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Domenic Gatto............................................. 1997 $ 486,755 -- $ 94,292 $ 3,193
President and Chief Executive Officer 1996 $ 467,578 -- $ 96,090(3) $ 3,750
Michael Gatto............................................. 1997 $ 324,150 -- $ 42,224 $ 3,050
Executive Vice President, Secretary and Treasurer 1996 $ 311,379 -- $ 40,208(4) $ 3,750
Patrick Gatto............................................. 1997 $ 324,150 -- $ 42,224 $ 2,850
Executive Vice President 1996 $ 311,379 -- $ 40,208(4) $ 3,750
Nathan Schlenker.......................................... 1997 $ 197,725 $ 17,000 -- $ 2,678
Chief Financial Officer 1996 $ 183,352 $ 2,000 -- $ 3,750
</TABLE>
- ------------------------
(1) There is no non-cash compensation in lieu of salary or bonus or other
long-term compensation awards or payouts or any other compensation payable
to the individuals named in the table. There is no applicable defined
benefit plan or actuarial plan under which benefits are determined, other
than under Section 401(k) of the Internal Revenue Code. See note (5).
(2) In accordance with Item 402(b) of Regulation S-K, information is presented
only for the Company's last two completed fiscal years.
(3) Includes (i) $25,800 for automobile allowance; (ii) $35,000 for life
insurance allowance; (iii) $6,516 for disability insurance; and (iv) $28,774
and $26,976 for vacation time not taken in 1996 and 1997, respectively.
(4) Includes (i) $17,208 and $19,224 for automobile allowance in 1996 and 1997,
respectively; and (ii) $23,000 for life insurance allowance.
(5) Representing contributions under Section 401(k) of the Internal Revenue
Code.
57
<PAGE>
OWNERSHIP OF THE COMPANY
AETG owns all of the Company's issued and outstanding capital stock. The
following table sets forth certain information with respect to the beneficial
ownership of the Common Stock and Series A Preferred Stock of AETG as of
September 30, 1997 by (i) each person who is known by the Company to
beneficially own more than 5% of the outstanding shares of Common Stock and
Series A Preferred Stock; (ii) each director of AETG; (iii) AETG's Chief
Executive Officer and the other executive officers listed in the Summary
Compensation Table above; and (iv) all current directors and executive officers
of AETG as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF ALL
NUMBER OUTSTANDING
TITLE OF OF PERCENTAGE VOTING
NAME(1) CLASS SHARES OF CLASS SECURITIES(2)
- ----------------------------------------------- ------------------------ ------------- ------------- -------------------
<S> <C> <C> <C> <C>
Domenic Gatto(3)............................... Common Stock 88 100.0% 55.0%
Michael Gatto(4)............................... Common Stock 25 28.4 15.6%
Patrick Gatto(5)............................... Common Stock 25 28.4 15.6%
Nathan Schlenker............................... -- -- -- --
Noel Cabrera................................... -- -- -- --
John Shea(6)................................... -- -- -- --
Peter Petrillo(6).............................. -- -- -- --
Busco Capital Inc.(7).......................... Series A Preferred Stock 72 100.0% 45.0%
All directors and executive officers of AETG as
a group (9 persons).......................... Common Stock 88 100.0% 55.0%
</TABLE>
- ------------------------
(1) Unless otherwise indicated, the business address of each beneficial owner is
c/o Atlantic Express Transportation Group Inc., 7 North Street, Staten
Island, New York 10302-1205 and each beneficial owner has sole voting power
and investment power (or shares such power with his spouse) with respect to
all shares of capital stock listed as owned by such beneficial owner.
(2) Under certain circumstances Busco Capital Inc. is entitled to vote on
stockholder issues as though it had four times the vote it would otherwise
have. See " -- Stockholders' Agreement."
(3) Includes 25 shares of Common Stock beneficially owned by Michael Gatto and
25 shares of Common Stock beneficially owned by Patrick Gatto, as to which
Domenic Gatto has sole voting power over the shares pursuant to irrevocable
proxies. See notes (4) and (5).
(4) Michael Gatto shares beneficial ownership of all of the shares shown as
being beneficially owned by him pursuant to an irrevocable proxy under which
Domenic Gatto has sole voting power as to such shares. See note (3).
(5) Patrick Gatto shares beneficial ownership of all of the shares shown as
being beneficially owned by him pursuant to an irrevocable proxy under which
Domenic Gatto has sole voting power as to such shares. See note (3).
(6) The business address of Messrs. Shea and Petrillo is c/o Wafra Investment
Advisory Group, Inc., 9 West 57th Street, New York, New York 10019.
(7) Busco Capital Inc. is represented by Wafra. The shares of Series A Preferred
Stock held by Busco Capital Inc. represent, upon full conversion, 45% of the
Common Stock. Busco Capital Inc.'s business address is Citco Building,
Wickhams Cay, P.O. Box 662, Road Town, Tortola, British Virgin Islands.
Holders of Series A Preferred Stock are entitled to one vote per share
subject to greater voting rights under certain conditions pursuant to which
the holders of Series A Preferred Stock may select a majority of the Board
of Directors. See " -- Stockholders' Agreement."
AETG PREFERRED STOCK AND COMMON STOCK
The AETG Certificate of Incorporation provides that AETG may issue 228
shares of Common Stock and 72 shares of Series A Preferred Stock. The holders of
the outstanding shares of Common Stock and Series A Preferred Stock vote
together, without regard to class, with each holder of outstanding shares of
Common Stock and Series A Preferred Stock being entitled to one vote for each
share of Common Stock or Series A Preferred Stock. The Series A Preferred Stock
may be converted into Common Stock at an initial conversion price of one share
of the Series A Preferred Stock for each share of Common Stock (subject to
adjustment in accordance with certain anti-dilution provisions). The Series A
Preferred Stock
58
<PAGE>
participates PRO RATA (as if converted to Common Stock) with the Common Stock
with respect to any cash dividends or distributions paid in shares of, or
options, warrants or rights to subscribe for or purchase shares of Common Stock.
So long as the Series A Preferred Stock shall remain outstanding, neither Common
Stock nor any other stock ranking junior to the Series A Preferred Stock shall
be redeemed, purchased or otherwise acquired for any consideration. In the event
of any liquidation, dissolution or winding up of AETG, before any payment or
distribution of its assets shall be made or set apart for the holders of Common
Stock or any other series or classes of stock ranking junior to the Series A
Preferred Stock, the holders of the Series A Preferred Stock shall be entitled
to receive $218,055.56 per share. AETG may require conversion of the Series A
Preferred Stock upon a public offering providing for at least $20 million in net
proceeds to AETG provided the per share issue price in such offering shall be
equal to or greater than the conversion price of the Series A Preferred Stock at
the time of the offering compounded at 30% annually from the date of purchase of
such stock and provided further that the holders of the Series A Preferred Stock
have the opportunity to sell 75% of their securities at such price.
Under the Stockholders' Agreement, if Domenic Gatto's employment agreement,
described above, is not renewed or if Domenic Gatto's employment is terminated
by the Company without cause (as defined), Domenic Gatto has the right, subject
to certain exceptions, to resell his shares of Common Stock to AETG for a
purchase price equal to the greatest of (i) $1.5 million; (ii) if such shares
are not then publicly traded, the fair market value of the shares as determined
by an appraiser; or (iii) if such shares are then publicly traded, the market
value of such shares. Such employment agreement includes certain non-competition
and non-solicitation covenants which are effective during the term of Domenic
Gatto's employment and for 24 months after his termination. The employment
agreements for Michael Gatto and Patrick Gatto include terms similar to the
employment agreement of Domenic Gatto except that the minimum purchase price of
the shares of Common Stock subject to the put right is $1.0 million.
STOCKHOLDERS' AGREEMENT
Pursuant to the Stockholders' Agreement, the Board of Directors of AETG
consists of five directors, three of whom have been designated by the Majority
Stockholders and two of whom have been designated by the Preferred Stockholder.
Prior to a Default (as defined in the Stockholders' Agreement), the Majority
Stockholders have the power to direct the affairs of the Company and to
determine the outcome of all matters required to be submitted to stockholders
for approval; provided, that the approval of a supermajority of the directors of
each of AETG and the Company is required before the Company or any of its
subsidiaries may take any action with respect to any Significant Transaction.
Following any such Default, the Preferred Stockholder is entitled to vote on
stockholder issues as though it had four times the vote it would have on
conversion, and the Board of Directors of each of AETG and the Company will be
increased to a number so that the ratio of the directors designated by the
Preferred Stockholder is maintained at a level of four to three.
"Significant Transactions" include, among other things, (i) the creation of
any additional classes of common stock or certain other securities; (ii) certain
transactions (including acquisitions outside of the ordinary course of business)
with a value of $3.5 million or more (except that, under certain circumstances,
such threshold may be lower); (iii) any amendment or modification of any
provision of AETG's or the Company's certificate of incorporation or by-laws;
(iv) certain extensions and any amendments or modifications of any employment
agreements between AETG or the Company and Domenic Gatto, Patrick Gatto, Michael
Gatto or Nathan Schlenker; and (v) any consolidation or merger of AETG or its
affiliates with any other entity in which AETG or its affiliates will not be the
controlling or surviving corporation, or the sale of all or substantially all of
the assets of AETG or its affiliates. In addition, the approval of all of the
directors appointed by the Majority Stockholders and the Preferred Stockholder
is required to amend AETG's certificate of incorporation or its by-laws. The
approval of a majority of disinterested directors is required under the
Stockholders' Agreement to approve any transaction between AETG and the Majority
Stockholders, the Preferred Stockholder, or an affiliate of either, except in
the
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case of the renewal of any employment agreements between AETG and Domenic Gatto,
Patrick Gatto, Michael Gatto and Nathan Schlenker, which may be approved by a
majority of directors present at a meeting of the Board of Directors.
The Preferred Stockholder also has the right, subject to certain exceptions,
to require AETG to purchase 100% of its shares of Series A Preferred Stock
commencing February 28, 1999 (subject to six months prior written notice) at a
price based upon the higher of (i) their proportionate share of the fair market
value of AETG appraised as a public company; (ii) if then publicly traded, the
valuation of AETG at market price; or (iii) the liquidation preference value of
such Series A Preferred Stock ($15.7 million). AETG at its option can pay the
price for the preferred stock in three annual installments, subject to a premium
for payments not made within a period of one year. In the event AETG is legally
precluded from redeeming the preferred stock as the result of insufficient
surplus, it is required to redeem such shares at the rate of 60% of its cash
flow. It is unlikely AETG will have sufficient cash to make such redemption. The
ability of the Company to pay a dividend to AETG is restricted by the Indenture.
See "Description of Notes -- Certain Covenants." In addition to any other rights
the Preferred Stockholder may have if AETG fails to make such redemption, the
Preferred Stockholder will obtain the right to control certain matters relating
to the capitalization of AETG and its subsidiaries (including the Company and
its subsidiaries), which right includes matters relating to repayments of the
Notes. See "Risk Factors -- Control of the Company."
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CERTAIN TRANSACTIONS
The Company's Coach Division is operated through its wholly owned
subsidiary, Atlantic Express Coachways, Inc. ("Coachways"), which leases "Park &
Ride" and administrative facilities from Showplace Bowling Center, Inc.
("Showplace"), a wholly owned subsidiary of AETG which is engaged in the
entertainment business. The administrative facilities consist of an office and
ticket sales facilities. The lease also provides for use of parking facilities
for commuters who purchase express tickets on Coachways' express bus service
between Staten Island and Manhattan in New York City. The lease, which is for a
term of 10 years, with two five-year renewal options, commenced July 1, 1995 for
an annual base rental of $180,000. The Company believes that the rental reflects
the reasonable market value for the lease.
Staten Island Bus, Inc., a wholly owned subsidiary of the Company, leases a
facility from Dom-Rich Associates, Inc., a wholly owned subsidiary of AETG. The
lease, which is for a term of five years, with two five-year renewal options,
commenced January 1, 1997 for an annual base rental of $48,000. The Company
believes that the rental reflects the reasonable market value for the lease.
Certain of the subsidiaries of AETG which make up its entertainment business
were collectively indebted to the Company in the amount of $4.9 million as of
September 30, 1997 (the "Affiliate Loan"). Such indebtedness resulted from
numerous intercompany loans among the various subsidiaries of AETG prior to the
formation of the Company. The Affiliate Loan is evidenced by a note accruing
interest, payable at maturity at 6.8%, commencing January 1, 1997 until maturity
in the principal amount of $4.6 million payable on July 1, 2004.
Pursuant to the Stockholders' Agreement, Wafra is entitled to receive an
annual management fee from AETG equal to (i) $229,503, subject to the same
percentage adjustment, on an annual basis, as the average of the two highest
salaries paid by the Company to its employees (other than Domenic Gatto); plus
(ii) $120,000. The management fee is payable in equal monthly installments of
$29,126, subject to the foregoing adjustments. Wafra is under common control
with the Preferred Stockholder.
In fiscal 1996, the Company received management fees of $255,000 from
affiliated companies. Such fees represented the affiliated companies'
proportionate share of managerial accounting and legal expenses financed by the
Company. The Company received no such management fees in fiscal June 30, 1997
At September 30, 1997, the Company had amounts receivable from AETG and
another affiliate of the Company of $235,302. Such amounts arose as a result of
advances to these companies from the Company.
In July 1997, Central entered into two five-year leases with Mr. Denney and
a former shareholder of Central to lease the real property which serves as the
primary operating facilities of Central in New York and New Jersey. Also in July
1997, the Company, Mr. Denney and the same former shareholder of Central agreed
to enter into two five-year options to purchase such property from Mr. Denney
and such other shareholder of Central for a purchase price of $2.2 million
which, upon exercise of such options, would be amortized over 15 years with a
five-year balloon paymentsecured by a purchase money note and mortgage on such
property. The Company exercised the options in August 1997.
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DESCRIPTION OF THE REVOLVING CREDIT FACILITY
A COPY OF THE REVOLVING CREDIT FACILITY HAS BEEN FILED AS AN EXHIBIT TO THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. THE FOLLOWING
DESCRIPTION IS A SUMMARY OF THE MATERIAL TERMS OF THE REVOLVING CREDIT FACILITY,
WHICH SUMMARY IS QUALIFIED BY REFERENCE TO SUCH EXHIBIT.
The Company and the Restricted Subsidiaries entered into the $30.0 million
Revolving Credit Facility with Congress Financial Corporation (the "Bank").
Borrowings under the Revolving Credit Facility are available for working capital
and general corporate purposes, including letters of credit, subject to the
borrowing conditions contained therein.
The Revolving Credit Facility is secured by first priority liens on the
cash, accounts receivable, inventory, general intangibles and documents and
instruments related thereto of the Company and its Restricted Subsidiaries.
Under the terms of the Revolving Credit Facility, each of the Borrowers (as
defined in the Revolving Credit Facility) has guaranteed the obligations of the
other Borrowers and each Subsidiary (as defined in the Revolving Credit
Facility) of the Company, other than Atlantic North, has guaranteed the
obligations of all Borrowers.
The Revolving Credit Facility expires three years from the Closing Date,
unless extended. The interest rate per annum applicable to the Revolving Credit
Facility will be the prime rate, as announced by CoreStates Bank N.A., plus
0.75% or, at the Company's option, the adjusted Eurodollar rate (as defined)
plus 2.75% and provides for a one-time 0.25% reduction in rates upon the Company
reaching certain profitability levels. The Company is required to pay certain
fees in connection with the Revolving Credit Facility, including but not limited
to an unused line fee of 0.375% on the undrawn portion of the first $22 million
of the revolving credit commitment.
The Revolving Credit Facility contains negative covenants that restrict the
Borrowers from taking various actions and that require that the Borrowers
achieve and maintain certain financial covenants. The Revolving Credit Facility
includes covenants relating to limitations on mergers or consolidations,
indebtedness, investments, payment of dividends and redemptions, affiliate
transactions, ERISA, and certain corporate activities.
The Revolving Credit Facility contains customary events of default,
including nonpayment of principal, interest or fees, violation of covenants,
material inaccuracy of representations or warranties, defaults under certain
other indebtedness, bankruptcy events, material adverse judgments and changes of
control.
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DESCRIPTION OF NOTES
GENERAL
The Old Notes were issued pursuant to the Indenture among the Company, the
Guarantors and The Bank of New York, as trustee (the "Trustee"). The New Notes
will also be issued pursuant to the Indenture. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
following summary of certain provisions of the Indenture and the Collateral
Agreements among the Company and the Guarantors does not purport to be complete
and is qualified by reference to the Indenture and the Collateral Agreements
including the definitions therein of certain terms used below. The Indenture and
the Collateral Agreements are filed as exhibits to the Registration Statement of
which this Prospectus is part. The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions."
The Notes will be senior secured obligations of the Company and rank senior
in right of payment to all subordinated Indebtedness of the Company and PARI
PASSU in right of payment with all senior Indebtedness.
The Notes will be effectively subordinated to all other senior secured
indebtedness of the Company and its Subsidiaries, including indebtedness under
the Revolving Credit Facility, to the extent of the assets securing such debt.
As of September 30, 1997, the Company had $8.6 million of secured indebtedness.
The Notes will be issued in registered form, without coupons, in
denominations of $1,000 and integral multiples thereof.
PRINCIPAL MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $150,000,000 and will
mature on February 1, 2004. Interest on the Notes will be payable semi-annually
on February 1 and August 1 of each year, commencing on August 1, 1997, to
holders of record on the immediately preceding January 15 and July 15,
respectively. The Notes will bear interest at 10 3/4% per annum. Interest on the
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from the Issue Date. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months. The Notes will be
payable both as to principal and interest at the office or agency of the Company
maintained for such purpose within The City of New York or, at the option of the
Company, payment of interest 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. Until otherwise designated by the Company, such office or agency will be
the office of the Trustee maintained for such purpose. If a payment date is a
Legal Holiday, payment may be made at that place on the next succeeding day that
is not a Legal Holiday, and no interest shall accrue for the intervening period.
REDEMPTION
The Notes are not redeemable at the Company's option prior to February 1,
2001. Thereafter, the Notes will be subject to redemption 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 thereon, if any, to the
applicable date of redemption, if redeemed during the 12-month period beginning
on February 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------- -----------
<S> <C>
2001.................................................................. 105.375%
2002.................................................................. 102.688%
2003 and thereafter................................................... 100.000%
</TABLE>
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Notwithstanding the foregoing, at any time or from time to time prior to
February 1, 2000, the Company may, at its option, redeem up to one-third of the
aggregate principal amount of the Notes, at a redemption price of 110.75% of the
principal amount thereof, plus accrued and unpaid interest, if any, through the
date of redemption, with the net cash proceeds of one or more Public Equity
Offerings; provided, that (a) such redemption shall occur within 90 days of the
date of closing of such public offering and (b) at least $100,000,000 aggregate
principal amount of Notes remains outstanding immediately after giving effect to
each such redemption.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption 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 deems to be fair and appropriate,
provided, that Notes of $1,000 or less may not be redeemed in part. Notice of
redemption will be mailed by first-class mail at least 30 but not more than 60
days before the redemption date to each holder of Notes to be redeemed at such
holder's registered address. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note will state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note. On and after the date of redemption,
interest will cease to accrue on Notes or portions thereof called for
redemption.
The Notes will not be entitled to any mandatory redemption or sinking fund.
GUARANTORS
The repayment of the Notes will be fully and unconditionally and irrevocably
guaranteed by all Restricted Subsidiaries of the Company, jointly and severally.
The Indenture provides that as long as any Notes remain outstanding, any future
Restricted Subsidiary shall enter into a similar guarantee and the stock of such
Restricted Subsidiary will be pledged to secure the Notes.
The obligations of each Guarantor will be limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee, result in the obligations of such Guarantor under
the Guarantee not constituting a fraudulent conveyance or fraudulent transfer
under federal or state law or render a Guarantor insolvent. See "Risk Factors --
Fraudulent Transfer Considerations" and "Risk Factors -- Guarantees."
COLLATERAL
Subject to certain exceptions, the Notes and Guarantees will be secured by a
security interest in all of the Capital Stock of the Company and each of its
Subsidiaries (other than any such Capital Stock that is owned by a person other
than AETG, the Company or any Restricted Subsidiary). In addition, the Notes
will be secured by the cash, accounts receivable, inventory, general intangibles
and documents and instruments related thereto of the Company and its Restricted
Subsidiaries (except to the extent that the terms of any such general
intangibles prohibit the granting of a security interest therein); provided,
that the Lien with respect thereto shall be subordinated to the Liens securing
obligations under the Revolving Credit Facility. All of the assets described
above are collectively referred to herein as the "Collateral." The Notes will
not be secured by any other property.
The Company and the Guarantors entered into security and pledge agreements
as of February 4, 1997, as amended on August 14, 1997 and December 12, 1997
(collectively, the "Collateral Agreements") that provide for the grant of a
security interest in or pledge of the Collateral to the Trustee, as collateral
agent (in such capacity, the "Collateral Agent"), for the benefit of the holders
of the Notes. Such pledges and security interests will secure the payment and
performance when due of all of the Obligations of the
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Company and the Guarantors under the Indenture, the Notes, the Guarantees and
the Collateral Agreements.
So long as no Event of Default has occurred and is continuing, and subject
to certain terms and conditions in the Indenture and the Collateral Agreements,
the Company will be entitled to receive all cash dividends, interest and other
payments made upon or with respect to the Capital Stock of any Subsidiary's
collateral pledged by it, and to exercise any voting, other consensual rights
and other rights pertaining to such Collateral pledged by it. Upon the
occurrence and during the continuance of an Event of Default (i) all rights of
the Company to exercise such voting, other consensual rights or other rights
will cease upon notice from the Collateral Agent, which may be pursuant to the
direction of the Holders of a majority in outstanding principal amount of the
Notes, and all such rights will become vested in the Collateral Agent, which to
the extent permitted by law, will have sole right to exercise such voting, other
consensual rights or other rights; and (ii) all rights of the Company to receive
all cash dividends, interest and other payments made upon or with respect to the
pledged Collateral will, upon notice from the Collateral Agent, cease and such
cash dividends, interest and other payments will be paid to the Collateral
Agent. All funds distributed under the Collateral Agreements and received by the
Collateral Agent for the benefit of the holders of the Notes will be retained
and/or distributed by the Collateral Agent in accordance with the provisions of
the Indenture.
Under the terms of the Collateral Agreements, the Collateral Agent will
determine the circumstances and manner in which the Collateral will be disposed
of, including, but not limited to, the determination of whether to foreclose on
the Collateral following an Event of Default. Holders of the Notes may not
enforce the Collateral Agreements. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Notes may direct the
Collateral Agent in its exercise of any trust or power under the Collateral
Agreements. Upon the full and final payment and performance of all Obligations
of the Company under the Indenture and the Notes, the Collateral Agreements will
terminate and the pledged Collateral will be released. In addition, in the event
that the pledged Collateral is sold and the Net Proceeds are or will be applied
in accordance with the terms of the covenant described under "-- Limitation on
Asset Sales," the Collateral Agent will release simultaneously with such sale
the Liens in favor of the Collateral Agent in the assets sold, provided, that
the Collateral Agent has received all documentation required by the Trust
Indenture Act therefor.
In the event of a Default under the Notes, the proceeds from the sale of the
Collateral may not be sufficient to satisfy the Company's Obligations under the
Notes in full. The amount to be received upon such a sale would be dependent
upon numerous factors including the timing and the manner of the sale. In
addition, the book value of the Collateral should not be relied upon as a
measure of realizable value. By its nature, the Collateral will be illiquid and
may have no readily ascertainable market value. Accordingly, there can be no
assurance that the Collateral can be sold in a short period of time. While
indebtedness is outstanding under the Revolving Credit Facility, Holders will
have no vote on any decisions with respect to the Collateral that is subject to
the lien of the Revolving Credit Facility, including the time or method of
disposition thereof. To the extent that third parties enjoy Permitted Liens,
such third parties may have rights and remedies with respect to the property
subject to such Lien that, if exercised, could adversely affect the value of the
Collateral. In addition, the ability of the Holders to realize upon any of the
Collateral may be subject to certain bankruptcy law limitations in the event of
a bankruptcy.
If the Notes become due and payable prior to the final stated maturity
thereof for any reason or are not paid in full at the final stated maturity
thereof and, after any applicable grace period has expired, at a time in which
Indebtedness is outstanding under the Revolving Credit Facility, the Collateral
Agent will not have the right to foreclose upon the Collateral that is subject
to the Revolving Credit Facility unless the lender forecloses upon such
Collateral. Thereafter, the Collateral Agent has the right to foreclose upon
such Collateral, which may be in accordance with instructions from the Holders
of a majority in aggregate principal amount of the Notes or, in the absence of
such instructions, in such manner as the Collateral Agent deems appropriate in
its absolute discretion. Proceeds from the sale of Collateral that is subject to
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the Revolving Credit Facility will first be applied to repay Indebtedness
outstanding under the Revolving Credit Facility, if any, and thereafter paid to
the Trustee. The proceeds received by the Trustee will be applied by the Trustee
first to pay the expenses of any foreclosure and fees and other amounts then
payable to the Trustee under the Indenture and, thereafter, to pay all amounts
owing to the Holders under the Indenture (with any remaining proceeds to be
payable to the Company or as may otherwise be required by law).
REPURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
offer to repurchase all the Notes then outstanding (the "Change of Control
Offer") at a purchase price equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest, if any, to the date of repurchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company must mail or cause to be mailed a notice to each holder stating,
among other things (i) that the Change of Control Offer is being made pursuant
to this provision and that all Notes tendered will be accepted for payment; (ii)
the purchase price and the purchase date, which will be no earlier than 30 days
nor later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"); (iii) that any Note not tendered will continue to accrue
interest; (iv) that, unless the Company defaults in the payment of the Change of
Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest on the Change of Control Payment
Date; (v) that any holder electing to have Notes purchased pursuant to a Change
of Control Offer will be required to surrender the Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes completed, to
the paying agent with respect to the Notes (the "Paying Agent") at the address
specified in the notice prior to the close of business on the third business day
preceding the Change of Control Payment Date; (vi) that any holder will be
entitled to withdraw such election if the Paying Agent receives, not later than
the close of business on the second business day preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the holder, the principal amount of Notes delivered for purchase,
and a statement that such holder is withdrawing his election to have such Notes
purchased; and (vii) that a holder whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof.
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 in connection with a Change of Control. To the extent
that the provisions of any securities laws or regulations conflict with the
"Change of Control" provisions of the Indenture, the Company will comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment the Notes or portions thereof tendered pursuant
to the Change of Control Offer; (ii) 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 not withdrawn; and (iii) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officer's
Certificate stating that the Notes or portions thereof tendered to the Company
are accepted for payment. The Paying Agent will promptly mail to each holder of
Notes so accepted payment in an amount equal to the purchase price for such
Notes, and the Trustee will authenticate and mail 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 principal amount of $1,000
or an integral multiple thereof. The Company will announce the result of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
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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 or similar restructuring.
There can be no assurance that sufficient funds will be available at the
time of any Change of Control Offer to make required repurchases.
"Change of Control" means (i) the transfer (in one transaction or a series
of transactions) of all or substantially all of the Company's assets to any
Person or group (as such term is used in Section 13(d)(3) of the Exchange Act)
other than to one or more Existing Holders; (ii) the liquidation or dissolution
of the Company or the adoption of a plan by the stockholders of the Company
relating to the dissolution or liquidation of the Company; (iii) the acquisition
by any Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act), except for one or more Existing Holders, of beneficial ownership, directly
or indirectly, of more than 50% of the aggregate ordinary voting power of the
total outstanding Voting Stock of AETG; (iv) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors of the Company or AETG (together with any new directors
who are designated pursuant to the Stockholders' Agreement or approved by a vote
of at least 66 2/3 % of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company or AETG, as the case may be,
then still in office; or (v) the failure by AETG to own 51% of the voting power
of the total outstanding Voting Stock of the Company.
"Existing Holders" shall mean the Majority Stockholders and the Preferred
Stockholder.
CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. 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 distribution on account of any Equity Interests
of the Company or any of its Subsidiaries (other than (A) dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company or (B) dividends or distributions payable to the Company or any 90%
Owned Subsidiary); (ii) purchase, redeem or otherwise acquire or retire for
value any Equity Interest of the Company, any Subsidiary or any other Affiliate
of the Company (other than any such Equity Interest owned by the Company or any
Wholly Owned Subsidiary); (iii) make any principal payment on, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness of the
Company or any Guarantor that is subordinated in right of payment to the Notes
or such Guarantor's Guarantee thereof, as the case may be, prior to any
scheduled principal payment, sinking fund payment or other payment at the stated
maturity thereof; (iv) make any Restricted Investment; or (v) make any payment
or transfer any assets to, or on behalf of, AETG or any of its Affiliates (all
such payments and other actions set forth in clauses (i) through (v) above being
collectively referred to as "Restricted Payments") unless, at the time of such
Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing or would
occur as a consequence thereof,
(b) immediately after giving effect thereto on a PRO FORMA basis, the
Company could incur at least $1.00 of additional Indebtedness under the Interest
Coverage Ratio test set forth in the covenant described under "Limitation on
Incurrence of Indebtedness," and
(c) such Restricted Payment (the value of any such payment, if other than
cash, being determined in good faith by the Board of Directors and evidenced by
a resolution set forth in an Officers' Certificate delivered to the Trustee),
together with the aggregate of all other Restricted Payments made after the date
of the Indenture (including Restricted Payments permitted by clauses (i) and
(ii) of the next following paragraph and excluding Restricted Payments permitted
by the other clauses therein), is less than the sum of (1) 50% of the
Consolidated Net Income of the Company for the period (taken as one accounting
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period) from the beginning of the first quarter commencing immediately after the
Issue Date 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, 100%
of such deficit), plus (2) 100% of the aggregate net cash proceeds (or of the
net cash proceeds received upon the conversion of non-cash proceeds into cash)
received by the Company from the issuance or sale, other than to a Subsidiary,
of Equity Interests of the Company (other than Disqualified Stock) after the
Issue Date and on or prior to the time of such Restricted Payment, plus (3) 100%
of the aggregate net cash proceeds (or of the net cash proceeds received upon
the conversion of non-cash proceeds into cash) received by the Company from the
issuance or sale, other than to a Subsidiary, of any convertible or exchangeable
debt security of the Company that has been converted or exchanged into Equity
Interests of the Company (other than Disqualified Stock) pursuant to the terms
thereof after the Issue Date and on or prior to the time of such Restricted
Payment (including any additional net cash proceeds received by the Company upon
such conversion or exchange).
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 not have been prohibited by the provisions of the
Indenture; (ii) the redemption, purchase, retirement or other acquisition of any
Equity Interests of the Company or Indebtedness of the Company or any Restricted
Subsidiary in exchange for Equity Interests of the Company (other than
Disqualified Stock); (iii) the redemption, repurchase or payoff of any
Indebtedness with proceeds of any Refinancing Indebtedness permitted to be
incurred pursuant to the provision described under "-- Limitation on Incurrence
of Indebtedness;" (iv) payments by the Company to AETG pursuant to the Tax
Sharing Agreement; (v) distributions, loans or advances to AETG in an aggregate
amount not to exceed the Permitted Amount during any fiscal year; provided, that
such amounts are used by AETG to pay ordinary operating expenses and Management
Fees (as defined in the Stockholders' Agreement); (vi) Permitted Affiliate
Transactions; or (vii) other Restricted Payments in an aggregate amount not to
exceed $1.0 million; provided, that with respect to clauses (v), (vi) and (vii)
above, no Default or Event of Default shall have occurred and be continuing at
the time, or shall occur as a consequence thereof.
Not later than the date of making any Restricted Payment, the Company will
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 this covenant were computed, which calculations may be based upon
the Company's latest available financial statements.
LIMITATION ON INCURRENCE OF INDEBTEDNESS. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, (1)
create, incur, issue, assume, guaranty or otherwise become directly or
indirectly liable with respect to, contingently or otherwise (collectively,
"incur"), any Indebtedness (including Acquired Debt) or (2) issue any
Disqualified Stock; provided, that the Company may incur Indebtedness (including
Acquired Debt or Indebtedness incurred under the Revolving Credit Facility) or
issue shares of Disqualified Stock and any Restricted Subsidiary may incur
Acquired Debt or Indebtedness incurred under the Revolving Credit Facility, in
each case if (x) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a pro forma
basis to such incurrence or issuance, and (y) the Interest 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 equal to the ratio set forth below opposite the period in
which such incurrence or issuance occurs, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness (including Acquired Debt or Indebtedness incurred under
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the Revolving Credit Facility) had been incurred, or the Disqualified Stock had
been issued, as the case may be, at the beginning of such four-quarter period:
<TABLE>
<CAPTION>
PERIOD ENDING RATIO
- ------------------------------------------------------------------------------------------- -----
<S> <C>
February 1, 1998........................................................................... 2.00
February 1, 1999........................................................................... 2.25
</TABLE>
; provided, that in the case of Indebtedness (other than Purchase Money
Indebtedness, Acquired Debt or Indebtedness incurred under the Revolving Credit
Facility) the Weighted Average Life to Maturity and final stated maturity of
such Indebtedness exceeds the Weighted Average Life to Maturity and final stated
maturity of the Notes.
The foregoing limitations will not prohibit the incurrence of:
(a) Indebtedness under the Revolving Credit Facility, provided, that the
aggregate principal amount of Indebtedness so incurred on any date, together
with all other Indebtedness incurred pursuant to this clause (a) and outstanding
on such date, shall not exceed $30.0 million, less any repayments thereunder
pursuant to the provisions under "Limitation on Asset Sales,"
(b) performance bonds, appeal bonds, surety bonds, insurance obligations or
bonds and other similar bonds or obligations incurred in the ordinary course of
business,
(c) obligations incurred to fix the interest rate on any variable rate
Indebtedness otherwise permitted by the Indenture (collectively, "Hedging
Obligations"),
(d) (i) Indebtedness arising out of Capital Lease Obligations or Purchase
Money Obligations (collectively, "Purchase Money Indebtedness") in an aggregate
amount not to exceed $10.0 million outstanding at any time, and (ii) a $2.2
million aggregate principal amount note and mortgage relating to certain real
property acquired in the acquisition of Central New York Coach Sales & Service,
Inc., Jersey Bus Sales, Inc., and related property by the Company.
(e) Indebtedness owed by (i) a Restricted Subsidiary to the Company or to a
Wholly Owned Subsidiary; or (ii) the Company to a Wholly Owned Subsidiary,
(f) Indebtedness outstanding on the Issue Date, including the Notes,
(g) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in the
case of daylight overdrafts) drawn against insufficient funds in the ordinary
course of business; provided, that such Indebtedness is extinguished within
three business days of incurrence, and
(h) Indebtedness issued in exchange for, or the proceeds of which are
contemporaneously used to extend, refinance, renew, replace, or refund
(collectively, "Refinance") Indebtedness referred to in clause (f) above or this
clause (h) or Indebtedness incurred pursuant to the Interest Coverage Ratio test
set forth in the immediately preceding paragraph ("Refinancing Indebtedness");
provided, that (i) the principal amount of such Refinancing Indebtedness does
not exceed the principal amount of Indebtedness so Refinanced (plus the premiums
required to be paid, and the out-of-pocket expenses (other than those payable to
an Affiliate of the Company) reasonably incurred, in connection therewith), (ii)
the Refinancing Indebtedness has a final scheduled maturity that exceeds the
final stated maturity, and a Weighted Average Life to Maturity that is equal to
or greater than the Weighted Average Life to Maturity, of the Indebtedness being
Refinanced and (iii) the Refinancing Indebtedness ranks, in right of payment, no
more favorable to the Notes as the Indebtedness being Refinanced.
LIMITATION ON ASSET SALES. The Company will not, and will not permit any
Restricted Subsidiary to, make any Asset Sale unless (i) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset Sale at
least equal to the fair market value (as determined in good faith by the Board
of
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Directors as evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets subject to such
Asset Sale; (ii) at least 85% of the consideration for such Asset Sale is in the
form of cash, Cash Equivalents or liabilities of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Notes or any Guarantee of the Notes) that are assumed by the transferee of such
assets (provided, that following such Asset Sale there is no further recourse to
the Company and its Restricted Subsidiaries with respect to such liabilities);
and (iii) within 12 months of such Asset Sale, the Net Proceeds thereof are (a)
invested in assets related to the business of the Company or its Restricted
Subsidiaries, or (b) to the extent not used as provided in clause (a), applied
to make an offer to purchase Notes as described below (an "Excess Proceeds
Offer"); provided, that if (x) the amount of Net Proceeds from any Asset Sale
not invested pursuant to clause (a) above is less than $5.0 million or (y) the
Net Proceeds from an Asset Sale of Collateral with respect to which the Lien
thereon is subordinate to the Lien securing obligations under the Revolving
Credit Facility are used to repay obligations under the Revolving Credit
Facility, the Company will not be required to make an offer pursuant to clause
(b). Pending the final application of any such Net Proceeds, the Company or any
Restricted Subsidiary may temporarily reduce Indebtedness under the Revolving
Credit Facility or temporarily invest such Net Proceeds in Cash Equivalents.
The amount of Net Proceeds not invested as set forth in the preceding clause
(a) constitutes "Excess Proceeds." If the Company elects, or becomes obligated
to make an Excess Proceeds Offer, the Company will offer to purchase Notes
having an aggregate principal amount equal to the Excess Proceeds (the "Purchase
Amount"), at a purchase price equal to 100% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, to the purchase date. The
Company must commence such Excess Proceeds Offer not later than 30 days after
the expiration of the 12-month period following the Asset Sale that produced
Excess Proceeds. If the aggregate purchase price for the Notes tendered pursuant
to the Excess Proceeds Offer is less than the Excess Proceeds, the Company and
its Restricted Subsidiaries may use the portion of the Excess Proceeds remaining
after payment of such purchase price for general corporate purposes.
Each Excess Proceeds Offer will remain open for a period of 20 business days
and no longer, unless a longer period is required by law (the "Excess Proceeds
Offer Period"). Promptly after the termination of the Excess Proceeds Offer
Period (the "Excess Proceeds Payment Date"), the Company will purchase and mail
or deliver payment for the Purchase Amount for the Notes or portions thereof
tendered, PRO RATA or by such other method as may be required by law, or, if
less than the Purchase Amount has been tendered, all Notes tendered pursuant to
the Excess Proceeds Offer. The principal amount of Notes to be purchased
pursuant to an Excess Proceeds Offer may be reduced by the principal amount of
Notes acquired by the Company through purchase or redemption (other than
pursuant to a Change of Control Offer) subsequent to the date of the Asset Sale
and surrendered to the Trustee for cancellation.
Each Excess Proceeds Offer will be conducted in compliance with applicable
regulations under the federal securities laws, including Exchange Act Rule
14e-1. To the extent that the provisions of any securities laws or regulations
conflict with the "Asset Sale" provisions of the Indenture, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under the "Asset Sale" provisions of the
Indenture by virtue thereof.
There can be no assurance that sufficient funds will be available at the
time of any Excess Proceeds Offer to make required repurchases.
LIMITATION ON LIENS. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset (including, without limitation, all real,
tangible or intangible property) of the Company or any Restricted Subsidiary,
whether now owned or hereafter acquired, or on any income or profits therefrom,
or assign or convey any right to receive income therefrom, except (i) Liens
securing Indebtedness permitted to be incurred under the Revolving Credit
Facility; provided, that the Notes are secured by a second priority security
interest in the assets subject to
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such Liens; (ii) Purchase Money Liens; (iii) Permitted Liens; and (iv) a $2.2
million aggregate principal amount note and mortgage relating to certain real
property acquired in the acquisition of Central by the Company.
LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS. The Company will not,
and will not permit any Restricted Subsidiary 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 (a) to (1) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries (A) on such Restricted Subsidiary's Capital Stock or (B) with
respect to any other interest or participation in, or measured by, such
Restricted Subsidiary's profits or (2) pay any indebtedness owed to the Company
or any of its Restricted Subsidiaries, or (b) make loans or advances to the
Company or any of its Restricted Subsidiaries, or (c) transfer any of its assets
to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (i) the Revolving
Credit Facility, as in effect on the Closing Date, or any refinancings,
amendments, modifications or supplements thereof containing dividend and other
payment restrictions that are not materially more restrictive than those
contained in the Revolving Credit Facility on the Closing Date; (ii) the
Indenture, the Collateral Agreements and the Notes; (iii) applicable law; (iv)
restrictions with respect to a Subsidiary that was not a Subsidiary on the
Closing Date in existence at the time such Person becomes a Subsidiary (but not
created as a result of or in anticipation of such Person becoming a Subsidiary);
provided, that such restrictions are not applicable to any other Person or the
properties or assets of any other Person; (v) customary non-assignment and net
worth provisions of any contract or lease entered into in the ordinary course of
business; (vi) customary restrictions on the transfer of assets subject to a
Lien permitted under the Indenture imposed by the holder of such Lien; (vii)
restrictions imposed by any agreement to sell assets or Capital Stock to any
Person pending the closing of such sale; and (viii) permitted Refinancing
Indebtedness (including Indebtedness Refinancing Acquired Debt), provided, that
such restrictions contained in any agreement governing such Refinancing
Indebtedness are not materially more restrictive than those contained in any
agreements governing the Indebtedness being Refinanced.
MERGER, CONSOLIDATION OR SALE OF ASSETS. 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 (determined on a consolidated
basis for the Company and its Restricted Subsidiaries) in one or more related
transactions to, any other Person unless (i) the Company is the surviving Person
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 has been made is a corporation organized and existing under
the laws of the United States, any state thereof or the District of Columbia,
(ii) the Person formed by or surviving any such consolidation or merger (if
other than the Company) or the Person to which such sale, assignment, transfer,
lease, conveyance or other disposition has been made assumes all the Obligations
of the Company, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under the Notes, the Indenture, the Collateral
Agreements and the Registration Rights Agreement; (iii) immediately after such
transaction, no Default or Event of Default exists; and (iv) the Company, or any
Person formed by or surviving any such consolidation or merger, or to which such
sale, assignment, transfer, lease, conveyance or other disposition has been
made, (A) has a Consolidated Net Worth (immediately after the transaction but
prior to any purchase accounting adjustments resulting from the transaction) not
less than 90% of the Consolidated Net Worth of the Company immediately preceding
the transaction and (B) will be permitted, 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, to incur at least $1.00 of
additional Indebtedness pursuant to the Interest Coverage Ratio test set forth
in the covenant described under "Incurrence of Indebtedness."
In the event of any transaction (other than a lease) complying with the
conditions listed in the immediately preceding paragraph in which the Company is
not the surviving Person, such surviving Person
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or transferee shall succeed to, and be substituted for, and may exercise every
right and power of, the Company, and the Company shall be discharged from its
Obligations under, the Indenture, the Notes, the Collateral Agreements and the
Registration Rights Agreement.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), except for (i)
Affiliate Transactions, which together with all Affiliate Transactions that are
part of a common plan, have an aggregate value of not more than $1.0 million;
provided, that such transactions are conducted in good faith and 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 at such time on
an arm's-length basis from a Person that is not an Affiliate of the Company or
such Restricted Subsidiary; (ii) Affiliate Transactions, which together with all
Affiliate Transactions that are part of a common plan, have an aggregate value
of not more than $5.0 million; provided, that a majority of the disinterested
members of the Board of Directors of the Company determine that such
transactions are conducted in good faith and 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 at such time on an arm's-length basis
from a Person that is not an Affiliate of the Company or such Restricted
Subsidiary; (iii) Affiliate Transactions for which the Company delivers to the
Trustee an opinion as to the fairness to the Company or such Restricted
Subsidiary from a financial point of view, issued by an investment banking firm
of national standing; and (iv) Permitted Affiliate Transactions and other
Restricted Payments permitted by the provisions described above under
"Limitations on Restricted Payments."
RESTRICTIONS ON SALE AND ISSUANCE OF SUBSIDIARY STOCK. The Company shall
not sell, and shall not permit any of its Restricted Subsidiaries to issue or
sell, any shares of Capital Stock of any Restricted Subsidiary to any Person
other than the Company or a Wholly Owned Subsidiary, other than directors'
qualifying shares; provided, that the Company and its Restricted Subsidiaries
may sell all of the Capital Stock of a Restricted Subsidiary owned by the
Company and its Restricted Subsidiaries if the Net Proceeds from such Asset Sale
are used in accordance with the terms of the covenant described under
"-- Limitation on Asset Sales."
LINE OF BUSINESS. The Company will not, and will not permit any Restricted
Subsidiary to, engage in any business other than (a) the business conducted or
proposed to be conducted by the Company and the Restricted Subsidiaries on the
Closing Date and (b) any transportation business that is ancillary or
complementary to any business described in clause (a) above. The foregoing
restriction will not (i) prohibit the acquisition or operation of Central by the
Company or (ii) prevent the Company from engaging in the same lines of business
conducted or proposed to be conducted by Central as of the date the acquisition
of Central is consummated (the "Acquisition Date"), provided that such business
is conducted only in territories contiguous with the territories in which
Central conducted or proposed to conduct its business as of the Acquisition
Date.
GUARANTORS. The Indenture will provide that as long as any Notes remain
outstanding, any Restricted Subsidiary shall (a) execute and deliver to the
Trustee a supplemental indenture in form reasonably satisfactory to the Trustee
pursuant to which such Restricted Subsidiary shall unconditionally guarantee all
of the Company's obligations under the Notes and the Indenture on the terms set
forth in the Indenture and (b) deliver to the Trustee an opinion of counsel that
such supplemental indenture has been duly authorized, executed and delivered by
such Restricted Subsidiary and constitutes a legal, valid, binding and
enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Guarantor for all purposes of the Indenture.
If all of the Capital Stock of any Guarantor is sold to a Person (other than
the Company or any of its Restricted Subsidiaries) and the Net Proceeds from
such Asset Sale are used in accordance with the terms
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of the covenant described under "-- Limitation on Asset Sales," then such
Guarantor will be released and discharged from all of its obligations under its
Guarantee of the Notes and the Indenture.
The obligations of each Guarantor will be limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee of the Notes, result in the obligations of such
Guarantor under its Guarantee of the Notes not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. See "Risk Factors
- -- Guarantees."
REPORTS. Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company will furnish to
the Trustee, and deliver or cause to be delivered 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, including for each a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report thereon by the Company's independent
certified public 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. From and after the time a registration statement with respect to the
Notes is declared effective by the Commission, the Company will file such
information with the Commission, provided that the Commission will accept such
filing.
EVENTS OF DEFAULT AND REMEDIES
Each of the following will constitute an Event of Default under the
Indenture (i) default for 30 days in the payment when due of interest on the
Notes; (ii) default in payment of principal (or premium, if any) on the Notes
when due at maturity, redemption, by acceleration or otherwise; (iii) default in
the performance or breach of the provisions of "Repurchase Upon Change of
Control," "Limitation on Asset Sales," and "-- Merger, Consolidation or Sale of
Assets;" (iv) default in the performance or breach of the provisions of
"Limitation on Restricted Payments" and "Limitation on Incurrence of
Indebtedness," and the continuance of such default for a period of 30 days; (v)
failure by the Company or any Guarantor for 30 days after notice to comply with
certain other agreements in the Indenture or the Notes; (vi) default under
(after giving effect to any waivers, amendments, applicable grace periods or any
extension of any maturity date) 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 Restricted Subsidiary (or
the payment of which is guaranteed by the Company or any Restricted Subsidiary),
whether such Indebtedness or guarantee now exists or is created after the date
of the Indenture, if (a) either (1) such default results from the failure to pay
principal on such Indebtedness or (2) as a result of such default the maturity
of such Indebtedness has been accelerated, and (b) the principal amount of such
Indebtedness, together with the principal amount of any other such Indebtedness
with respect to which such a payment default (after the expiration of any
applicable grace period or any extension of the maturity date) has occurred, or
the maturity of which has been so accelerated, exceeds $2.5 million in the
aggregate; (vii) failure by the Company or any Restricted Subsidiary to pay
final non-appealable judgments (other than any judgment as to which a reputable
insurance company has accepted full liability) aggregating in excess of $2.5
million which judgments are not discharged, bonded or stayed within 60 days
after their entry; (viii) breach by the Company, AETG or any Guarantor of any
provision of the Collateral Agreements to which they are a party; (ix) written
assertion by the Company, AETG or any of the Guarantors, of the unenforceability
of their obligations under the Indenture, the Collateral Agreements, the Notes
or the Guarantees to which they are a party; and (x) certain events of
bankruptcy or insolvency with respect to the Company or any Material Subsidiary.
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 by
written notice to the Company and the Trustee all the Notes to be due and
payable immediately. Notwithstanding the foregoing, in the case of an Event of
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Default arising from certain events of bankruptcy or insolvency, 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 holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Company and the Trustee, may on behalf of
the holders of all of the Notes (i) 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
or a Default or an Event of Default with respect to any covenant or provision
which cannot be modified or amended without the consent of the holder of each
outstanding Note affected; and/or (ii) rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default (except nonpayment of principal or
interest that has become due solely because of the acceleration) have been cured
or waived.
The Company is required upon becoming aware of any Default or Event of
Default, to deliver to the Trustee a statement specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator, stockholder or controlling
person of the Company or any Guarantor, as such, will have any liability for any
obligations of the Company or any Guarantor under the Notes, the Indenture or
the Registration Rights Agreement or for any claim based on, in respect of, or
by reason of, such obligations or their creation (except as may arise in favor
of holders of Notes under federal securities laws, including anti-fraud
provisions thereof). Each holder of the Notes by accepting a Note waives and
releases all such liability. The waiver and release will be part of the
consideration for issuance of the Notes and the Guarantees. 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.
DEFEASANCE AND DISCHARGE OF THE INDENTURE AND THE NOTES
The Indenture provides that the Company will be discharged from any and all
obligations in respect of the Notes, other than the obligation to duly and
punctually pay the principal of, and premium, if any, and interest on, the Notes
in accordance with the terms of the Notes and the Indenture upon irrevocable
deposit with the Trustee, in trust, of money and/or U.S. government obligations
that will provide money in an amount sufficient in the opinion of a nationally
recognized accounting firm to pay the principal of and premium, if any, and each
installment of interest, if any, on the due dates thereof on the Notes. Such
trust may only be established if, among other things (i) the Company has
delivered to the Trustee an opinion of independent counsel to the effect that
the holders of the Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit and defeasance and will be
subject to federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit and defeasance had not
occurred; (ii) no Default or Event of Default shall have occurred or be
continuing; and (iii) certain customary conditions precedent are satisfied.
The Company may satisfy and discharge its Obligations under the Indenture to
holders of the Notes by delivering to the Trustee for cancellation all
outstanding Notes or by depositing with the Trustee or the Paying Agent, if
applicable, after the Notes have become due and payable, cash sufficient to pay
at the stated maturity of all of the outstanding Notes and paying all other sums
payable under the Indenture by the Company. If the Company has so deposited such
cash, the Guarantors will be discharged from their Obligations under their
Guarantees of the Notes and the Indenture.
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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 two succeeding paragraphs, the Indenture and 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 consents
obtained in connection with a tender offer or exchange offer for Notes) and any
existing Default or Event of Default or compliance with any provision of the
Indenture or the Notes may be waived 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 of Notes) (i) reduce
the principal amount of Notes whose holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of, or the premium on, or change
the fixed maturity of any Note, alter the provisions with respect to the
redemption of the Notes in a manner adverse to the holders of the Notes, or
alter the price at which repurchases of the Notes may be made pursuant to an
Excess Proceeds Offer or Change of Control Offer; (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; (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 interest on the Notes; (vii) waive a redemption payment with
respect to any Note; (viii) adversely affect the contractual ranking of the
Notes or Guarantees of the Notes; or (ix) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of the holders of Notes,
the Company, the Guarantors and the Trustee may amend or supplement the
Indenture 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 obligations to holders of
the Notes or any Guarantor's obligation under its Guarantee of the 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 the Notes or that does not
adversely affect the legal rights under the Indenture of any such holder, to
release any Guarantee of the Notes permitted to be released under the terms of
the Indenture, 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; provided, that if the Trustee acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
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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
occurs (and is not 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.
ADDITIONAL INFORMATION
A COPY OF THE INDENTURE HAS BEEN FILED AS AN EXHIBIT TO THE ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1997 VOLUNTARILY FILED BY THE
COMPANY WITH THE COMMISSION AND HAS BEEN INCORPORATED BY REFERENCE AS AN EXHIBIT
TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. THE
DESCRIPTION OF THE INDENTURE IN THIS PROSPECTUS IS QUALIFIED BY REFERENCE TO
SUCH EXHIBIT.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means Indebtedness of a Person existing at the time such
Person is merged with or into the Company or a Restricted Subsidiary or becomes
a Restricted Subsidiary, other than Indebtedness incurred in connection with, or
in contemplation of, such Person merging with or into the Company or a
Restricted Subsidiary or becoming a Restricted Subsidiary; provided, that
Indebtedness of such other Person that is redeemed, defeased, retired or
otherwise repaid at the time, or immediately upon consummation, of the
transaction by which such other Person is merged with or into the Company or a
Restricted Subsidiary or becomes a Restricted Subsidiary shall not be Acquired
Debt.
"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, will mean
(i) 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; (ii) in the case of a
corporation, beneficial ownership of 10% or more of any class of Capital Stock
of such Person; and (iii) in the case of an individual (A) members of such
Person's immediate family (as defined in Instruction 2 of Item 404(a) of
Regulation S-K under the Securities Act) and (B) trusts, any trustee or
beneficiaries of which are such Person or members of such Person's immediate
family. Notwithstanding the foregoing, neither Jefferies nor any of its
Affiliates will be deemed to be Affiliates of the Company. Notwithstanding the
foregoing, neither Jefferies nor any of its Affiliates will be deemed to be
Affiliates of the Company.
"Asset Sale" means any (i) transfer, other than in the ordinary course of
business, of any assets of the Company or any Restricted Subsidiary; or (ii)
direct or indirect issuance of any Capital Stock of any Restricted Subsidiary,
in each case to any Person (other than the Company or a Restricted Subsidiary
and other than directors' qualifying shares). For purposes of this definition,
(a) any series of transfers that are part of a common plan shall be deemed a
single Asset Sale and (b) the term "Asset Sale" shall not include any
disposition of all or substantially all of the assets of the Company that is
governed under and complies with the terms of the covenant described under "--
Merger, Consolidation or Sale of Assets."
"Capital Lease Obligation" means, as to any Person, the obligations of such
Person under a lease that are required to be classified and accounted for as
capital lease obligations under GAAP, and the amount of
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such obligations at any date shall be the capitalized amount of such obligations
at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations, rights or other equivalents
(however designated) of corporate stock; and (ii) with respect to any other
Person, any and all partnership or other equity interests of such Person.
"Cash Equivalent" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof); (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation of
any domestic commercial bank of recognized standing having capital and surplus
in excess of $250,000,000 and commercial paper issued by others rated at least
A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2
or the equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within one year after the date of acquisition; and (iii) investments in
money market funds substantially all of whose assets comprise securities of the
types described in clauses (i) and (ii) above.
"Closing Date" or "Issue Date" means February 4, 1997.
"Consolidated EBITDA" means, with respect to any Person (the referent
Person) for any period, consolidated income (loss) from operations of such
Person and its subsidiaries for such period, determined in accordance with GAAP,
plus (to the extent such amounts are deducted in calculating such income (loss)
from operations of such Person for such period, and without duplication)
amortization, depreciation and other non-cash charges (including, without
limitation, amortization of goodwill, deferred financing fees and other
intangibles but excluding non-cash charges incurred after the date of the
Indenture that require an accrual of or a reserve for cash charges for any
future period); provided, that (i) the income from operations of any Person
(including, without limitation, any Unrestricted Subsidiary) that is not a 90%
Owned Subsidiary or that is accounted for by the equity method of accounting
will be included only to the extent of the amount of dividends or distributions
paid during such period to the referent Person or a 90% Owned Subsidiary of the
referent Person; and (ii) the income from operations of any Restricted
Subsidiary will not be included to the extent that declarations of dividends or
similar distributions by that Restricted Subsidiary are not at the time
permitted, directly or indirectly, by operation of the terms of its organization
documents or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
owners.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the consolidated interest expense (net of interest income) of such
Person and its subsidiaries for such period, whether paid or accrued (including
amortization of original issue discount, noncash interest payment, and the
interest component of Capital Lease Obligations), to the extent such expense was
deducted in computing Consolidated Net Income of such Person for such period.
"Consolidated Net Income" means, with respect to any Person (the referent
Person) for any period, the aggregate of the Net Income of such Person and its
subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP: provided, that (i) the Net Income of any Person (including, without
limitation, any Unrestricted Subsidiary) that is not a Wholly Owned Subsidiary
or that is accounted for by the equity method of accounting will be included in
calculating the referent Person's Consolidated Net Income only to the extent of
the amount of dividends or distributions paid during such period to the referent
Person or a Wholly Owned Subsidiary of the referent Person; (ii) the Net Income
of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition will be excluded and (iii) the Net Income
of any Subsidiary will be excluded, to the extent that declarations of dividends
or similar distributions by that Subsidiary of such Net Income are not at the
time permitted, directly or indirectly, by operation of the terms of its
organization documents or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
owners.
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"Consolidated Net Worth" means, with respect to any Person, the total
stockholders' equity of such Person determined on a consolidated basis in
accordance with GAAP, adjusted to exclude (to the extent included in calculating
such equity) (i) the amount of any such stockholders' equity attributable to
Disqualified Capital Stock of such Person and its consolidated subsidiaries;
(ii) all upward revaluations and other write-ups in the book value of any asset
of such person or a consolidated subsidiary of such person subsequent to the
Closing Date; and (iii) all Investments in persons that are not consolidated
Restricted Subsidiaries.
"Default" means any event that is, or after notice or the passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any Equity Interests that (i) either by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable) is or upon the happening of an event would be required to be
redeemed or repurchased prior to the final stated maturity of the Notes or is
redeemable at the option of the holder thereof at any time prior to such final
stated maturity; or (ii) is convertible into or exchangeable at the option of
the issuer thereof or any other Person for debt securities. "Equity Interests"
means Capital Stock or warrants, options or other rights to acquire Capital
Stock (but excluding any debt security that is convertible into, or exchangeable
for, Capital Stock).
"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 such
other entity as approved by a significant segment of the accounting profession,
and in the rules and regulations of the Commission, that are in effect on the
Issue Date.
"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.
"Indebtedness" of any Person means (without duplication) (1) all liabilities
and obligations, contingent or otherwise, of such Person (a) in respect of
borrowed money (whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof), (b) evidenced by bonds,
debentures, notes or other similar instruments, (c) representing the deferred
purchase price of property or services (other than liabilities incurred in the
ordinary course of business which are not more than 90 days past due), (d)
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (e) as lessee under
capitalized leases, (f) under bankers' acceptance and letter of credit
facilities, (g) to purchase, redeem, retire, defease or otherwise acquire for
value any Disqualified Stock, or (h) in respect of Hedging Obligations, (2) all
liabilities and obligations of others of the type described in clause (1),
above, that are Guaranteed by such Person, and (3) all liabilities and
obligations of others of the type described in clause (1), above, that are
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on property (including,
without limitation, accounts and contract rights) owned by such Person;
provided, that the amount of such Indebtedness shall (to the extent such Person
has not assumed or become liable for the payment of such Indebtedness in full)
be the lesser of (x) the fair market value of such property at the time of
determination and (y) the amount of such Indebtedness. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date.
"Interest Coverage Ratio" means, for any period, the ratio of (i)
Consolidated EBITDA of the Company for such period, to (ii) Consolidated
Interest Expense of the Company for such period. In calculating the Interest
Coverage Ratio for any period, pro forma effect shall be given to (a) the
incurrence, assumption, guarantee, repayment, repurchase, redemption or
retirement by the Company or
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any of its Subsidiaries of any Indebtedness (other than under the Revolving
Credit Facility) subsequent to the commencement of the period for which the
Interest Coverage Ratio is being calculated but on or prior to the date on which
the event for which the calculation is being made, as if the same had occurred
at the beginning of the applicable period; and (b) the occurrence of any Asset
Sale during such period by reducing Consolidated EBITDA for such period by an
amount equal to the Consolidated EBITDA (if positive) directly attributable to
the assets sold and by reducing Consolidated Interest Expense by an amount equal
to the Consolidated Interest Expense directly attributable to any Indebtedness
assumed by third parties or repaid with the proceeds of such Asset Sale, in each
case as if the same had occurred at the beginning of the applicable period. For
purposes of making the computation referred to above, acquisitions that have
been made by the Company or any of its Restricted Subsidiaries, and
Transportation Contracts that have been entered into or terminated, subsequent
to the commencement of such period but on or prior to the date on which the
event for which the calculation is being made shall be given effect on a pro
forma basis, assuming that all such acquisitions and terminations and the
effectiveness of all such contracts had occurred on the first day of such
period, in a manner consistent with the calculations described in note 1 of the
"Summary Historical and Pro Forma Financial Information" contained elsewhere in
this Offering Circular. Without limiting the foregoing, the financial
information of the Company with respect to any portion of such four fiscal
quarters that falls before the Closing Date shall be adjusted to give pro forma
effect to the issuance of the Notes and the application of the proceeds
therefrom as if they had occurred at the beginning of such four fiscal quarters.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans,
Guarantees, advances or capital contributions (excluding (i) commission, travel
and similar advances to officers and employees of such Person made in the
ordinary course of business; and (ii) bona fide accounts receivable arising from
the sale of goods or services in the ordinary course of business consistent with
past practice), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, and any other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP.
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, 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).
"Material Subsidiary" means any Subsidiary (a) that is a "Significant
Subsidiary" of the Company as defined in Rule 1-02 of Regulation S-X promulgated
by the Commission or (b) is otherwise material to the business of the Company.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with
GAAP, excluding any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with any Asset Sales
and dispositions pursuant to sale and leaseback transactions, and excluding any
extraordinary gain (but not loss), together with any related provision for taxes
on such gain (but not loss).
"Net Proceeds" means the aggregate proceeds received in the form of cash or
Cash Equivalents in respect of any Asset Sale (including payments in respect of
deferred payment obligations when received), net of (a) the reasonable and
customary direct out-of-pocket costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees and sales
commissions), other than any such costs payable to an Affiliate of the Company,
(b) taxes actually payable directly as a result of such Asset Sale (after taking
into account any available tax credits or deductions and any tax sharing
arrangements), (c) amounts required to be applied to the permanent repayment of
Indebtedness in connection with such Asset Sale, and (d) appropriate amounts
provided as a reserve by the Company or any Restricted Subsidiary, in accordance
with GAAP, against any liabilities associated with such Asset Sale
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and retained by the Company or such Restricted Subsidiary, as the case may be,
after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations arising from such
Asset Sale.
"90% Owned Subsidiary" means a Restricted Subsidiary at least 90% of each
class of the Capital Stock of which is owned by the Company or one or more
Wholly Owned Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other obligations and liabilities
of the Company or any of the Guarantors under the Indenture, the Collateral
Agreements, the Notes or the Guarantees of the Notes.
"Permitted Affiliate Transactions" means (i) employment agreements entered
into by the Company or any Restricted Subsidiary in the ordinary course of
business with the approval of a majority of the disinterested members of the
Company's Board of Directors; (ii) transactions between or among the Company
and/or its 90% Owned Subsidiaries; (iii) reasonable and customary fees and
compensation paid to and indemnity provided on behalf of, officers, directors,
employees or consultants of the Company or any Restricted Subsidiary as
determined in good faith by a majority of the disinterested directors of the
Company's Board of Directors or, if none, unanimously by such Board of
Directors; (iv) the "Park & Ride Lease" between Showplace Bowling Center Inc.,
as lessor, and Atlantic Express Coachways Inc., as lessee, and the lease between
Dom Rich Associates, Inc., as lessor, and Staten Island Bus, as lessee, in each
case in effect as of the Closing Date; and (v) annual premiums paid to Atlantic
North, in the ordinary course of business, for insurance; provided, that such
premiums do not exceed the annual aggregate deductibles on the Company's
insurance policies then in effect.
"Permitted Amount" during any fiscal year means the sum of (a) the
Management Fees required to be paid by AETG under the Stockholders' Agreement
during such fiscal year and (b) the Permitted Expense Amount. "Permitted Expense
Amount" means (i) for fiscal year 1996, $100,000; and (ii) for each fiscal year
thereafter, 1.05 times the Permitted Expense Amount for the immediately
preceding fiscal year.
"Permitted Investments" means (i) Investments in the Company, any Guarantor
or any Wholly Owned Subsidiary (including without limitation, Guarantees of
Indebtedness of any such Person); (ii) Investments in an aggregate amount not to
exceed $1 million in Restricted Subsidiaries other than Wholly Owned
Subsidiaries; (iii) Investments in Cash Equivalents; (iv) Investments in a
Person, if as a result of such Investment (a) such Person becomes a Wholly Owned
Subsidiary, or (b) 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 Wholly Owned Subsidiary; (v) Hedging
Obligations; (vi) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; (vii) Investments
as a result of consideration received in connection with an Asset Sale made in
compliance with the covenant described under the caption "Limitation on Asset
Sales;" (viii) investments in Atlantic North, but only to the extent necessary
under applicable law or reasonably required by certain administrative agencies,
to permit Atlantic North to provide insurance policies to the Company and its
Restricted Subsidiaries in the ordinary course of business as contemplated under
clause (v) of the definition of "Permitted Affiliate Transactions;" and (ix)
Investments existing on the Issue Date.
"Permitted Liens" means (i) Liens in favor of the Company and/or its
Restricted Subsidiaries other than with respect to intercompany Indebtedness;
(ii) Liens on property of a Person existing at the time such Person is acquired
by, merged into or consolidated with the Company or any Restricted Subsidiary,
provided, that such Liens were not created in contemplation of such acquisition
and do not extend to assets other than those subject to such Liens immediately
prior to such acquisition; (iii) Liens on property existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary, provided, that
such Liens were not created in contemplation of such acquisition and do not
extend to assets other than those subject to such Liens immediately prior to
such acquisition; (iv) Liens incurred in the ordinary course of business in
respect of Hedging Obligations; (v) Liens incurred in the ordinary course of
business to secure
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the performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations (exclusive of obligations constituting Indebtedness)
of a like nature, including, without limitation, cash retainages; (vi) Liens
existing or created on the Issue Date; (vii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested or remedied in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided, that any reserve or other
appropriate provision as may be required in conformity with GAAP has been made
therefor; (viii) Liens arising by reason of any judgment, decree or order of any
court with respect to which the Company or any of its Restricted Subsidiaries is
then in good faith prosecuting an appeal or other proceedings for review, the
existence of which judgment, order or decree is not an Event of Default under
the Indenture; (ix) encumbrances consisting of zoning restrictions, survey
exceptions, utility easements, licenses, rights of way, easements of ingress or
egress over property of the Company or any of its Restricted Subsidiaries,
rights or restrictions of record on the use of real property, minor defects in
title, landlord's and lessor's liens under leases on property located on the
premises rented, mechanics' liens, warehouseman's liens, supplier's liens,
repairman's liens, vendors' liens, and similar encumbrances, rights or
restrictions on personal or real property, in each case not interfering in any
material respect with the ordinary conduct of the business of the Company or any
of its Restricted Subsidiaries; (x) Liens incidental to the conduct of business
or the ownership of properties incurred in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security, or to secure the performance of tenders, bids, and government
contracts and leases and subleases; (xi) Liens for any interest or title of a
lessor under any Capitalized Lease Obligation permitted to be incurred under the
Indenture; provided, that such Liens do not extend to any property or asset that
is not leased property subject to such Capitalized Lease Obligation; (xii) any
extension, renewal, or replacement (or successive extensions, renewals or
replacements), in whole or in part, of Liens described in clauses (i) through
(xi) above; (xiii) Liens securing the Notes; and (xiv) Liens in addition to the
foregoing, which in the aggregate, are secured by assets with a fair market
value not in excess of $100,000 at any time.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof, or any other entity.
"Public Equity Offering" means a bona fide underwritten public offering of
Qualified Capital Stock of the Company, pursuant to a registration statement
filed with and declared effective by the Commission in accordance with the
Securities Act.
"Purchase Money Liens" means Liens to secure or securing Purchase Money
Obligations permitted to be incurred under the Indenture.
"Purchase Money Obligations" means Indebtedness representing, or incurred to
finance, the cost (i) of acquiring or improving any assets; and (ii) of
construction or build-out of manufacturing, distribution or administrative
facilities (including Purchase Money Obligations of any other Person at the time
such other Person is merged with or into or is otherwise acquired by the
Company), provided, that (a) the principal amount of such Indebtedness does not
exceed 100% of such cost, including construction charges, (b) any Lien securing
such Indebtedness does not extend to or cover any other asset or property other
than the asset or property being so acquired or improved and (c) such
Indebtedness is incurred, and any Liens with respect thereto are granted, within
180 days of the acquisition or improvement of such property or asset.
"Qualified Capital Stock" means, with respect to any Person, Capital Stock
of such Person other than Disqualified Capital Stock.
"Restricted Investment" means any Investment other than a Permitted
Investment. The aggregate amount of each Investment constituting a Restricted
Payment since the date of the Indenture shall be reduced by the aggregate
after-tax amount of all payments made to the Company and its Restricted
Subsidiaries with respect to such Investments; provided, that (a) the maximum
amount of such payments
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so excluded shall not exceed the original amount of such Investment and (b) such
payments shall also be excluded from the calculations contemplated by clauses
(c)(1) through (4) under the caption "Limitation on Restricted Payments."
"Restricted Subsidiary" means a Subsidiary other than an Unrestricted
Subsidiary.
"Revolving Credit Facility" means the Revolving Credit Facility, entered
into on the Issue Date between the Company and the lenders named therein as the
same may be amended, modified, renewed, refunded, replaced or refinanced from
time to time, including (i) any related notes, letters of credit, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced or
refinanced from time to time; and (ii) any notes, guarantees, collateral
documents, instruments and agreements executed in connection with such
amendment, modification, renewal, refunding, replacement or refinancing.
"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 Voting Stock 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 in which such
Person or any of its subsidiaries is a general partner.
"Subsidiary" means any subsidiary of the Company.
"transfer" means any direct or indirect sale, assignment, transfer, lease,
conveyance, or other disposition (including, without limitation, by way of
merger or consolidation).
"Transportation Contract" means a written contract entered into by the
Company and/or its Restricted Subsidiaries pursuant to which services for school
bus transportation, paratransit, coach transportation or Pre-K/Medicaid
transportation and related services are provided by the Company and/or any of
its Restricted Subsidiaries to a governmental entity or agency.
"Unrestricted Subsidiary" means (a) Atlantic North and (b) any other
Subsidiary that has been designated by the Company (by written notice to the
Trustee as provided below) as an Unrestricted Subsidiary; provided, that a
Subsidiary may not be designated as an "Unrestricted Subsidiary" unless (i) such
Subsidiary does not own any Capital Stock of, or own or hold any Lien on any
property of, the Company or any Restricted Subsidiary (other than such
Subsidiary), (ii) neither immediately prior thereto nor after giving pro forma
effect to such designation, would there exist a Default or Event of Default,
(iii) immediately after giving effect to such designation on a pro forma basis,
the Company could incur at least $1.00 of Indebtedness pursuant to the Interest
Coverage Ratio test set forth in the covenant described under "-- Limitation on
Incurrence of Indebtedness" and (iv) the creditors of such Subsidiary have no
direct or indirect recourse (including, without limitation, recourse with
respect to the payment of principal or interest on Indebtedness of such
Subsidiary) to the assets of the Company or of a Restricted Subsidiary (other
than such Subsidiary). The Board of Directors of the Company may designate any
Unrestricted Subsidiary (other than Atlantic North) to be a Restricted
Subsidiary only if (i) no Default or Event of Default is existing or will occur
as a consequence thereof; and (ii) immediately after giving effect to such
designation, on a pro forma basis, the Company could incur at least $1.00 of
Indebtedness pursuant to the Interest Coverage Ratio test set forth in the
covenant described under "-- Limitation on Incurrence of Indebtedness." Each
such designation shall be evidenced 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. The Company shall be deemed to make an Investment in each Subsidiary
designated as an "Unrestricted Subsidiary" immediately following such
designation in an amount equal to the Investment in such Subsidiary and its
subsidiaries immediately prior to such designation; provided, that if such
Subsidiary is subsequently redesignated as a Restricted Subsidiary, the amount
of such Investment shall be deemed to be reduced (but not below zero) by the
fair market value of the net consolidated assets of such Subsidiary on the date
of such redesignation.
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"Voting Stock" means, with respect to any Person (i) one or more classes of
the Capital Stock of such Person having general voting power to elect at least a
majority of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time Capital Stock of any other class or
classes have or might have voting power by reason of the happening of any
contingency); and (ii) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (i) above.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years (rounded to the nearest one-twelfth) obtained
by dividing (i) the then outstanding principal amount of such Indebtedness into
(ii) the total of the products obtained by multiplying (x) 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 (y) the number of years (calculated to the nearest one twelfth) that will
elapse between such date and the making of such payment.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or one or more Wholly Owned Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the New Notes to be sold as set
forth herein will initially be issued in the form of one or more registered
Global Notes (the "Global Notes"), each of which will be deposited on the date
of the consummation of the Exchange Offer with, or on behalf of, the Depository
and registered in the name of the Global Holder. The following are summaries of
certain rules and operating procedures of the Depository which affect the Global
Notes.
The Depository has advised the Company that it is a limited-purpose trust
company that was created to hold securities for its participating organizations
(collectively, the "Participants" or the "Depository'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 Depository's Participants include securities brokers and
dealers (including Jefferies), banks and trust companies, clearing corporations
and certain other organizations. Access to the Depository's system is also
available to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants" or the "Depository'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 Depository's Participants or the Depository's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Notes, the Depository will credit the
accounts of Participants with an interest in the Global Notes; and (ii)
ownership of the Notes will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by the Depository (with
respect to the interests of the Depository's Participants), the Depository's
Participants and the Depository's Indirect Participants. 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 will be
limited to such extent.
So long as the Global Holder is the registered owner of any Notes, the
Global Holder will be considered the sole owner of such Notes outstanding under
the Indenture. Except as provided below, owners of beneficial interests in a
Global Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Securities, and will not be considered the owners or
Holders thereof under the Indenture for any purpose. As a result, the ability of
a person having a beneficial interest in Notes represented by a Global Note to
pledge such interest to persons or entities that do not participate in the
Depository's system or to otherwise take actions in respect of such interest,
may be affected by the lack of a physical certificate evidencing such interest.
Accordingly, each Person owning a beneficial interest in a Global Note must rely
83
<PAGE>
on the procedures of the Depository and, if such Person is not a Participant or
an Indirect Participant, on the procedures of the Participant through which such
Person owns its interest, to exercise any rights of a holder under such Global
Note or the Indenture.
Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Notes by the Depository, or for maintaining, supervising or reviewing any
records of the Depository relating to such Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of a Global Holder on the applicable record
date will be payable by the Trustee to or at the direction of such Global 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
the Notes, including the Global Notes, are registered as the owners thereof for
the purpose of receiving such payments and for any and all other purposes
whatsoever. 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 (including principal, premium, if any, and interest), or to
immediately credit the accounts of the relevant Participants with such payment,
in amounts proportionate to their respective interests in the Global Notes in
principal amount of beneficial interests in the relevant security as shown on
the records of the Depository. Payments by the Depository's Participants and the
Depository'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 Depository's Participants or the Depository's Indirect
Participants.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository is no
longer willing or able to act as a depository 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 the
Notes in definitive form under the Indenture then, upon surrender by the
relevant Global Holder of its Global Note, Notes in such form will be issued to
each Person that such Global Holder and the Depository identifies as the
beneficial owner of the related Notes. In addition, 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 Certificated
Securities. Upon any such issuance, the Trustee is required to register such
Notes in the name of, and cause the same to be delivered to, such person or
persons (or the nominee of any thereof). Such Notes would be issued in fully
registered form.
84
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 200 shares of common
stock with no par value. At September 30, 1997, 100 shares of the Company's
capital stock were issued and outstanding.
Holders of outstanding shares of the Company's capital stock are entitled,
for each share held, to one vote upon each matter submitted to a vote at a
meeting of shareholders of the Company.
The Board of Directors of the Company may authorize the issuance of
fractions of shares represented by a certificate or uncertificated, which shall
entitle the holder to exercise voting rights, received dividends and participate
in liquidating distributions, in proportion to the fractional holdings; or it
may authorize the payment in cash of the fair value of fractions of a shares of
the time when those entitled to receive such fractions are determined; or in
lieu of fractional shares it may authorize the issuance, as permitted by law, of
scrip exchangeable as therein provided for full shares, but such scrip shall not
entitle the holder to any rights of a shareholder, except as therein provided.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The Company has been advised by Jones, Day, Reavis & Pogue as to certain
U.S. federal tax consequences of the Exchange Offer. Holders of Old Notes
contemplating acceptance of the Exchange Offer should consult their own tax
advisers with respect to their particular circumstances and with respect to the
effects of state, local or foreign tax laws to which they may be subject.
The following summary describes the material U.S. federal income tax
consequences to Holders who are subject to U.S. net income tax with respect to
the Notes ("U.S. persons") and who hold the Notes as capital assets. There can
be no assurance that the U.S. Internal Revenue Service (the "IRS") will take a
similar view of the purchase, ownership or disposition of the Notes, and no
ruling from the IRS has been or will be sought. This discussion is based upon
the provisions of the Internal Revenue Code of 1986, as amended, U.S. Treasury
regulations, rulings and judicial decisions now in effect, all of which are
subject to change. It does not include any description of the tax laws of any
state, local or foreign governments or any estate or gift tax considerations
that may be applicable to the Notes or Holders thereof. It does not discuss all
aspects of U.S. federal income taxation that may be relevant to a particular
investor in light of such investor's particular investment circumstances or to
certain types of investors subject to special treatment under the U.S. federal
income tax laws (for example, dealers in securities or currencies, S
corporations, life insurance companies, tax-exempt organizations, taxpayers
subject to the alternative minimum tax and non-U.S. persons) and also does not
discuss Notes held as a hedge against currency risks or as part of a straddle
with other investments or part of a "synthetic security" or other integrated
investment (including a "conversion transaction") comprised of a Note and one or
more other investments, or situations in which the functional currency of the
Holder is not the U.S. dollar.
The exchange of an Old Note by a Holder for a New Note will not constitute a
taxable exchange. The exchange will not result in income, gain or loss to
Holders who participate in the Exchange Offer, or the Company. Such Holders will
have the same adjusted basis and holding period in New Notes immediately after
the exchange as the Holders had in Old Notes immediately prior to the exchange.
85
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that participates in the Exchange Offer ("Participating
Broker-Dealer") that receives New 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 New Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with the resale of New 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 Participating Broker-Dealer for use in connection with any such
resale. In addition, until , 1998, all dealers effecting transactions
in the New Notes may be required to deliver a Prospectus.
The Company will not receive any proceeds from any sale of New Notes by
Participating Broker-Dealers. New Notes received by Participating 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 New 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 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
Participating Broker-Dealer and/or the purchasers of any such New Notes. Any
Participating Broker-Dealer that resells New 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 New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons 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 Participating 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 Participating Broker-Dealer that reasonably
requests such documents in the Letter of Transmittal.
This Prospectus has been prepared for use in connection with the Exchange
Offer and may be used by Jefferies in connection with the offers and sales
related to market-making transactions in the Notes. Jefferies may act as
principal or agent in such transactions. Such sales will be made at prices
related to prevailing market prices at the time of sale. The Company will not
receive any of the proceeds of such sales. Jefferies has no obligation to make a
market in the Notes and may discontinue its market-making activities at any time
without notice, at its sole discretion. The Company has agreed to indemnify each
Participating Broker-Dealer against certain liabilities, including liabilities
under the Securities Act, and to contribute to payments which each Participating
Broker-Dealer might be required to make in respect thereof.
Jefferies acted as initial purchaser in connection with the offerings of the
Old Notes. Jefferies was paid customary fees and expenses in connection with a
loan which it and another institutional investor made to AETG. Such loan was
repaid with a portion of the net proceeds of the offering of the Old Notes. The
Company has agreed to offer to retain Jefferies as its exclusive financial
advisor, underwriter, placement agent, lender or loan purchaser, as applicable,
if the Company proposes to engage in any financing transaction on or before June
23, 1999.
86
<PAGE>
VALIDITY OF SECURITIES
The validity of the Notes will be passed upon for the Company by Jones, Day,
Reavis & Pogue, New York, New York and Silverman, Collura, Chernis & Balzano,
P.C., New York, New York.
EXPERTS
The financial statements on pages F-1 through F-33 included in this
Prospectus have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the periods set forth in their report
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with Commission in Washington, D.C. a Registration
Statement under the Securities Act on Form S-1 (File No. 333- ) (the
"Registration Statement") with respect to the New Notes offered hereby. As used
herein, the term "Registration Statement" means the initial Registration
Statement and any and all amendments thereto. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Company, the
Notes and the Exchange Offer, reference is hereby made to such Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete and in each instance, reference is made to the copy of such
contract or documents filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at certain
regional offices of the Commission located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a website
on the internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants filed
electronically with the Commission.
Upon completion of the Exchange Offer, the Company will be subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will file reports with the Commission. The Company intends to furnish to Holders
annual reports containing audited financial statements of the Company audited by
its independent accounts and quarterly reports containing unaudited condensed
financial statements for each of the first three quarters of each fiscal year.
87
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION
CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
PRO FORMA CONSOLIDATION FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Certified Public Accountants......................................................... F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997 and September 30, 1997............................ F-3
Consolidated Statements of Operations for the Years Ended June 30, 1995,
1996 and 1997 and for the Three Months Ended September 30, 1996 and 1997................................. F-4
Consolidated Statements of Stockholder's Equity for the Years Ended June 30, 1995, 1996 and 1997 and for
the Three Months Ended September 30, 1997................................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1995,
1996 and 1997 and for the Three Months Ended September 30, 1996 and 1997................................. F-6
Notes to Consolidated Financial Statements................................................................. F-8
Report of Independent Certified Public Accountants......................................................... F-21
Central Combined Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997......................... F-22
Central Combined Statements of Income and Retained Earnings for the years ended December 31, 1994, 1995 and
1996 and for the six months ended June 30, 1996 and 1997................................................. F-23
Central Combined Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and for the
six months ended June 30, 1996 and 1997.................................................................. F-24
Central Notes to Combined Financial Statements............................................................. F-26
Unaudited Pro Forma Consolidated Financial Information..................................................... P-1
Unaudited Pro Forma Statement of Operations for the Year Ended June 30, 1997............................... P-2
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of
Atlantic Express Transportation Corp.
We have audited the accompanying consolidated balance sheets of Atlantic
Express Transportation Corp. and subsidiaries as of June 30, 1996 and 1997, and
the related consolidated statements of operations, stockholder's equity, and
cash flows for each of the three years in the period ended June 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Atlantic
Express Transportation Corp. and subsidiaries as of June 30, 1996 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended June 30, 1997 in conformity with generally
accepted accounting principles.
BDO SEIDMAN, LLP
New York, New York
September 25, 1997
F-2
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------
<S> <C> <C> <C>
1996 1997
----------- -----------
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
ASSETS
Current:
Cash and cash equivalents............................................ $ 1,211,258 $16,818,889 $ 6,324,597
Current portion of marketable securities............................. -- 1,030,000 770,000
Accounts receivable, net of allowance for doubtful accounts of $-0-,
$250,000 and $250,000, respectively................................ 25,687,921 31,237,975 36,970,656
Replacement parts and other inventory................................ 994,412 1,969,228 10,324,476
Notes receivable..................................................... 180,760 191,600 1,448,643
Prepaid expenses and other current assets............................ 5,120,364 4,986,656 7,748,272
----------- ----------- -------------
Total current assets........................................... 33,194,715 56,234,348 63,586,644
----------- ----------- -------------
Property, plant and equipment, less accumulated depreciation........... 58,193,715 74,967,594 99,146,041
----------- ----------- -------------
Other assets:
Goodwill, net........................................................ -- -- 12,954,916
Restricted cash and cash equivalents................................. 1,870,000 2,314,408 2,314,408
Notes receivable from affiliates..................................... 4,468,974 4,772,974 4,879,880
Retainage............................................................ 513,556 -- --
Investments.......................................................... 229,000 229,000 229,000
Marketable securities................................................ -- 4,139,697 4,211,273
Deferred lease expense............................................... 655,008 488,212 482,681
Transportation contract rights, net.................................. 3,391,718 3,444,772 4,339,339
Due from affiliates.................................................. 235,302
Deferred financing and organization costs, net....................... 704,781 6,295,318 8,944,356
Notes receivable..................................................... 293,664 120,992 250,681
Deposits and other noncurrent assets................................. 858,482 1,343,661 1,395,470
Deferred tax asset................................................... -- -- 941,777
Covenant not to compete, net......................................... -- -- 190,000
----------- ----------- -------------
Total other assets............................................. 12,985,183 23,149,034 41,369,083
----------- ----------- -------------
$104,373,613 $154,350,976 $204,101,768
----------- ----------- -------------
----------- ----------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current:
Current portion of long-term debt.................................... $11,328,497 $ 140,008 $ 595,203
Accounts payable..................................................... 1,760,426 764,293 1,517,202
Accrued compensation................................................. 3,116,893 4,053,567 5,134,281
Current portion of insurance reserve................................. 1,447,000 2,336,738 2,336,738
Other accrued expenses and current liabilities....................... 4,693,025 629,855 3,325,317
Accrued interest..................................................... -- 4,927,085 2,925,319
----------- ----------- -------------
Total current liabilities...................................... 22,345,841 12,851,546 15,834,060
----------- ----------- -------------
Long-term debt, net of current portion................................. 48,326,701 110,488,215 157,970,128
Premium on debt issuance............................................... -- -- 1,364,100
----------- ----------- -------------
Other long-term liabilities............................................ 2,325,594 2,997,018 3,004,775
----------- ----------- -------------
Deferred income taxes.................................................. 1,890,000 400,000 --
----------- ----------- -------------
Commitments and contingencies
Stockholder's equity:
Common stock, shares authorized 200; issued and outstanding 100...... 250,000 250,000 250,000
Additional paid-in capital........................................... 13,188,926 13,188,926 13,188,926
Unrealized gain on marketable securities............................. -- 142,032 396,917
Retained earnings.................................................... 16,046,551 14,033,239 12,092,862
----------- ----------- -------------
Total stockholder's equity..................................... 29,485,477 27,614,197 25,928,705
----------- ----------- -------------
$104,373,613 $154,350,976 $204,101,768
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1996 1997
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
Revenues........................................... $ 114,005,547 $ 142,551,559 $ 166,078,034 $ 25,188,097 $ 59,153,376
------------- ------------- ------------- ------------- -------------
Costs and expenses:
Cost of operations............................... 91,428,364 115,108,380 136,068,428 22,879,755 51,254,085
General and administrative....................... 9,162,140 10,448,420 12,199,150 2,500,924 3,772,320
Depreciation and amortization.................... 7,627,575 9,735,982 10,417,187 2,560,876 3,292,279
------------- ------------- ------------- ------------- -------------
108,218,079 135,292,782 158,684,765 27,941,555 58,318,684
------------- ------------- ------------- ------------- -------------
Income from operations..................... 5,787,468 7,258,777 7,393,269 (2,753,458) 834,692
Interest........................................... (3,057,545) (5,098,443) (8,739,065) (1,492,433) (4,137,672)
Other income....................................... -- -- 133,977 -- 108,154
------------- ------------- ------------- ------------- -------------
Income (loss) before nonrecurring items,
reorganization items, (provision for)
benefit from income taxes and
extraordinary items...................... 2,729,923 2,160,334 (1,211,819) (4,245,891) (3,194,826)
Nonrecurring items:
Cancellation of leases........................... (185,760) -- -- -- --
------------- ------------- ------------- ------------- -------------
Income (loss) before reorganization
items,(provision for) benefit from income
taxes and extraordinary items............ 2,544,163 2,160,334 (1,211,819) (4,245,891) (3,194,826)
Reorganization items:
Professional fees................................ (33,595) -- -- -- --
------------- ------------- ------------- ------------- -------------
Income (loss) before (provision for)
benefit from income taxes and
extraordinary items...................... 2,510,568 2,160,334 (1,211,819) (4,245,891) (3,194,826)
(Provision for) benefit from income taxes.......... (978,632) (758,897) 600,936 1,747,703 1,341,827
------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary items... 1,531,936 1,401,437 (610,883) (2,498,188) (1,852,999)
Extraordinary items:
Forgiveness of debt, net of taxes of $0.......... 1,054,134 -- -- -- --
Loss on early extinguishment of debt, net of tax
benefit of $390,000............................ -- -- (526,974) -- --
Write-off of unamortized deferred finance
charges, net of tax benefit of $368,000 as a
result of refinancing.......................... -- -- (525,943) -- --
------------- ------------- ------------- ------------- -------------
Net income (loss).................................. $ 2,586,070 $ 1,401,437 $ (1,663,800) $ (2,498,188) $ (1,852,999)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK ADDITIONAL GAIN
-------------- PAID-IN RETAINED ON MARKETABLE
NO PAR VALUE CAPITAL EARNINGS SECURITIES TOTAL
-------------- ------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1995......... 250,000 13,188,926 14,645,114 -- 28,084,040
Net income..................... -- -- 1,401,437 -- 1,401,437
-------------- ------------- ---------------- -------------- -------------
BALANCE, JUNE 30, 1996......... 250,000 13,188,926 16,046,551 -- 29,485,477
Net loss....................... -- -- (1,663,800) -- (1,663,800)
Dividends...................... -- -- (349,512) -- (349,512)
Unrealized gain on marketable
securities................... -- -- -- 142,032 142,032
-------------- ------------- ---------------- -------------- -------------
BALANCE, JUNE 30, 1997......... 250,000 13,188,926 14,033,239 142,032 27,614,197
Net loss (unaudited)........... -- -- (1,852,999) -- (1,852,999)
Dividends (unaudited).......... -- -- (87,378) -- (87,378)
Unrealized gain on marketable
securities (unaudited)....... -- -- -- 254,885 254,885
-------------- ------------- ---------------- -------------- -------------
BALANCE, SEPTEMBER 30, 1997
(UNAUDITED).................. $ 250,000 $13,188,926 $ 12,092,862 $ 396,917 $ 25,928,705
-------------- ------------- ---------------- -------------- -------------
-------------- ------------- ---------------- -------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------- ------------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ 2,586,070 $ 1,401,437 $ (1,663,800) $ (2,498,188) $ (1,852,999)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Extraordinary items.................... (1,054,134) -- 1,836,312 -- (108,154)
Deferred income taxes.................. 294,000 (104,000) (1,490,000) (1,880,000) (1,341,777)
Depreciation........................... 7,317,828 8,876,163 9,555,463 2,294,438 2,865,361
Amortization........................... 309,747 859,819 1,311,212 266,439 686,719
Write-off of doubtful accounts
receivable........................... 200,000 569,000 500,000
Reserve for doubtful accounts
receivable........................... -- -- 250,000
Interest Accrued on Notes Receivable... -- -- -- -- (81,570)
Gain on sale of property and
equipment............................ (250,937) -- -- -- (119,761)
Transfer to restricted cash............ -- (1,120,000) (1,194,408)
Other.................................. -- (236,012) --
Decrease (increase) in:
Accounts receivable and retainage.... (7,203,507) (5,639,761) (5,786,498) (4,617,846) (989,032)
Inventory............................ (64,150) (309,169) (974,816) (85,000) 258,241
Prepaid expenses and other current
assets............................. (988,766) (1,669,625) 133,708 (415,632) (2,395,535)
Deferred lease expense............... 237,910 (515,176) 166,796 33,383 5,531
Deposits and other noncurrent
assets............................. 71,470 (43,640) (485,179) 39,548 (7,051)
Increase (decrease) in:
Accounts payable..................... 1,212,488 (357,467) (996,133) (222,343) (971,001)
Accrued expenses and other current
liabilities........................ 397,373 3,256,025 2,092,428 1,565,596 1,061,473
Other long-term liabilities.......... 1,300,000 735,619 1,601,137 660,428 7,757
------------ ------------ ------------- -------------- --------------
Net cash provided by (used in)
operating activities............... 4,365,392 5,703,213 4,856,222 (4,859,177) (2,981,798)
------------ ------------ ------------- -------------- --------------
------------ ------------ ------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------- ------------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from investing activities:
Acquisition of subsidiaries (net of cash
acquired of $207,441)................... -- -- -- -- (21,519,397)
Proceeds from sale of fixed assets........ -- -- -- -- 182,500
Additions to property, plant and
equipment............................... $ (2,515,843) $ (3,195,750) $ (14,441,800) (803,147) (12,575,183)
Purchase of transportation contract
rights.................................. (595,300) (688,833) (873,192) -- (16,722)
Due from affiliates....................... 141,651 (100,596) (303,999) -- (260,638)
Proceeds from disposition of property,
plant and equipment..................... 1,226,713 -- --
Notes receivable.......................... 150,383 808,983 161,832 (15,438) (806,414)
Marketable securities purchased........... -- -- (5,027,665) -- (1,880,365)
Proceeds from sale of marketable
securities.............................. -- -- -- -- 2,431,828
------------ ------------ ------------- -------------- --------------
Net cash used in investing
activities........................ (1,592,396) (3,176,196) (20,484,824) (818,585) (34,444,391)
------------ ------------ ------------- -------------- --------------
Cash flows from financing activities:
Proceeds of additional borrowings......... 10,754,203 8,143,521 118,473,894 7,410,511 43,035,000
Principal payments on borrowings.......... (12,789,637) (10,919,409) (79,580,780) (1,219,696) (13,052,950)
Deferred financing and organization
costs................................... (641,978) (328,384) (6,975,554) (49,674) (2,962,775)
Return of capital......................... (33,750) -- (349,512) -- (87,378)
Transfer to restricted cash............... -- (750,000) -- -- --
Payments to creditors under the plan of
reorganization.......................... (3,988,434) (1,161,615) (331,815) (118,820) --
------------ ------------ ------------- -------------- --------------
Net cash provided by (used in)
financing activities.............. (6,699,596) (5,015,887) 31,236,233 6,022,321 26,931,897
------------ ------------ ------------- -------------- --------------
Net increase (decrease) in cash and cash
equivalents............................... (3,926,600) (2,488,870) 15,607,631 344,559 (10,494,292)
Cash and cash equivalents, beginning of
year...................................... 7,626,728 3,700,128 1,211,258 1,210,988 16,818,889
------------ ------------ ------------- -------------- --------------
Cash and cash equivalents, end of year...... $ 3,700,128 $ 1,211,258 $ 16,818,889 1,555,547 6,324,597
------------ ------------ ------------- -------------- --------------
------------ ------------ ------------- -------------- --------------
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest.............................. $ 4,077,852 $ 5,436,240 $ 3,181,000 1,700,000 6,145,081
Income taxes.......................... 430,000 305,000 222,000 84,000 331,527
------------ ------------ ------------- -------------- --------------
------------ ------------ ------------- -------------- --------------
Supplemental schedule of noncash investing
and financing activities:
Loans incurred for purchase of property,
plant and equipment................... $ 15,501,260 $ 17,416,258 $ 11,887,542 10,720,761 6,368,900
Loans incurred for purchase of contract
rights................................ -- 2,670,000 --
Deferral of payment for contract
rights................................ -- 250,000 --
Note received from purchaser in exchange
for bus routes and buses.............. 680,000 -- --
Use of restricted cash to pay down
debt.................................. -- -- 750,000 750,000 --
Transfer of bus from inventory to fixed
assets................................ -- -- -- -- 47,558
------------ ------------ ------------- -------------- --------------
------------ ------------ ------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
1. COMPANY STRUCTURE
Prior to August 23, 1993, Atlantic Express Inc. ("AE") and subsidiaries
operated in two industries, transportation and entertainment. On August 23,
1993, as part of a reorganization, AE transferred all of its assets and
liabilities to the newly formed Atlantic Express Transportation Group Inc.
("AETG"), which became the new parent company. On January 30, 1997, AETG
transferred all operating assets and liabilities pertaining to the
transportation operations to a newly formed company called Atlantic Express
Transportation Corp. ("AETC"), which became the new parent company of the
companies operating in the transportation industry. The accompanying
consolidated financial statements give effect to the January 30, 1997
restructuring as if it had occurred prior to July 1, 1994 and, therefore,
present the financial position and results of operations of the transportation
companies for all periods presented.
2. BUSINESS
AETC is primarily engaged in providing school bus transportation services
for various municipalities in New York City, Nassau County, Suffolk County,
Westchester County, Connecticut, Pennsylvania, Missouri and New Jersey. AETC
also provides services to public transit systems for physically or mentally
challenged passengers, express commuter line and charter and tour services, and
transportation for pre-kindergarten children and Medicaid recipients.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of AETC and its
subsidiaries. Separate financial statements have not been included for the
subsidiary guarantors of AETC's 10 3/4% Senior Secured Notes due 2004 because,
with the exception of a captive insurance company subsidiary, Atlantic North
Casualty Company ("ANC"), which is precluded from being a guarantor under
relevant insurance law, all of the subsidiaries of the Company are guarantors.
ANC does not have a material effect on the operations of the Company. All
material intercompany transactions and balances have been eliminated.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of September 30, 1997 and for the
three months ended September 30, 1996 and 1997 are unaudited, and have been
prepared on the same basis as the audited financial statements included herein.
In the opinion of management, such unaudited financial statements include all
adjustments consisting of normal recurring accruals necessary to present fairly
the information set forth therein. Results for interim periods are not
indicative of results to be expected for an entire year.
REVENUES
Revenues are recognized when services are performed.
F-8
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and depreciated utilizing
primarily the straight-line method over the lives of the related assets. The
useful lives of property, plant and equipment for purposes of computing
depreciation are as follows:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Building and improvements........................................................... 15-31.5
Transportation equipment............................................................ 5-15
Furniture and fixtures.............................................................. 5-7
Machinery and equipment............................................................. 3-7
</TABLE>
MARKETABLE SECURITIES
In accordance with Financial Accounting Standards Board Statement No. 115,
AETC determines the classification of securities as held-to-maturity or
available-for-sale at the time of purchase, and reevaluates such designation as
of each balance sheet date. Securities are classified as held-to-maturity when
AETC has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at cost, adjusted for amortization of
premiums and discounts to maturity. Marketable securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with unrealized gains and losses, net of
tax, reported as a separate component of stockholder's equity. Realized gains
and losses are included in other income. The cost of securities sold is based on
the specific identification method.
CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments which are
readily convertible into cash.
INVENTORY
Inventory primarily consists of fuel, parts and supplies which are valued at
the lower of cost or market value. Cost is determined on a first-in, first-out
("FIFO") basis.
TRANSPORTATION CONTRACT RIGHTS
AETC has acquired certain transportation contract rights with respect to
revenue contracts and travel routes. Such costs are amortized utilizing the
straight-line method over five years. Accumulated amortization at June 30, 1996
and 1997 and September 30, 1997 was $4,312,877, $1,301,917 and $1,618,372,
respectively.
DEFERRED FINANCING AND OTHER COSTS
Deferred financing costs are amortized over the life of the related debt.
Other costs are amortized on a straight-line basis over five years. Accumulated
amortization at June 30, 1996 and 1997 and September 30, 1997 was $345,334,
$560,040 and $870,727, respectively.
F-9
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
AETC has recorded goodwill and a covenant not to compete with respect to the
acquisition of Central. Goodwill is amortized on a straight-line basis over 40
years. Covenant not to compete is being amortized on a straight-line basis over
five years. Accumulated, amortization at September 30, 1997 relating to goodwill
and covenant not to compete was $81,477 and $10,000, respectively.
INCOME TAXES
AETC follows the liability method under Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." The primary
objectives of accounting for taxes under SFAS 109 are to (a) recognize the
amount of tax payable for the current year and (b) recognize the amount of
deferred tax liability or asset for the future tax consequences of events that
have been reflected in AETC's financial statements or tax returns.
AETC files consolidated federal and state income tax returns with its parent
and fellow subsidiaries. The income tax charge allocated to AETC is based upon
the proportion of AETC's income to that of the consolidated group, which
approximates the charge which would be incurred by AETC on a stand-alone basis.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures of certain assets
and liabilities. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments including cash and cash
equivalents, restricted cash, accounts receivable including retainage, notes
receivable, accounts payable, accounts payable to creditors and long-term debt
approximated fair value as of June 30, 1996 and 1997 and September 30, 1997 due
to either short maturity or terms similar to those available to similar
companies in the open market. Marketable securities are valued at quoted market
value.
LONG-LIVED ASSETS
Long-lived assets, such as property and equipment, are evaluated for
impairment when events or changes in circumstances indicate that the carrying
amounts of the assets may not be recoverable through the estimated undiscounted
future cash flows from the use of these assets. When any such impairment exists,
the related assets will be written down to their fair value. This policy is in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets to be Disposed Of," which became
effective for fiscal 1997. No write-downs have been necessary through September
30, 1997.
F-10
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"), which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which supersedes SFAS No.
14, "Financial Reporting for Segments of a Business Enterprise," establishes
standards for the way that public enterprises report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS No. 131 defines operating
segments as components of any enterprise about which separate financial
information is available that is evaluated regularly by Management in deciding
how to allocate resources and in assessing performance.
Both SFAS Nos. 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Due to the recent issuance of these standards,
Management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.
4. RETAINAGE
Pursuant to certain municipal school bus contracts, certain contractual
amounts (retainage) are withheld from billings as a guarantee of performance by
AETC. At June 30, 1996, the majority of retainage ($6,272,177 of $6,785,733) was
classified as current since AETC elected to replace its retainage with a
performance security bond and, at June 30, 1997 and September 30, 1997 all
retainage is classified as current. All current retainage is included in
accounts receivable in the accompanying consolidated balance sheets.
5. RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents at June 30, 1996 consisted of a
$1,120,000 U.S. Treasury Note used as collateral for a letter of credit issued
in connection with AETC's workmen's compensation, self insurance deductible
reimbursement plan and a $750,000 segregated money market account issued as
collateral in connection with AETC's banking facility with Fleet Capital
Corporation.
At June 30, 1997 and September 30, 1997, restricted cash and cash
equivalents consisted of a $1,120,000 of U.S. Treasury Note and $1,200,000 of
commercial paper used as collateral for letters of credit issued in connection
with AETC's workmen's compensation and vehicle insurance deductible
reimbursement plans, respectively.
F-11
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
5. RESTRICTED CASH AND CASH EQUIVALENTS (CONTINUED)
Included in cash and cash equivalents is $1,564,211, $1,307,842 and
$1,565,522 at June 30, 1996 and 1997 and September 30, 1997, respectively, which
represents cash and cash equivalents of ANC which are only available for use by
that subsidiary.
6. PROPERTY, PLANT AND EQUIPMENT
Property plant and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, SEPTEMBER 30,
1996 1997 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Land........................................ $ 5,684,372 $ 8,484,373 $ 9,229,373
Building and improvements................... 12,013,276 15,516,059 19,336,690
Construction-in-progress.................... 2,249,815 -- --
Transportation equipment.................... 93,879,673 112,863,875 139,231,759
Machinery and equipment..................... 6,533,367 9,138,859 10,573,867
Furniture and fixtures...................... 1,114,322 1,801,002 2,579,864
-------------- -------------- --------------
121,474,825 147,804,168 180,951,553
Less: Accumulated depreciation.............. 63,281,110 72,836,574 81,805,512
-------------- -------------- --------------
$ 58,193,715 $ 74,967,594 $ 99,146,041
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
7. MARKETABLE SECURITIES
The amortized cost and estimated fair value of the marketable securities at
June 30, 1997 are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------
<S> <C> <C> <C>
GROSS
UNREALIZED
COST GAIN FAIR VALUE
------------ ---------- ------------
Available-for-sale:
Equity securities................................... $ 2,467,651 $ 136,918 $ 2,604,569
U.S. Treasury and other U.S. government debt
securities........................................ 4,054,254 3,722 4,057,976
Corporate debt securities........................... 1,218,456 1,392 1,219,848
------------ ---------- ------------
Total available-for-sale.......................... 7,740,361 142,032 7,882,393
Less: Cash equivalents.............................. 2,712,696 -- 2,712,696
------------ ---------- ------------
Total marketable securities....................... $ 5,027,665 $ 142,032 $ 5,169,697
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
The above marketable securities are held by a captive insurance subsidiary
and are available for use only by that company.
F-12
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
7. MARKETABLE SECURITIES (CONTINUED)
Contractual maturity dates of the above securities are as follows:
<TABLE>
<CAPTION>
COST FAIR VALUE
------------ ------------
<S> <C> <C>
January-May 1998.................................................. $ 3,163,362 $ 3,163,547
August 2005....................................................... 149,531 149,695
July 2006......................................................... 298,201 298,653
November 2007..................................................... 293,070 292,028
November 2008..................................................... 317,935 316,170
July 2014......................................................... 21,060 21,240
February 2026..................................................... 1,029,551 1,036,491
No maturity date (equity securities).............................. 2,467,651 2,604,569
------------ ------------
$ 7,740,361 $ 7,882,393
------------ ------------
------------ ------------
</TABLE>
The amortized cost and estimated fair value of the marketable securities at
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------------------
<S> <C> <C> <C> <C>
GROSS GROSS
UNREALIZED UNREALIZED
COST GAIN LOSS FAIR VALUE
------------ ---------- ---------- ------------
Available-for-sale:
Equity securities........................................... $ 2,489,649 $ 400,037 $ (43,203) $ 2,846,483
U.S. Treasury and other U.S. government debt securities..... 3,661,820 37,669 ( 3) 3,699,486
Corporate debt securities................................... 1,218,295 2,597 ( 180) 1,220,712
------------ ---------- ---------- ------------
Total available-for-sale.................................. 7,369,764 440,303 (43,386) 7,766,681
Less: Cash equivalents...................................... 2,785,408 -- -- 2,785,408
------------ ---------- ---------- ------------
Total marketable securities............................... $ 4,584,356 $ 440,303 $ (43,386) $ 4,981,273
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
</TABLE>
The above marketable securities are held by a captive insurance subsidiary
and are available for use only by that company.
Of the marketable securities, while all are available for use in the
ordinary course of business of the captive insurance company subsidiary,
$1,030,000 and $770,000 has been classified as current at June 30, 1996 and
September 30, 1997 respectively, in accordance with that subsidiary's cash on
hand and expected payments of claims in the next fiscal year.
Realized gains and losses on marketable securities included in other income
amounted to $125,000 for the year ended June 30, 1997 and $108,000 for the three
months ended September 30, 1997.
F-13
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
8. DEBT
The following represents the debt outstanding at June 30, 1996 and 1997:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, SEPTEMBER 30,
1996 1997 1997
-------------- -------------- --------------
<S> <C> <C> <C> <C>
10 3/4% senior secured notes, due February 2004,
with interest payable on February 1 and August 1
annually(A).....................................
$ -- $ 110,000,000 $ 150,000,000
The following items denoted by an asterisk (*)
were repaid prior to June 30, 1997 in connection
with the refinancing referred to in(A):
(*) 8%-11.88% notes payable in connection
with transportation equipment(B)..... 27,870,715 -- --
8.65%-9.10% Notes payable in connection with
transportation equipment........................
-- -- 4,119,150
8% Mortgage on real estate located in Bordertown,
New Jersey...................................... -- -- 1,488,572
(*) 9.5% mortgage on real estate located in
Bronx, New York...................... 1,098,926 -- --
(*) 9.5% mortgage on real estate, located
in Oceanside, New York............... 967,211 -- --
(*) 10% mortgage on real estate located in
Staten Island, New York.............. 829,767 -- --
8% mortgage on real estate located in Chittenango,
New York........................................ -- -- 728,143
(*) 9% mortgage on real estate located in
Setauket, New York................... 381,130 -- --
(*) 8% notes payable....................... 530,810 -- --
(*) 8.75% note payable..................... 290,400 -- --
(*) 9.5% mortgage on real estate located in
Queens, New York..................... 1,468,980 -- --
(*) 7% note payable issued in connection
with acquisition of subsidiaries..... 1,997,137 -- --
(*) 9.75% mortgage on real estate located
in St. Louis, Missouri............... 643,925 -- --
(*) 9.0% mortgage on real estate located in
St. Louis, Missouri.................. 43,335 -- --
(*) Prime plus 2% construction loan for
buildings being constructed in Staten
Island, New York..................... 392,879 -- --
(*) Term loan.............................. 8,743,663 -- --
(*) Revolving line of credit(C)............ 13,505,039 -- 1,635,000
Other............................................. 891,281 628,223 594,466
-------------- -------------- --------------
59,655,198 110,628,223 158,565,331
Less: Current portion............................. 11,328,497 140,008 595,203
-------------- -------------- --------------
$ 48,326,701 $ 110,488,215 157,970,128
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
F-14
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
8. DEBT (CONTINUED)
- ------------------------
(A) On February 4, 1997, AETC issued $110,000,000 of 10 3/4% senior secured
notes due 2004. The net proceeds from the sale of such notes were used to
repay its existing indebtedness, buy-out of certain leases and for certain
other corporate purposes. Such notes contain certain covenants, including
limitations on payments of dividends. The notes were required to be
registered with the Securities and Exchange Commission by July 3, 1997. The
registration did not occur by its given deadline, and AETC is required to
pay liquidated damages of $5,500 per week for the first 90 days and $11,000
per week thereafter until such registration is effective.
Penalties incurred upon the above-mentioned early extinguishment of debt and
related unamortized deferred finance charges written off have been recorded
net of their related tax benefits as extraordinary items.
On August 14, 1997 AETC issued an additional $40,000,000 aggregate principal
amount of 10 3/4% Senior Secured Notes due 2004. The net proceeds from the
sale of these notes were used to finance the acquisition of two bus
companies as described in Note 16. These notes also contain certain
covenants, including limitations on payment of dividends. The notes were
issued at a selling price of 103.5% of the principal amount, which resulted
in a premium of $1,400,000. The premium is being amortized over the term of
the notes. The unamortized balance at September 30, 1997 was $1,364,100 and
is presented on the balance sheet as a long-term liability. These notes are
being registered with the Securities and Exchange Commission concurrently
with the registration of $110,000,00 aggregate principal amount of the
Company's 10 3/4% Senior Secured Notes due 2004. As mentioned above, the
registration of these notes did not occur by its deadline. As a result,
commencing August 4, 1997, AETC is required to pay liquidated damages of
$7,500 per week for the first 60 days and $15,000 per week thereafter. The
amount of these liquidated damages covers both offerings.
(B) Includes capitalized leases of $7,565,726 and $-0- at June 30, 1996 and
1997, respectively, relative to vehicles with net book values of $7,532,724
and $-0-, respectively, as of the same dates.
(C) In connection with the refinancing referred to in (A), the line of credit at
June 30, 1996 was repaid and replaced with a $30 million revolving credit
facility with a different lender. Borrowings under the revolving credit
facility are available for working capital and general corporate purposes,
including letters of credit, subject to the borrowing conditions contained
therein.
The revolving credit facility is secured by first priority liens on the cash,
accounts receivable, inventory, general intangibles and documents and
instruments related thereto of the Company and its restricted subsidiaries.
The revolving credit facility expires on February 4, 2000, unless extended.
The interest rate per annum applicable to the revolving credit facility will
be the prime rate, as announced by CoreStates Bank N.A., plus 0.75% or, at
the Company's option, the adjusted Eurodollar rate (as defined) plus 2.75%,
and provides for a one-time 0.25% reduction in rates upon the Company
reaching certain profitability levels. The Company is required to pay
certain fees in connection with the revolving credit facility, including but
not limited to an unused line fee of 0.375% on the undrawn portion of the
first $22 million of the revolving credit commitment.
F-15
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
8. DEBT (CONTINUED)
The revolving credit facility contains negative covenants similar to those
contained in the senior notes referred to in (A) and customary events of
default.
As of June 30, 1997, the Company had not drawn on this facility. As of
September 30, 1997, the Company had borrowings of $1,635,000 at an effective
rate which approximately is 9.25%
Aggregate yearly maturities of long-term debt as of September 30, 1997,
after the refinancing described in Note 8(a), are as follows:
<TABLE>
<CAPTION>
TOTAL
--------------
<S> <C>
1998.......................................................................... $ 595,203
1999.......................................................................... 657,040
2000.......................................................................... 718,099
2001.......................................................................... 713,131
2002.......................................................................... 647,361
Thereafter.................................................................... 155,234,497
--------------
Total..................................................................... $ 158,565,331
--------------
--------------
</TABLE>
9. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1996 1997
---------- ---------- ------------- ------------- -------------
Current:
Federal............... $ 483,000 $ 687,000 $ -- $ -- $ --
State and local....... 202,000 176,000 131,000 -- --
---------- ---------- ------------- ------------- -------------
685,000 863,000 131,000 -- --
Deferred taxes.......... 294,000 (104,000) (1,490,000) (1,748,000) (1,342,000)
---------- ---------- ------------- ------------- -------------
$ 979,000 $ 759,000 $ (1,359,000) $ (1,748,000) $ (1,342,000)
---------- ---------- ------------- ------------- -------------
---------- ---------- ------------- ------------- -------------
</TABLE>
Deferred tax liabilities are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, SEPTEMBER 30,
1996 1997 1997
------------ ------------ --------------
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation.................................... $ 6,794,000 $ 9,808,000 $ 10,762,000
------------ ------------ --------------
Deferred tax assets:
Capital leases.................................. (219,000) -- --
Allowance for doubtful receivables.............. -- (105,000) (105,000)
Loss and tax credit carryforwards............... (4,685,000) (9,303,000) (11,599,000)
------------ ------------ --------------
(4,904,000) (9,408,000) (11,704,000)
------------ ------------ --------------
Deferred tax liabilities (asset) (net)............ $ 1,890,000 $ 400,000 $ (942,000)
------------ ------------ --------------
------------ ------------ --------------
</TABLE>
F-16
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
9. INCOME TAXES (CONTINUED)
The actual tax expense (benefit) differs from the tax expense computed by
applying the U.S. corporate rate of 34% as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1996 1997
---------- ---------- ------------- ------------- -------------
Tax expense (benefit) at
statutory rate............. $ 853,000 $ 734,000 $ (1,028,000) $ (1,444,000) $ (1,086,000)
Adjustments to tax
contingency reserve related
to bankruptcy issues....... (70,000) (136,000) -- -- --
State and local tax expense
(benefit).................. 202,000 176,000 (331,000) (304,000) (256,000)
Other........................ (6,000) (15,000) -- -- --
---------- ---------- ------------- ------------- -------------
Actual tax expense
(benefit).................. $ 979,000 $ 759,000 $ (1,359,000) $ (1,748,000) $ (1,342,000)
---------- ---------- ------------- ------------- -------------
---------- ---------- ------------- ------------- -------------
</TABLE>
At June 30, 1997, AETC had the following carryforwards available.
<TABLE>
<CAPTION>
TAX REPORTING EXPIRATION DATE
PURPOSES THROUGH
------------- ---------------
<S> <C> <C>
Investment tax credits available to offset certain future
taxes....................................................... $ 967,000 2001
Net operating loss carryforwards.............................. 13,350,000 2012
Alternative minimum tax credits available to offset certain
future taxes................................................ 2,267,000 None
------------- -----
------------- -----
</TABLE>
10. FORGIVENESS OF DEBT
In fiscal 1995, the Company had forgiveness of debt of $1,054,000 as a
result of the resolution of Federal claims following a reorganization in fiscal
1994.
11. RELATED PARTY TRANSACTIONS
AETC had amounts payable to the parent company of $82,932 and $17,405 at
June 30, 1996 and 1997, respectively. AETC had notes receivable from affiliated
companies of $4,640,536, $4,790,379 and $4,879,880 at June 30, 1996 and 1997 and
September 30, 1997, respectively, and amounts receivable from affiliated
companies of $235,302 arising from cash advances. In connection with an
amendment to the notes issued January 1, 1997, the notes accrue interest,
commencing January 1, 1997, at 6.8% payable at maturity on July 1, 2004. During
the year ended June 30, 1996, AETC received management fee income from
affiliated companies of $255,000. No management fees were charged to or received
from related parties during the other periods presented. AETC incurred rent
expense of $224,550 for the year ended June 30, 1997 and $57,000 for the three
months ended September 30, 1997 under operating leases of real property from
affiliated companies.
F-17
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES
LEASES
Minimum rental commitments as of June 30, 1997 for noncancellable equipment
and real property operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION
REAL PROPERTY EQUIPMENT TOTAL
------------- -------------- -------------
1998................................................ $ 1,887,538 $ 2,298,546 $ 4,186,084
1999................................................ 1,739,191 1,777,038 3,516,229
2000................................................ 1,435,849 1,342,829 2,778,678
2001................................................ 1,403,551 755,761 2,159,312
2002 and thereafter................................. 7,577,330 713,525 8,290,855
------------- -------------- -------------
$ 14,043,459 $ 6,887,699 $ 20,931,158
------------- -------------- -------------
------------- -------------- -------------
</TABLE>
During the year ended June 30, 1997 and through the period ending September
30, 1997 as part of its normal course of business, AETC entered into various
rental and purchase agreements for replacement vehicles and additional vehicles
to satisfy new transportation contracts.
Total rental charges included in cost of operations were $3,358,818,
$4,539,202 and $5,301,131 for the years ended June 30, 1995, 1996 and 1997,
respectively, and $430,444 and $560,134 for the three months ended September 30,
1996 and 1997, respectively.
LITIGATION
AETC is a defendant with respect to various claims involving accidents and
other issues arising in the normal conduct of its business. Management and
counsel believe the ultimate resolution of these claims will not have a material
impact on the financial statements of AETC.
EMPLOYMENT AND CONSULTING AGREEMENTS
AETC is obligated under various employment and consulting agreements with
certain officers including the chief financial officer, which provide for base
annual compensation aggregating $1,382,666 subject to increase by a percentage
equal to the percentage increase in the Regional Consumer Price Index with a
maximum of 5% of base salary. With the exception of the agreement with the chief
financial officer, the agreements extend through January 15, 2002, subject to an
extension by the Board of Directors for up to three more years. Six months of
severance pay is payable in the event of nonrenewal of the agreements. The
agreement with the chief financial officer extends through January 1998.
OUTSTANDING LETTERS OF CREDIT
Letters of credit totaling approximately $3,527,000, $2,591,000 and
$2,591,000 were outstanding as of June 30, 1996 and 1997, and September 30, 1997
respectively. The letters of credit serve primarily as security in connection
with financial obligations.
F-18
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
PERFORMANCE SECURITY
The Company's school bus transportation contracts generally provide for
performance security in one or more of the following forms: performance bonds,
letters of credit and cash retainages. Under current arrangements, the Company
secures the performance of its New York Board of Education contracts through the
use of performance bonds plus cash retainages of 5% of amounts due to the
Company. In most instances, the Company has opted to satisfy its security
performance requirements by posting performance bonds. At June 30, 1997 and
September 30, 1997, the Company had provided performance bonds aggregating
approximately $20 million, and $44 million, respectively. In addition, at
September 30, 1997 the Company provided an additional $1.0 million of
performance bonds for supply of buses.
13. EMPLOYEE SAVINGS PLAN
AETC offers an Employee Savings Investment Plan (the "Plan") under which
eligible participants can invest up to 15% of base earnings subject to a
specified maximum among several investment alternatives. An employer matching
contribution up to a maximum of 2.5% of the employee's compensation is also
invested. AETC's contribution was approximately $69,000, $69,000 and $64,000 for
the years ended June 30, 1995, 1996 and 1997, respectively, and $37,000 for the
three months ended September 30, 1997.
15. MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK
For the years ended June 30, 1995, 1996 and 1997 and the three months ended
September 30, 1996 and 1997, revenues derived from the Board of Education of the
City of New York were approximately 57%, 50%, 47% 41% and 22% of total revenues,
respectively. As of June 30, 1996 and 1997 and September 30, 1997, AETC had
accounts receivable including retainage from this customer of $13,068,868,
$11,057,558, and $9,264,804 respectively. Fiscal 1997 revenues and accounts
receivable include $750,000 relative to this customer in connection with lost
revenues due to delayed school openings in September 1993. During fiscal 1995,
contracts with this customer were extended through the year 2000.
At June 30, 1996 and 1997, substantially all cash and cash equivalents were
on deposit with one major financial institution.
16. ACQUISITIONS
During the years ended June 30, 1995, 1996 and 1997, AETC acquired the
operations of several companies. Such investments included the purchase of
contract rights and vehicles. The acquisitions were not material to the
consolidated financial statements.
Effective July 1, 1997 AETC acquired 100% of the common stock of Central New
York Coach Sales and Service Inc. and Jersey Bus Sales, Inc. and related real
property (collectively "Central"). These companies are engaged in the sale and
service of buses as well as school bus contract operations. Total consideration
consisted of $26.5 million of cash less Central's long term indebtedness, as of
July 1, 1997,
F-19
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
16. ACQUISITIONS (CONTINUED)
which was $4.8 million, and the issuance of mortgages of $2.2 million relating
to certain real property. In connection with the acquisition, the following
intangible assets were recorded:
<TABLE>
<S> <C>
Covenant not to compete........................ $ 200,000
Transportation contract rights................. 1,200,000
Goodwill....................................... 13,036,393
</TABLE>
The Consolidated Statement of Operations for the three months ended
September 30, 1997 includes the results of operations of Central from July 1,
1997 through September 30, 1997. Had the acquisition of Central occurred on July
1, 1996, the pro forma consolidated results of operations of AETC for the year
ended June 30, 1997 and the three months ended September 30, 1996 after
elimination of inter-company transactions and after giving pro forma effect to
employment agreements, interest and taxes at 45% and 42% respectively would have
been as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,
JUNE 30, 1997 1996
-------------- -------------
<S> <C> <C>
Sales..................................... $ 222,451,018 $ 49,330,097
Net loss.................................. 333,570 1,608,188
</TABLE>
In May, 1997, the Los Angeles Unified School District awarded three
contracts to the Company for a period of five years, commencing September, 1997.
Results of operations relative to these contracts were not material through
September 30, 1997. The Company incurred approximately $13 million of capital
expenditures in connection with this entry into the Los Angeles market.
F-20
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Central New York Coach Sales & Service, Inc.
and Jersey Bus Sales, Inc.
We have audited the accompanying combined balance sheets of Central New York
Coach Sales & Service, Inc. and Jersey Bus Sales, Inc. as of December 31, 1995
and 1996, and the related combined statements of income and retained earnings
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Central New York
Coach Sales & Service, Inc. and Jersey Bus Sales, Inc. 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.
BDO Seidman, LLP
New York, New York
June 13, 1997
F-21
<PAGE>
CENTRAL NEW YORK COACH SALES & SERVICE, INC.
AND JERSEY BUS SALES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30,
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current:
Cash............................................................... $ 169,391 $ 606,688 $ 207,441
Note receivable (Note 5)........................................... 118,506 151,341 345,249
Accounts receivable (Note 9)....................................... 7,394,259 5,880,642 4,743,649
Due from officers.................................................. 74,964 293,195 414,222
Due from affiliates................................................ 3,832 36,492 --
Inventories (Notes 6 and 9)........................................ 3,189,687 5,976,831 8,661,047
Current portion of direct financing lease (Note 7)................. 38,781 43,115 45,460
Prepaid expenses and other current assets.......................... 66,707 93,838 80,529
------------- ------------- -------------
Total current assets............................................ 11,056,127 13,082,142 14,497,597
------------- ------------- -------------
Property, plant and equipment--at cost, net (Notes 8, 9 and 12)..... 9,547,977 8,957,154 8,114,906
------------- ------------- -------------
Other assets:
Note receivable (Note 5)........................................... 220,117 95,661 184,830
Cash surrender value of life insurance............................. 33,443 41,588 44,758
Net investment in direct financing lease (Note 7).................. 76,196 33,082 4,779
------------- ------------- -------------
Total other assets.............................................. 329,756 170,331 234,367
------------- ------------- -------------
$ 20,933,860 $ 22,209,627 $ 22,846,870
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Note payable--bank (Note 9)........................................ $ 4,376,323 $ 5,887,672 $ 8,217,746
Accounts payable (Note 17)......................................... 723,874 614,875 1,723,910
Current portion of obligations under capital leases (Note 10)...... 169,897 196,300 211,003
Current portion of long-term debt (Note 12)........................ 1,614,695 1,599,589 1,543,787
Accrued liabilities................................................ 597,645 938,777 712,937
Note payable--shareholders (Note 11)............................... 128,720 128,670 128,670
------------- ------------- -------------
Total current liabilities....................................... 7,611,154 9,365,883 12,538,053
Obligations under capital leases (Note 10) 616,059 419,759 310,448
Long-term debt (Note 12)............................................ 4,861,313 3,541,112 2,707,924
------------- ------------- -------------
Total liabilities............................................... 13,088,526 13,326,754 15,556,425
------------- ------------- -------------
Commitments and contingencies (Notes 15, 17 and 19)
Shareholders' equity:
Common stock (Note 16)............................................. 11,000 11,000 11,000
Additional paid-in capital......................................... 24,000 24,000 24,000
Retained earnings.................................................. 7,810,334 8,847,873 7,255,445
------------- ------------- -------------
Total shareholders' equity...................................... 7,845,334 8,882,873 7,290,445
------------- ------------- -------------
$ 20,933,860 $ 22,209,627 $ 22,846,870
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to combined financial statements.
F-22
<PAGE>
CENTRAL NEW YORK COACH & SERVICE, INC. AND
JERSEY BUS SALES, INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues (Note 18):
Bus and parts sales...................... 41,921,027 60,033,058 65,118,656 15,296,195 13,950,828
Contract revenue......................... 936,185 2,168,957 4,285,349 3,279,398 3,395,219
Other revenues........................... 1,589,452 1,592,801 1,267,445 150,720 265,965
------------ ------------ ------------ ------------ ------------
Total revenues......................... 44,446,664 63,794,816 70,671,450 18,726,313 17,612,012
------------ ------------ ------------ ------------ ------------
Cost of revenues...........................
Bus and parts costs...................... 37,325,589 53,545,126 58,758,524 13,790,382 12,424,494
Contract costs........................... 839,111 1,825,521 3,634,941 2,787,488 2,885,936
Other costs.............................. 871,515 965,992 925,855 105,504 186,175
------------ ------------ ------------ ------------ ------------
Total costs............................ 39,036,215 56,336,639 63,319,320 16,683,374 15,496,605
------------ ------------ ------------ ------------ ------------
Gross profit........................... 5,410,449 7,458,177 7,352,130 2,042,939 2,115,407
Selling, general and administrative
expenses................................. 3,572,167 4,567,730 4,726,644 2,186,572 2,673,118
------------ ------------ ------------ ------------ ------------
Income (loss) from operations.......... 1,838,282 2,890,447 2,625,486 (143,633) (557,711)
Interest expense, net...................... 690,163 860,182 1,087,521 393,798 473,743
------------ ------------ ------------ ------------ ------------
Income (loss) before provision for
income taxes......................... 1,148,119 2,030,265 1,537,965 (537,431) (1,031,454)
Provision for income taxes (Note 13)....... 17,600 31,849 8,426 -- 245,974
------------ ------------ ------------ ------------ ------------
Net income (loss).......................... 1,130,519 1,998,416 1,529,539 (537,431) (1,277,428)
Retained earnings, beginning of period..... 5,873,210 5,919,918 7,810,334 7,810,334 8,847,873
Shareholder distributions.................. (1,083,811) (108,000) (492,000) (200,000) (315,000)
------------ ------------ ------------ ------------ ------------
Retained earnings, end of period........... $ 5,919,918 $ 7,810,334 $ 8,847,873 $ 7,072,903 $ 7,255,445
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to combined financial statements.
F-23
<PAGE>
CENTRAL NEW YORK COACH SALES & SERVICE, INC. AND
JERSEY BUS SALES, INC.
COMBINED STATEMENTS OF CASH FLOWS (NOTE 4)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income (loss).................. $ 1,130,519 $ 1,998,416 $ 1,529,539 $ (537,431) $ (1,277,428)
------------- ------------- -------------- ------------- -------------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization.... 1,248,088 1,583,596 1,814,473 937,078 876,046
Bad debt expense............... 14,689 13,402 22,616 22,702 34,396
Gain on sale of equipment...... -- -- -- -- (341,627)
Changes in assets and
liabilities affecting cash
flows from operating
activities:
(Increase) decrease in:
Accounts receivable.......... (17,500) (2,787,276) 1,491,001 887,135 757,407
Due from officers.............. 40,187 (51,686) (218,232) (47,145) (60,275)
Due from affiliates............ (145,909) 203,614 (32,660) (321,252) (131,467)
Inventories.................... (427,559) 3,539 (2,272,789) (1,165,012) (2,684,217)
Prepaid expenses and other
current assets............... (22,981) 31,365 (27,131) 14,335 18,909
(Decrease) increase in:
Accounts payable............... 35,751 (190,581) (108,999) 10,447 1,109,035
Due to affiliate............... 110,908 (119,115) -- 325,084 --
Accrued liabilities............ (292,045) 267,412 341,149 93,505 (57,682)
------------- ------------- -------------- ------------- -------------
Total adjustments............ 543,629 (1,045,730) 1,009,428 756,877 (479,475)
------------- ------------- -------------- ------------- -------------
Net cash provided by (used
in) operating activities... 1,674,148 952,686 2,538,967 219,446 (1,756,903)
------------- ------------- -------------- ------------- -------------
</TABLE>
See accompanying notes to combined financial statements
F-24
<PAGE>
CENTRAL NEW YORK COACH SALES & SERVICE, INC. AND
JERSEY BUS SALES, INC.
COMBINED STATEMENTS OF CASH FLOWS (NOTE 4) (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C>
Cash flows from investing
activities:
Payments received on note
receivable................ 297,372 127,413 205,254 139,962 62,113
Increase in note
receivable................ -- (238,592) (113,645) (57,744) --
Buses purchased............. (155,608) (1,653,947) (91,304) -- --
Recovery of investment in
direct financing lease.... 14,721 34,883 38,780 27,056 25,958
Additions to property, plant
and equipment............. (1,174,410) (361,079) (502,915) (272,015) (178,636)
Proceeds from sale of
equipment................. -- -- -- -- 419,615
Increase in cash surrender
value of life insurance... (4,695) -- (8,145) -- (3,170)
---------- ---------- ----------- ---------- ----------
Net cash provided by
(used in) investing
activities............ (1,022,620) (2,091,322) (471,975) (162,741) 325,880
---------- ---------- ----------- ---------- ----------
Cash flows from financing
activities:
Net proceeds from
financing................. 1,798,079 15,620,867 17,473,013 1,524,515 2,330,074
Payments on short-term
financing................. -- (12,160,000) (16,182,500) -- --
Principal payments on long-
term debt................. (1,278,302) (2,103,801) (2,258,311) (974,113) (888,990)
Principal payments on
obligations under capital
leases.................... (33,561) (147,046) (169,897) (81,883) (94,608)
Distributions to
shareholders.............. (1,083,811) (108,000) (492,000) (200,000) (315,000)
---------- ---------- ----------- ---------- ----------
Net cash provided by
(used in) financing
activities............ (597,595) 1,102,020 (1,629,695) 268,519 1,031,476
---------- ---------- ----------- ---------- ----------
Net increase (decrease) in
cash........................ 53,933 (36,616) 437,297 325,224 (399,547)
Cash, beginning of year....... 152,074 206,007 169,391 169,391 606,688
---------- ---------- ----------- ---------- ----------
Cash, end of year............. $ 206,007 $ 169,391 $ 606,688 $ 494,615 $ 207,141
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
</TABLE>
See accompanying notes to combined financial statements
F-25
<PAGE>
CENTRAL NEW YORK COACH SALES & SERVICE, INC. AND
JERSEY BUS SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX
MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
1. BUSINESS
Jersey Bus Sales, Inc. is primarily involved in the sale and modification of
school buses to transportation corporations and school districts in the State of
New Jersey. In addition, the Company is involved with providing contract
transportation to various school districts.
Central New York Coach Sales & Service, Inc. is primarily involved in the
sale and modification or lease of school buses to transportation companies and
school districts in Upstate New York.
2. BASIS OF PRESENTATION
The combined financial statements include the accounts of Central New York
Coach Sales and Service, Inc. and Jersey Bus Sales, Inc. (collectively, the
"Companies"). The financial statements of these entities are being presented on
a combined basis due to common ownership and control.
All significant intercompany balances and transactions have been eliminated.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following represents the more significant accounting policies:
INVENTORIES
Inventories are comprised of buses and spare parts and are stated at the
lower of cost (first-in, first-out basis) or market value.
DEPRECIATION AND AMORTIZATION
The cost of property, plant and equipment is depreciated over the estimated
useful lives of the related assets using the straight-line and accelerated
methods. Leasehold improvements are amortized over the shorter of the asset life
or lease term using the straight-line method.
INCOME TAXES
The Companies' shareholders have elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code and New York State tax law. Under
these provisions, the Companies' taxable income and other tax attributes are
passed through to the individual shareholders. Deferred taxes are provided under
the liability method in order to recognize the amount of future tax consequences
of events that have been reflected in the Companies' financial statements and
tax returns.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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-26
<PAGE>
CENTRAL NEW YORK COACH SALES & SERVICE, INC. AND
JERSEY BUS SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX
MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments including cash, notes
receivable, notes payable (including payable to shareholders), long-term debt,
accounts receivable and accounts payable approximate fair value due to either
short maturity or terms similar to those available to similar companies in the
open market.
REVENUE RECOGNITION
Revenue relating to bus sales is recognized upon delivery of the vehicles.
Revenue for school bus transportation (contract revenue) is recognized when
services are performed. Revenue for bus rentals is recognized over the lease
term.
UNAUDITED INTERIM COMBINED FINANCIAL STATEMENTS
The combined financial statements as of June 30, 1997 and for the six months
ended June 30, 1996 and 1997 are unaudited, and have been prepared on the same
basis as the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
consisting of normal recurring accruals necessary to present fairly the
information set forth therein. Results for interim periods are not indicative of
results to be expected for an entire year.
4. STATEMENTS OF CASH FLOWS
(a) Supplemental disclosures of cash flow information are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1995 1996
- -------------------------------------------------------------------------- ---------- ------------ ------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................................................ $ 629,500 $ 930,864 $ 1,011,380
Income taxes.............................................................. 48,339 14,625 13,054
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
(b) Noncash investing and financing activities were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1995 1996
- -------------------------------------------------------------------------- ---------- ------------ ------------
<S> <C> <C> <C>
Long-term debt incurred for purchase of equipment......................... $ -- 2,450,000 $ 1,143,786
Capital lease obligations incurred for purchase of buses.................. 966,561 -- --
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
5. NOTE RECEIVABLE
At December 31, 1995 and 1996, note receivable consisted of notes with
interest ranging from 9% to 12%, maturing at various dates through September
1999.
F-27
<PAGE>
CENTRAL NEW YORK COACH SALES & SERVICE, INC. AND
JERSEY BUS SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX
MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
6. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C> <C>
JUNE 30,
1995 1996 1997
------------ ------------ ------------
Parts................................................................... $ 716,877 $ 889,821 $ 1,423,969
Buses................................................................... 2,472,810 5,087,010 7,237,078
------------ ------------ ------------
$ 3,189,687 $ 5,976,831 $ 8,661,047
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
7. NET INVESTMENT IN DIRECT FINANCING LEASE
The following represents the components of the net investment in a direct
financing lease:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1996
- ------------------------------------------------------------------------------------------ ---------- ----------
<S> <C> <C>
Minimum noncancelable lease payments receivable........................................... $ 132,489 $ 83,419
Less: Unearned lease income............................................................... (17,512) (7,222)
---------- ----------
Net investment in direct financing lease.................................................. 114,977 76,197
Less: Current portion..................................................................... (38,781) (43,115)
$ 76,196 $ 33,082
---------- ----------
---------- ----------
</TABLE>
Future minimum noncancelable lease payments to be received under such leases
through expiration and in the aggregate as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -------------------------------------------------------------------------------------------------------
<S> <C>
1997................................................................................................... $ 49,070
1998................................................................................................... 34,349
---------
Total future minimum lease payments.................................................................... 83,419
Less: Interest......................................................................................... (7,222)
---------
Net future minimum lease payments...................................................................... $ 76,197
---------
---------
</TABLE>
F-28
<PAGE>
CENTRAL NEW YORK COACH SALES & SERVICE, INC. AND
JERSEY BUS SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX
MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
8. PROPERTY, PLANT AND EQUIPMENT
Major classifications of property, plant and equipment at cost are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1996
- ----------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Equipment.......................................................................... $ 511,459 $ 667,230
Office furniture and equipment..................................................... 425,042 507,775
Vehicles........................................................................... 458,441 529,210
Buses under contract agreements.................................................... 5,332,212 6,069,111
Buses under operating leases....................................................... 5,964,974 5,430,020
Land............................................................................... 25,500 --
Building........................................................................... 188,866 188,866
Leasehold improvements............................................................. 1,533,232 1,709,783
------------- -------------
14,439,726 15,101,995
Less: Accumulated depreciation and amortization.................................... 4,891,749 6,144,841
------------- -------------
$ 9,547,977 $ 8,957,154
------------- -------------
------------- -------------
</TABLE>
9. NOTE PAYABLE--BANK
Note payable to bank represents demand notes under revolving lines of
credit. The notes are secured by accounts receivable, inventories and equipment
and bear interest at prime plus 1/4%, and prime plus 1/2%. At December 31, 1996,
the Companies had $458,544 of unused lines of credit to be drawn upon as needed.
In February 1997, the Companies entered into an agreement with the bank
whereby $923,000 was converted to a term loan. Accordingly, this amount has been
classified as long-term debt as of December 31, 1996 (see Note 12).
10. OBLIGATIONS UNDER CAPITAL LEASES
The Companies are lessees of buses under capital leases expiring in
September 1999. The assets and liabilities under capital leases are recorded at
the lower of the present value of the minimum lease payments or the fair value
of the assets. The assets are amortized over the lower of their related lease
terms or their estimated productive lives. Amortization of assets under capital
leases included in depreciation expense for 1994, 1995 and 1996 was $44,188,
$176,754 and $176,754, respectively. The net book value of assets under capital
leases was $486,071 and $309,317 at December 31, 1995 and 1996, respectively.
F-29
<PAGE>
CENTRAL NEW YORK COACH SALES & SERVICE, INC. AND
JERSEY BUS SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX
MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
10. OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
Minimum future lease payments under capital leases as of December 31, 1996,
through the end of the lease terms are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -----------------------------------------------------------------------------------------------------
<S> <C>
1997................................................................................................. $ 273,096
1998................................................................................................. 273,096
1999................................................................................................. 204,822
-----------
Total minimum lease payments......................................................................... 751,014
Less: Amount representing interest................................................................... (134,955)
-----------
$ 616,059
-----------
-----------
</TABLE>
11. NOTE PAYABLE--SHAREHOLDERS
Note payable--shareholders represents short-term unsecured notes bearing
interest at 9%.
12. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1996
- ------------------------------------------------------------------------------------ ------------- -------------
<S> <C> <C>
Loan payable to affiliate by common ownership in monthly installments of $1,681,
including interest at 9%, through March 1996, unsecured........................... $ 4,967 $ --
Loans payable to supplier in aggregate monthly installments of $16,473, including
interest at various rates ranging from 8.13% to 10.6%, expiring at various dates
through September 1998, secured by buses.......................................... 227,241 103,246
Loans payable to financing institutions in aggregate monthly installments (with the
exception of skip payments in the months of August and September) of $61,485,
including interest at various rates ranging from 8.95% to 10.57%, expiring at
various dates through October 2000, secured by buses.............................. 2,598,094 1,557,818
Loans payable to bank in aggregate monthly installments of $51,878, excluding
interest at various rates ranging from 8.00% to 9.50%, expiring at various dates
through August 2000, secured by buses............................................. 2,183,256 1,608,924
Loan payable to bank with a monthly installment of $16,785, plus interest at 8.37%
through July 2002, secured by buses (see Note 10)................................. -- 923,000
Loans payable in aggregate monthly installments of $45,034, plus interest ranging
from 6.86% to 9.44%, expiring at various dates through April 2000, secured by
buses under operating leases...................................................... 1,462,450 947,713
------------- -------------
6,476,008 5,140,701
Less: Current portion............................................................... (1,614,695) (1,599,589)
------------- -------------
$ 4,861,313 $ 3,541,112
------------- -------------
------------- -------------
</TABLE>
F-30
<PAGE>
CENTRAL NEW YORK COACH SALES & SERVICE, INC. AND
JERSEY BUS SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX
MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
Principal payments of long-term debt through maturity are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ----------------------------------------------------------------------------------------------------
<S> <C>
1997................................................................................................ $ 1,599,589
1998................................................................................................ 1,201,623
1999................................................................................................ 896,431
2000................................................................................................ 1,157,892
2001................................................................................................ 167,851
Thereafter.......................................................................................... 117,315
------------
$ 5,140,701
------------
------------
</TABLE>
SUBSEQUENT EVENT
Subsequent to year-end, the Companies converted $923,000 from the line of
credit to a term note payable in 55 monthly installments of $16,785 plus
interest at 8.37%. The above conversion of debt has been reflected as of
December 31, 1996 (see Note 10).
13. INCOME TAXES
Under New York State tax law, Subchapter S corporations having taxable
income in excess of $200,000 are subject to a franchise tax and surcharge. The
provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1995 1996
- ---------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Current state taxes............................................................... $ 17,600 $ 31,849 $ 8,426
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred taxes have not been provided as they were immaterial for all
periods presented.
14. LEASES
The Companies are lessors of buses under operating leases expiring in
various years through 2000. Minimum future rentals to be received on
noncancelable operating leases as of December 31, 1996 through expiration are:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ----------------------------------------------------------------------------------------------------
<S> <C>
1997................................................................................................ $ 955,146
1998................................................................................................ 767,536
1999................................................................................................ 674,416
2000................................................................................................ 167,379
------------
$ 2,564,477
------------
------------
</TABLE>
F-31
<PAGE>
CENTRAL NEW YORK COACH SALES & SERVICE, INC. AND
JERSEY BUS SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX
MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
15. RETIREMENT PLAN
The Companies sponsor profit sharing plans under Section 401(k) of the
Internal Revenue Code for the benefit of all eligible employees. The plans
provide for the Companies' contributions as determined annually by the Board of
Directors. The contributions for the years ended December 31, 1994, 1995 and
1996 were $20,097, $58,279 and $33,331, respectively.
16. COMMON STOCK
Common stock as of December 31, 1995 and 1996 and June 30, 1997 consisted of
the following:
Central New York Coach Sales & Service, Inc.:
Authorized--200 shares of no par value
Issued and outstanding--100 shares
Jersey Bus Sales, Inc.:
Authorized--1,000 shares of $1.00 par value
Issued and outstanding--1,000 shares
17. RELATED PARTY TRANSACTIONS
LEASE
The Companies lease office space and shop facilities from their majority
shareholders under a month-to-month lease. Rent expense for the years ended
December 31, 1994, 1995 and 1996 was $354,045, $362,359 and $332,695,
respectively.
In addition, the Companies lease computer equipment from their majority
shareholders under a month-to-month lease. Computer lease expense for the years
ended December 31, 1994, 1995 and 1996 was $15,000, $16,600 and $18,000,
respectively.
DUE FROM OFFICERS
Amounts due from officers consist of advances made to officers which are
unsecured.
DUE TO AND FROM AFFILIATES
During the years ended December 31, 1994, 1995 and 1996, the Companies, in
the normal course of business, made advances to an affiliate by common ownership
and an affiliate in which a shareholder of the Companies owns an interest.
Advances are noninterest bearing and are payable upon demand.
ADVANCES
The Companies have received advances from an affiliate for operating
purposes. At December 31, 1996, the Companies owed $33,492 to that affiliate,
and such amount is included in accounts payable at that date.
F-32
<PAGE>
CENTRAL NEW YORK COACH SALES & SERVICE, INC. AND
JERSEY BUS SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX
MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
18. MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK
During the years ended December 31, 1994, 1995 and 1996, the Companies had
sales to one major customer totaling approximately 8%, 19%, and 22% of its total
bus revenues, respectively. As of December 31, 1995 and 1996, the Companies had
no amounts outstanding from this customer.
Also, during the years ended December 31, 1994, 1995 and 1996, the Companies
had contract revenue from three major customers totaling approximately 71%, 79%
and 79% of contract income, respectively. As of December 31, 1995 and 1996,
Jersey Bus Sales, Inc. had amounts outstanding from these customers of $428,000
and $-0-, respectively.
The Companies' cash accounts are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 1996, the Companies' cash balances
were on deposit with two financial institutions.
19. LITIGATION
The Companies are defendants with respect to various claims arising in the
normal conduct of business. Management and counsel believe the ultimate
resolution of these claims will not have a material impact on the Companies'
financial statements.
20. SUBSEQUENT EVENT
Effective July 1, 1997, 100% of the Common Stock of the Companies was
acquired by a transportation company.
F-33
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information (the
"Unaudited Pro Forma Consolidated Financial Information") has been derived from
the application of pro forma adjustments to AETC's consolidated historical
audited statement of operations for the year ended June 30, 1997 included
elsewhere herein.
The Unaudited Pro Forma Consolidated Financial Information gives effect to
the offerings of the Original Old Notes and the Additional Old Notes and the
acquisition of Central as if each had occurred on July 1, 1996. An Unaudited Pro
Forma Consolidated Balance Sheet as of September 30, 1997 and Statement of
Operations for the three months ended September 30, 1997 have not been presented
because the acquisition of Central, which became effective on July 1, 1997, is
already reflected in the historical financial statements as of and for the three
months ended September 30, 1997. The pro forma adjustments are described in the
accompanying notes.
The Unaudited Pro Forma Consolidated Financial Information is presented for
informational purposes only and does not purport to represent what AETC's
results of operations would actually have been if the aforementioned events had
occurred on the dates specified or to project AETC's results of operations for
any future periods. The Unaudited Pro Forma Consolidated Financial Information
should be read in conjunction with AETC's consolidated historical financial
statements, and the notes thereto, included elsewhere herein.
P-1
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
HISTORICAL CENTRAL ADJUSTMENTS PRO FORMA
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues.................................... $ 166,078,034 $ 69,557,149 ($13,184,165 (1) $ 227,368,109
1,025,000(2)
3,892,091(3)
Cost and Expenses:
Cost of operations........................ 136,068,428 60,351,956 (12,558,263 (1) 187,091,955
720,000(2)
3,635,182(3)
(166,348 (4)
(959,000 (5)
General and administrative................ 12,199,150 5,240,344 (161,375 (1) 15,055,551
37,500(2)
22,917(3)
(166,348 (4)
(2,116,637 (6)
Depreciation and amortization............. 10,417,187 1,753,441 (19,553 (1) 13,443,415
75,000(2)
11,462(3)
53,968(4)
546,000(5)
325,910(7)
40,000(8)
240,000(9)
-------------- -------------- -------------- --------------
158,684,765 67,345,741 (10,439,585) 215,590,921
-------------- -------------- -------------- --------------
Income from operations...................... 7,393,269 2,211,408 2,172,511 11,777,188
Net interest expense........................ (8,739,065) (1,167,468) (18,000 (3) (16,690,893)
(174,477 (4)
111,385 (10
(827,000 11)
5,321,649 (12
(6,897,917 13)
(4,300,000 14)
Other income................................ 133,977 -- -- 133,977
-------------- -------------- -------------- --------------
Income (loss) before provision for (benefit
from) income taxes........................ (1,211,819) 1,043,940 (4,611,849) (4,779,728)
Provision for (benefit from) income taxes... (600,936) 254,400 (1,804,342 15) (2,150,878)
-------------- -------------- -------------- --------------
Income before extraordinary items(16)....... $ (610,883) $ 789,540 $(2,807,507) $ (2,628,850)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
P-2
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO AETC PRO FORMA INCOME STATEMENT
YEAR ENDED JUNE 30, 1997
(1) Reflects the elimination of intercompany purchases of buses from Central by
AETC.
(2) Reflects the acquisition of a Medicaid business which occurred in January
1997.
(3) Reflects the acquisition of Sabella which occurred on April 30, 1997.
(4) Reflects the purchase of facilities and the issuance of mortgages payable
resulting in interest of $174,477 and depreciation of $53,968 in place of
rent of $332,696.
(5) Reflects the removal of certain historical lease expense and replacement
with increased depreciation resulting from the termination of certain
operating leases and the purchase of vehicles and other assets leased
thereunder.
(6) Reflects the adjustments to officers' salaries, expenses and fringe
benefits of $2,116,637 to reflect the terms of employment contracts as
provided for in the Central purchase agreement.
(7) Reflects the amortization of excess purchase price of Central attributed to
goodwill over a period of 40 years.
(8) Reflects the amortization of excess purchase price of Central attributed to
covenant not to compete agreement over a period of five years.
(9) Reflects the amortization of excess purchase price of Central attributed to
transportation contract rights over a period of five years.
(10) Reflects the replacement of certain accounts receivable with an interest
bearing note resulting in interest income of $111,385.
(11) Represents the amortization of debt issuance costs for the Original Old
Notes and the Additional Old Notes net of amortization of premium on
issuance of the Additional Old Notes over their seven year term.
(12) Reflects the elimination of historical interest expense with respect to
approximately $73.8 million and $13.0 million of indebtedness repaid as a
use of proceeds from the Original Old Notes and the Additional Old Notes
offerings, respectively.
(13) Reflects the interest expense relating to the Original Old Notes.
(14) Reflects the interest expense relating to the Additional Old Notes.
(15) Reflects the adjustment to income taxes as a result of the above
adjustments using an effective tax rate of 45%.
(16) The above pro forma information does not reflect penalties from early
extinguishment of debt of approximately $0.9 million and a further $0.9
million write-off of remaining unamortized deferred finance costs relative
to indebtedness retired with the Original Notes which would be recorded net
of their related tax effects as extraordinary items.
(17) For the pro forma year ended June 30, 1997, earnings were inadequate to
cover fixed charges by $4.8 million.
P-3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, 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, ANY OF THE
NOTES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 14
The Exchange Offer............................. 22
The Old Notes Offerings........................ 30
Capitalization................................. 30
Selected Historical Financial Information...... 31
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 32
Business....................................... 40
Management..................................... 54
Ownership of the Company....................... 58
Certain Transactions........................... 61
Description of Revolving Credit Facility....... 62
Description of Notes........................... 63
Description of Capital Stock................... 85
Certain U.S. Federal Income Tax
Considerations............................... 85
Plan of Distribution........................... 86
Validity of Securities......................... 87
Experts........................................ 87
Available Information.......................... 87
Index to Consolidated Financial Statements and
Pro Forma Consolidated Financial
Information.................................. F-1
</TABLE>
UNTIL , 1998, (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$150,000,000
[LOGO]
10 3/4% SENIOR SECURED NOTES
DUE 2004
---------------------
PROSPECTUS
---------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of the estimated expenses to be incurred by the
Registrant (the "Company") in connection with the offering of the 10 3/4% Senior
Secured Notes due 2004 (the "New Notes"). All amounts shown are estimates
(except the Securities and Exchange Commission registration fee).
<TABLE>
<CAPTION>
EXPENSE AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
Securities and Exchange Commission registration fee................................ $ 44,250
Printing and engraving expenses.................................................... *
Legal fees (not including expenses)................................................ *
Accounting fees and expenses....................................................... *
Exchange agent fees................................................................ *
Miscellaneous expenses............................................................. *
---------
Total.............................................................................. $ *
---------
---------
</TABLE>
- ------------------------
* to be filed by amendment
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under the New York Business Corporation Law ("NYBCL"), a corporation may
indemnify any person made, or threatened to be made, a party to any action or
proceeding, except for shareholder derivative suits, by reason of the fact that
he or she was a director or officer of the corporation, provided such director
or officer acted in good faith for a purpose which he or she reasonably believed
to be in the best interests of the corporation and, in criminal proceedings, in
addition, had no reasonable cause to believe his or her conduct was unlawful. In
the case of shareholder derivative suits, the corporation may indemnify any
person by reason of the fact that he or she was a director or officer of the
corporation if he or she acted in good faith for a purpose which he or she
reasonably believed to be in the best interests of the corporation, except that
no indemnification may be made in respect of (i) a threatened action, or a
pending action which is settled or otherwise disposed of; or (ii) any claim,
issue or matter as to which such person has been adjudged to be liable to the
corporation, unless and only to the extent that the court on which the action
was brought, or, if no action was brought, any court of competent jurisdiction,
determines upon application that, in view of all the circumstances of the case,
the person is fairly and reasonably entitled to indemnity for that portion of
the settlement amount and expenses as the court deems proper.
The indemnification described above under the NYBCL is not exclusive of
other indemnification rights to which a director or officer may be entitled,
whether contained in the certificate of incorporation of by-laws, or when
authorized by (i) such certificate of incorporation or by-laws; (ii) a
resolution of shareholders; (iii) a resolution of directors; or (iv) an
agreement providing for such indemnification, provided that no indemnification
may be made to or on behalf of any director or officer if a judgment or other
final adjudication adverse to the director or officer establishes that his or
her acts were committed in bad faith or were the result of active and deliberate
dishonesty and were material to the cause of action so adjudicated, or that he
or she personally gained in fact a financial profit or other advantage to which
he or she was not legally entitled.
The Restated Certificate of the Company eliminates the personal liability of
all of the Company's directors to the fullest extend allowed as provided by the
NYBCL. The Restated Certificate of Incorporation of the Company provides that
the Company shall indemnify any director or officer of the Company made, or
threatened to be made, a party to an action or proceeding if such director or
officer acted, in
II-1
<PAGE>
good faith, for a purpose which he reasonably believed to be in, or, in the case
of service for any other enterprise, not opposed to, the best interests of the
Company and, in criminal actions or proceedings, in addition, had no reasonable
cause to believe that his conduct was unlawful. No indemnification shall be made
for an action or proceeding by or in the right of the Company to procure a
judgment in its favor in respect of (1) a threatened action, or a pending action
which is settled or otherwise disposed of, or (2) any claim issue or matter as
to which such director or officer shall have been adjudged to be liable to the
Company, unless and only to the extent a court determines the person is fairly
and reasonably entitled to indemnity for such portion of the settlement amount
and expenses as the court deems proper. In addition, the Restated Certificate of
Incorporation of the Company provides that a director's liability to the Company
for breach of duty to the Company or its stockholders shall be limited to the
fullest extent permitted by New York law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On February 4, 1997, the Company sold $110,000,000 aggregate principal
amount of its 10 3/4% Senior Secured Notes due 2004 (the "Original Old Notes")
to Jefferies & Company, Inc. ("Jefferies"). The Company believes this offering
was exempt from registration under Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act"). Jefferies has informed the Company that it
resold $110,000,000 aggregate principal amount of Original Old Notes to persons
it reasonably believes to be "qualified institutional buyers" ("QIBs")(within
the meaning of Rule 144A under the Securities Act ("Rule 144A")) in transactions
meeting the requirements of Rule 144A and to a limited number of institutional
"accredited investors" (within the meaning of Rule 501 (a) (1), (2), (3) or (7)
under the Securities Act) in transactions not involving a public offering.
On August 14, 1997, the Company sold $40,000,000 aggregate principal amount
of its 10 3/4 Senior Secured Notes due 2004 (the "Additional Old Notes") to
Jefferies. The Company believes this offering was exempt from registration under
Section 4(2) of the Securitites Act. Jefferies has informed the Company that it
resold $40,000,000 aggregate principal amount of Additional Old Notes to persons
it reasonably believes to be QIBs (within the meaning of Rule 144A) in
transactions meeting the requirements of Rule 144A.
II-2
<PAGE>
ITEM 16. EXHIBITS.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
4.1 Indenture dated as of February 4, 1997, including form of Note, between the Company, the Guarantors (as
defined therein) and The Bank of New York, as trustee (incorporated by reference to Exhibit 10.18 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
4.2 Guarantee dated February 4, 1997 by certain subsidiaries of the Company and the Company (borrower
guarantee)
4.3 Guarantee dated February 4, 1997 by certain other subsidiaries of the Company and the Company
(non-borrower guarantee)
4.4 Security and Pledge Agreement dated as of February 4, 1997 among AETG, the Company and the Restricted
Subsidiaries (as defined therein), and the Bank of New York, as trustee
4.5 Collateral Assignment of Trademarks (Security Agreement) dated as of February 4, 1997 between the
Company and The Bank of New York, as trustee
4.6 First Supplemental Indenture dated as of August 14, 1997 among the Company, the Guarantors (as defined
therein) and The Bank of New York, as trustee (incorporated by reference to Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
4.7 First Amendment to the Security and Pledge Agreement dated as of August 14, 1997 among the AETG, the
Company, the Restricted Subsidiaries (as defined therein) and The Bank of New York, as trustee
(incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997, filed October 15, 1997)
4.8 Second Supplemental Indenture dated as of December 12, 1997, between the Company, the Guarantors (as
defined therein) and The Bank of New York, as trustee
4.9 Second Amendment to the Security and Pledge Agreement dated as of December 12, 1997 among the Company,
the Restricted Subsidiaries (as defined therein) and The Bank of New York, as trustee
5.1* Opinion of Jones, Day, Reavis & Pogue
10.1 Registration Rights Agreement dated February 4, 1997 between the Company, the Guarantors (as defined
therein) and Jefferies (incorporated by reference to Exhibit 10.1 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
10.2 Loan and Security Agreement dated February 4, 1997 by and between Congress Financial Corporation,
certain subsidiaries of the Company as borrowers and the Company as guarantor (incorporated by reference
to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997,
filed October 15, 1997)
10.3 General Security Agreement dated February 4, 1997 by and among the Company and the Guarantors (as
defined therein) in favor of Congress Financial Corporation (incorporated by reference to Exhibit 10.3
to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed October
15, 1997)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.4 Collateral Assignment of Trademarks (Security Agreement) dated as of February 4, 1997 between the
Company and Congress Financial Corporation (incorporated by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
10.5 Employment Agreement dated as of January 21, 1997 between the Company and Domenic Gatto (incorporated by
reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1997, filed October 15, 1997)
10.6 Employment Agreement dated as of January 21, 1997 between the Company and Michael Gatto (incorporated by
reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1997, filed October 15, 1997)
10.7 Employment Agreement dated as of January 21, 1997 between the Company and Patrick Gatto (incorporated by
reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1997, filed October 15, 1997)
10.8 Employment Agreement dated as of January 21, 1997 between the Company and Nathan Schlenker (incorporated
by reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1997, filed October 15, 1997)
10.9 Lease dated August 5, 1986 between Bonnie Heights Realty Corp. and Amboy Bus Co., Inc. and Notices of
Option to Renew dated December 26, 1989 and May 10, 1996, respectively, by Amboy Bus Co., Inc. for the
facility at 1752 Shore Parkway, Brooklyn, New York (incorporated by reference to Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
10.10 Lease dated June 30, 1993 by and between Rockhill Limited Partnership and Mayflower Contract Services,
Inc. and Sublease dated May 28, 1996 by and between Mayflower Contract Services, Inc. and Atlantic
Express of Missouri Inc. for the facility at 6810 Prescott Street, St. Louis, Missouri (incorporated by
reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1997, filed October 15, 1997)
10.11 Lease dated August 1, 1995 between Stamar Realty Corp. and 180 Jamaica Corp. for the facility at 107-10
180th Street, Jamaica, New York (incorporated by reference to Exhibit 10.11 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
10.12 The Board of Education of the City of New York, serial no. 0070, dated July 19, 1979 (incorporated by
reference to Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1997, filed October 15, 1997)
10.13 The Board of Education of the City of New York, serial no. 8108 (incorporated by reference to Exhibit
10.13 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed
October 15, 1997)
10.14 Extension and Eighth Amendment of Contract for Special Education Pupil Transportation Services, dated
June 19, 1996 by and between The Board of Education of the City of New York, Amboy Bus Co., Inc. and
Staten Island Bus Co. (incorporated by reference to Exhibit 10.14 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
10.15 The Board of Education of the City of New York, serial no. 9888 (incorporated by reference to Exhibit
10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed
October 15, 1997)
10.16 Extension and Sixth Amendment of Contract for Regular Education Pupil Transportation Services, dated
January 2, 1996 by and between The Board of Education of the City of New York and Amboy Bus Co., Inc.
(incorporated by reference to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997, filed October 15, 1997)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.17 New York City Transit Authority Contract #94E5461B, Five Borough Paratransit Carrier Service: Part I
Contract Terms and Conditions and Attachment I: Price Schedule (incorporated by reference to Exhibit
10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed
October 15, 1997)
10.18 Assumption Agreement to the Registration Rights Agreement dated December 12, 1997 among the Company, and
the Guarantors (as defined therein)
10.19 Stockholders' Agreement dated as of February 28, 1994 by and among AETG and each of the parties
signatory thereto
10.20 First Amendment to Stockholders' Agreement dated as of January 30, 1997 by and between AETG, Busco
Capital, Inc. and the Gatto Group (as defined therein)
12 Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Company
23.1 Consent of BDO Seidman, LLP
23.2 Consent of BDO Seidman, LLP
23.3* Consent of Jones, Day, Reavis & Pogue
23.4* Consent of Silverman, Collura, Chernis & Balzano, P.C.
24 Power of Attorney (included in the signature page hereof)
25 Statement of Eligibility of Trustee on Form T-1
27 Financial Data Schedule
99.1 Letter of Transmittal
</TABLE>
- ------------------------
* to be filed by amendment
(B) FINANCIAL STATEMENT SCHEDULES
No schedules for which provision is made in the applicable accounting
regulations of the Commission are required under the applicable instructions or
are inapplicable and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act.
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
II-5
<PAGE>
(2) That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising out of the Securities Act
may be permitted to directors, officers or controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrants have been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by a registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the successful
defense in any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, State of New York on December 18, 1997.
<TABLE>
<S> <C> <C>
ATLANTIC EXPRESS TRANSPORTATION CORP.
By: /s/ DOMENIC GATTO
-----------------------------------------
Domenic Gatto
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Domenic
Gatto, Nathan Schlenker and Peter R. Silverman, and each of the, as his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with exhibits and
shcedules thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact,
full power and authority to do and perform each and every act and thing
necessary or desirable to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, thereby ratifying and
confirming all that each said attorney-in-fact, or his substitute, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the folowing persons in the capacities
on the dates indicated.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board,
/s/ DOMENIC GATTO President and
- ------------------------------ Chief Executive Officer December 18, 1997
Domenic Gatto (PRINCIPAL EXECUTIVE
OFFICER)
Chief Financial Officer
/s/ NATHAN SCHLENKER (PRINCIPAL FINANCIAL
- ------------------------------ OFFICER December 18, 1997
Nathan Schlenker AND PRINCIPAL ACCOUNTING
OFFICER)
/s/ MICHAEL GATTO Executive Vice President,
- ------------------------------ Secretary, December 18, 1997
Michael Gatto Treasurer and Director
/s/ PATRICK GATTO Executive Vice President
- ------------------------------ and December 18, 1997
Patrick Gatto Director
/s/ JOHN SHEA
- ------------------------------ Director December 18, 1997
John Shea
/s/ PETER PETRILLO
- ------------------------------ Director December 18, 1997
Peter Petrillo
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Amboy Bus Co., Inc., Staten Island Bus, Inc., Raybern Capital Corp.,
Metropolitan Escort Service, Inc., Merit Transportation Corp., Temporary Transit
Service, Inc., Atlantic-Hudson, Inc., Courtesy Bus Co., Inc., K. Corr, Inc.,
Raybern Equity Corp., Metro Affiliates, Inc., Midway Leasing Inc., Brookfield
Transit Inc., Atlantic Paratrans, Inc., 180 Jamaica Corp., Atlantic Express
Coachways, Inc., Atlantic Express of Pennsylvania, Inc., Atlantic Paratrans of
Kentucky Inc., Raybern Bus Service, Inc., G.V.D. Leasing Co., Inc., Block 7932,
Inc., Atlantic-Conn. Transit, Inc., Atlantic Express of Missouri Inc. Atlantic
Express of L.A. Inc., 201 West Sotello Realty, Inc. Central New York Coach Sales
& Service, Inc., Jersey Bus Sales, Inc., Atlantic-Chittenango Real Property
Corp. and Jersey Business Land Co. have each duly caused this Amendment No. 1 to
the Registration Statement of Form S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on December 18, 1997.
<TABLE>
<S> <C>
AMBOY BUS CO., INC. BROOKFIELD TRANSIT INC.
STATEN ISLAND BUS, INC. ATLANTIC PARATRANS, INC.
RAYBERN CAPITAL CORP. 180 JAMAICA CORP.
METROPOLITAN ESCORT SERVICE, INC. ATLANTIC EXPRESS COACHWAYS, INC.
MERIT TRANSPORTATION CORP. ATLANTIC EXPRESS OF PENNSYLVANIA, INC.
TEMPORARY TRANSIT SERVICE, INC. ATLANTIC PARATRANS OF KENTUCKY INC.
ATLANTIC-HUDSON, INC. RAYBERN BUS SERVICE, INC.
COURTESY BUS CO., INC. G.V.D. LEASING CO., INC.
K. CORR, INC. BLOCK 7932, INC.
RAYBERN EQUITY CORP. ATLANTIC-CONN. TRANSIT, INC.
METRO AFFILIATES, INC. ATLANTIC EXPRESS OF MISSOURI INC.
MIDWAY LEASING INC. ATLANTIC EXPRESS OF L.A. INC.
NEW YORK COACH SALES & SERVICE, INC. 201 WEST SOTELLO REALTY, INC.
JERSEY BUS SALES, INC. ATLANTIC-CHITTENANGO REAL
JERSEY BUSINESS LAND CO., INC. PROPERTY CORP.
</TABLE>
<TABLE>
<S> <C> <C>
By: /s/ DOMENIC GATTO
------------------------------------------
Domenic Gatto
Chairman of the Board,
President and Chief Executive Officer
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
4.1 Indenture dated as of February 4, 1997, including form of Note, between the Company, the Guarantors (as
defined therein) and The Bank of New York, as trustee (incorporated by reference to Exhibit 10.18 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
4.2 Guarantee dated February 4, 1997 by certain subsidiaries of the Company and the Company (borrower
guarantee)
4.3 Guarantee dated February 4, 1997 by certain other subsidiaries of the Company and the Company
(non-borrower guarantee)
4.4 Security and Pledge Agreement dated as of February 4, 1997 among AETG, the Company and the Restricted
Subsidiaries (as defined therein), and the Bank of New York, as trustee
4.5 Collateral Assignment of Trademarks (Security Agreement) dated as of February 4, 1997 between the
Company and The Bank of New York, as trustee
4.6 First Supplemental Indenture dated as of August 14, 1997 among the Company, the Guarantors (as defined
therein) and The Bank of New York, as trustee (incorporated by reference to Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
4.7 First Amendment to the Security and Pledge Agreement dated as of August 14, 1997 among the AETG, the
Company, the Restricted Subsidiaries (as defined therein) and The Bank of New York, as trustee
(incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997, filed October 15, 1997)
4.8 Second Supplemental Indenture dated as of December 12, 1997, between the Company, the Guarantors (as
defined therein) and The Bank of New York, as trustee
4.9 Second Amendment to the Security and Pledge Agreement dated as of December 12, 1997 among the Company,
the Restricted Subsidiaries (as defined therein) and The Bank of New York, as trustee
5.1* Opinion of Jones, Day, Reavis & Pogue
10.1 Registration Rights Agreement dated February 4, 1997 between the Company, the Guarantors (as defined
therein) and Jefferies (incorporated by reference to Exhibit 10.1 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
10.2 Loan and Security Agreement dated February 4, 1997 by and between Congress Financial Corporation,
certain subsidiaries of the Company as borrowers and the Company as guarantor (incorporated by reference
to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997,
filed October 15, 1997)
10.3 General Security Agreement dated February 4, 1997 by and among the Company and the Guarantors (as
defined therein) in favor of Congress Financial Corporation (incorporated by reference to Exhibit 10.3
to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed October
15, 1997)
10.4 Collateral Assignment of Trademarks (Security Agreement) dated as of February 4, 1997 between the
Company and Congress Financial Corporation (incorporated by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
10.5 Employment Agreement dated as of January 21, 1997 between the Company and Domenic Gatto (incorporated by
reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1997, filed October 15, 1997)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.6 Employment Agreement dated as of January 21, 1997 between the Company and Michael Gatto (incorporated by
reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1997, filed October 15, 1997)
10.7 Employment Agreement dated as of January 21, 1997 between the Company and Patrick Gatto (incorporated by
reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1997, filed October 15, 1997)
10.8 Employment Agreement dated as of January 21, 1997 between the Company and Nathan Schlenker (incorporated
by reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1997, filed October 15, 1997)
10.9 Lease dated August 5, 1986 between Bonnie Heights Realty Corp. and Amboy Bus Co., Inc. and Notices of
Option to Renew dated December 26, 1989 and May 10, 1996, respectively, by Amboy Bus Co., Inc. for the
facility at 1752 Shore Parkway, Brooklyn, New York (incorporated by reference to Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
10.10 Lease dated June 30, 1993 by and between Rockhill Limited Partnership and Mayflower Contract Services,
Inc. and Sublease dated May 28, 1996 by and between Mayflower Contract Services, Inc. and Atlantic
Express of Missouri Inc. for the facility at 6810 Prescott Street, St. Louis, Missouri (incorporated by
reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1997, filed October 15, 1997)
10.11 Lease dated August 1, 1995 between Stamar Realty Corp. and 180 Jamaica Corp. for the facility at 107-10
180th Street, Jamaica, New York (incorporated by reference to Exhibit 10.11 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
10.12 The Board of Education of the City of New York, serial no. 0070, dated July 19, 1979 (incorporated by
reference to Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1997, filed October 15, 1997)
10.13 The Board of Education of the City of New York, serial no. 8108 (incorporated by reference to Exhibit
10.13 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed
October 15, 1997)
10.14 Extension and Eighth Amendment of Contract for Special Education Pupil Transportation Services, dated
June 19, 1996 by and between The Board of Education of the City of New York, Amboy Bus Co., Inc. and
Staten Island Bus Co. (incorporated by reference to Exhibit 10.14 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1997, filed October 15, 1997)
10.15 The Board of Education of the City of New York, serial no. 9888 (incorporated by reference to Exhibit
10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed
October 15, 1997)
10.16 Extension and Sixth Amendment of Contract for Regular Education Pupil Transportation Services, dated
January 2, 1996 by and between The Board of Education of the City of New York and Amboy Bus Co., Inc.
(incorporated by reference to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997, filed October 15, 1997)
10.17 New York City Transit Authority Contract #94E5461B, Five Borough Paratransit Carrier Service: Part I
Contract Terms and Conditions and Attachment I: Price Schedule (incorporated by reference to Exhibit
10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed
October 15, 1997)
10.18 Assumption Agreement to the Registration Rights Agreement dated December 12, 1997 among the Company, and
the Guarantors (as defined therein)
10.19 Stockholders' Agreement dated as of February 28, 1994 by and among AETG and each of the parties
signatory thereto
10.20 First Amendment to Stockholders' Agreement dated as of January 30, 1997 by and between AETG, Busco
Capital, Inc. and the Gatto Group (as defined therein)
12 Ratio of Earnings to Fixed Charges
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
21 Subsidiaries of the Company
23.1 Consent of BDO Seidman, LLP
23.2 Consent of BDO Seidman, LLP
23.3* Consent of Jones, Day, Reavis & Pogue
23.4* Consent of Silverman, Collura, Chernis & Balzano, P.C.
24 Power of Attorney (included in the signature page hereof)
25 Statement of Eligibility of Trustee on Form T-1
27 Financial Data Schedule
99.1 Letter of Transmittal
</TABLE>
- ------------------------
* to be filed by amendment
<PAGE>
Exhibit 4.2
EXECUTION COPY
GUARANTEE
(Borrowers)
February 4, 1997
Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Re: The parties identified as "Borrowers" in the Loan Agreement (as
defined hereinbelow) (collectively the "Borrowers")
Gentlemen:
Congress Financial Corporation ("Lender") and Borrowers have entered into
certain financing arrangements pursuant to which Lender may make loans and
advances and provide other financial accommodations to Borrowers as set forth in
the Loan and Security Agreement, dated February 4, 1997, by and between
Borrowers, Atlantic Express Transportation Corp. and Lender (as the same now
exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced, the "Loan Agreement"), and other agreements, documents and
instruments referred to therein or at any time executed and/or delivered in
connection therewith or related thereto, including, but not limited to, this
Guarantee (all of the foregoing, together with the Loan Agreement, as the same
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced, being collectively referred to herein as the
"Financing Agreements").
Each and all of the undersigned (individually and collectively,
"Guarantors") also constitute each and all of Borrowers under the Loan
Agreement. In order to induce Lender to make loans and advances and provide
other financial accommodations to one or more Borrowers under the Loan
Agreement, each such Borrower has agreed to be a Guarantor hereunder and
unconditionally guarantee, pursuant to the terms set forth herein, all of the
liabilities and obligations of each of the other Borrowers.
Due to the close business and financial relationships between each of the
Borrowers and each and all of the Guarantors, in consideration of the benefits
which will accrue to Guarantors and as an inducement for and in consideration of
Lender making loans and advances and providing other financial accommodations to
any one or more of Borrowers pursuant to the Loan Agreement and the other
Financing Agreements, each of Guarantors hereby jointly and severally agrees in
favor of Lender as follows:
<PAGE>
1. Guarantee.
(a) Each of Guarantors absolutely and unconditionally, jointly and
severally, guarantees and agrees to be liable for the full and indefeasible
payment and performance when due of the following (all of which are collectively
referred to herein as the "Guaranteed Obligations"): (i) all obligations,
liabilities and indebtedness of any kind, nature and description of any one or
more of Borrowers to Lender and/or its affiliates, including principal,
interest, charges, fees, costs and expenses, however evidenced, whether as
principal, surety, endorser, guarantor or otherwise, whether arising under the
Loan Agreement, the other Financing Agreements or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of the Loan Agreement or after the commencement of
any case with respect to any Borrower under the United States Bankruptcy Code or
any similar statute (including, without limitation, the payment of interest and
other amounts, which would accrue and become due but for the commencement of
such case and including loans, interest, fees, charges and expenses related
thereto and all other obligations of any Borrower or its successors to Lender
arising after the commencement of such case), whether direct or indirect,
absolute or contingent, joint or several, primary or secondary, liquidated or
unliquidated, secured or unsecured, and however acquired by Lender and (ii) all
expenses (including, without limitation, attorneys' fees and legal expenses)
incurred by Lender in connection with the preparation, execution, delivery,
recording, administration, collection, liquidation, enforcement and defense of
any one or more of Borrowers' obligations, liabilities and indebtedness as
aforesaid to Lender, the rights of Lender in any collateral or under this
Guarantee and all other Financing Agreements or in any way involving claims by
or against Lender directly or indirectly arising out of or related to the
relationships between any one or more of Borrower, any of Guarantors or any
other Obligor (as hereinafter defined) and Lender, whether such expenses are
incurred before, during or after the initial or any renewal term of the Loan
Agreement and the other Financing Agreements or after the commencement of any
case with respect to any Borrower or any of Guarantors under the United States
Bankruptcy Code or any similar statute.
(b) This Guarantee is a guaranty of payment and not of collection.
Each of Guarantors agrees that Lender need not attempt to collect any Guaranteed
Obligations from any Borrower, any one of Guarantors or any other Obligor or to
realize upon any collateral, but may require any one of Guarantors to make
immediate payment of all of the Guaranteed Obligations to Lender when due,
whether by maturity, acceleration or otherwise, or at any time thereafter.
Lender may apply any amounts received in respect of the Guaranteed Obligations
to any of the Guaranteed Obligations, in whole or in part (including attorneys'
fees and legal expenses incurred by Lender with respect thereto or otherwise
chargeable to a Borrower or Guarantors) and in such order as Lender may elect.
(c) Payment by Guarantors shall be made to Lender at the office of
Lender from time to time on demand as Guaranteed Obligations become due.
Guarantors shall make all payments to Lender on the Guaranteed Obligations free
and clear of, and without deduction or withholding for or on account of, any
setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions,
withholding, restrictions or conditions of any kind. One or more successive or
concurrent actions may be brought hereon against any of
- 2 -
<PAGE>
Guarantors either in the same action in which any one or more of Borrowers or
any of the other Guarantors or any other Obligor is sued or in separate actions.
In the event any claim or action, or action on any judgment, based on this
Guarantee is brought against any of Guarantors, each of Guarantors agrees not to
deduct, set-off, or seek any counterclaim for or recoup any amounts which are or
may be owed by Lender to any of Guarantors.
(d) Each Guarantor's obligations under this Guarantee constitute
Obligations of such Guarantor under the Loan Agreement that are secured by all
of the Collateral.
2. Waivers and Consents.
(a) Notice of acceptance of this Guarantee, the making of loans and
advances and providing other financial accommodations to any one or more of
Borrowers and presentment, demand, protest, notice of protest, notice of
nonpayment or default and all other notices to which any of Borrowers or any of
Guarantors are entitled are hereby waived by each of Guarantors. Each of
Guarantors also waives notice of and hereby consents to, (i) any amendment,
modification, supplement, extension, renewal, or restatement of the Loan
Agreement and any of the other Financing Agreements, including, without
limitation, extensions of time of payment of or increase or decrease in the
amount of any of the Guaranteed Obligations or any collateral, and the guarantee
made herein shall apply to the Loan Agreement and the other Financing Agreements
and the Guaranteed Obligations as so amended, modified, supplemented, renewed,
restated or extended, increased or decreased, (ii) the taking, exchange,
surrender and releasing of collateral or guarantees now or at any time held by
or available to Lender for the obligations of any one or more of Borrowers or
any other party at any time liable on or in respect of the Guaranteed
Obligations or who is the owner of any property which is security for the
Guaranteed Obligations (individually, an "Obligor" and collectively, the
"Obligors"), including, without limitation, the surrender or release by Lender
of any one of Guarantors hereunder, (iii) the exercise of, or refraining from
the exercise of any rights against any of Borrowers, any of Guarantors or any
other Obligor or any collateral, (iv) the settlement, compromise or release of,
or the waiver of any default with respect to, any of the Guaranteed Obligations
and (v) any financing by Lender of any one or more of Borrowers under Section
364 of the United States Bankruptcy Code or consent to the use of cash
collateral by Lender under Section 363 of the United States Bankruptcy Code.
Each of Guarantors agrees that the amount of the Guaranteed Obligations shall
not be diminished and the liability of Guarantors hereunder shall not be
otherwise impaired or affected by any of the foregoing.
(b) No invalidity, irregularity or unenforceability of all or any
part of the Guaranteed Obligations shall affect, impair or be a defense to this
Guarantee, nor shall any other circumstance which might otherwise constitute a
defense available to or legal or equitable discharge of any one or more of
Borrowers in respect of any of the Guaranteed Obligations, or any one of
Guarantors in respect of this Guarantee, affect, impair or be a defense to this
Guarantee. Without limitation of the foregoing, the liability of Guarantors
hereunder shall not be discharged or impaired in any respect by reason of any
failure by Lender to perfect or continue perfection of any lien or security
interest in any collateral or
- 3 -
<PAGE>
any delay by Lender in perfecting any such lien or security interest. As to
interest, fees and expenses, whether arising before or after the commencement of
any case with respect to any Borrower under the United States Bankruptcy Code or
any similar statute, Guarantors shall be liable therefor, even if such
Borrower's liability for such amounts does not, or ceases to, exist by operation
of law.
(c) Each of Guarantors hereby irrevocably and unconditionally
postpones and subordinates, to the prior payment in full of the Guaranteed
Obligations, all statutory, contractual, common law, equitable and all other
claims against each Borrower, any collateral for the Guaranteed Obligations or
other assets of each Borrower or any other Obligor, for subrogation,
reimbursement, exoneration, contribution, indemnification, setoff or other
recourse in respect to sums paid or payable to Lender by each of Guarantors
hereunder and each of Guarantors hereby further irrevocably and unconditionally
postpones and subordinates, to the prior payment in full of the Guaranteed
Obligations, any and all other benefits which Guarantors might otherwise
directly or indirectly receive or be entitled to receive by reason of any
amounts paid by or collected or due from Guarantors, any Borrower or any other
Obligor upon the Guaranteed Obligations or realized from their property.
3. Subordination. Payment of all amounts now or hereafter owed to
Guarantors by any Borrower or any other Obligor is hereby subordinated in right
of payment to the indefeasible payment in full to Lender of the Guaranteed
Obligations and all such amounts and any security and guarantees therefor are
hereby assigned to Lender as security for the Guaranteed Obligations; provided,
however, that when no Event of Default (as such term is defined in the Loan
Agreement) shall have occurred and be continuing, Borrowers and other Obligors
may make payments to Guarantors of such amounts in accordance with their terms
and past practice.
4. Acceleration. Notwithstanding anything to the contrary contained herein
or any of the terms of any of the other Financing Agreements, the liability of
Guarantors for the entire Guaranteed Obligations shall mature and become
immediately due and payable, even if the liability of any one or more of
Borrowers or any other Obligor therefor does not, upon the occurrence of any
act, condition or event which constitutes an Event of Default as such term is
defined in the Loan Agreement.
5. Account Stated. The books and records of Lender showing the account
between Lender and any one or more of Borrowers shall be admissible in evidence
in any action or proceeding against or involving Guarantors as prima facie proof
of the items therein set forth, and the monthly statements of Lender rendered to
any Borrower, to the extent to which no written objection is made within thirty
(30) days from the date of sending thereof to any Borrower, shall, absent
manifest errors or omissions, be deemed conclusively correct and constitute an
account stated between Lender and such Borrower and be binding on Guarantors.
6. Termination. This Guarantee is continuing, unlimited, absolute and
unconditional. All Guaranteed Obligations shall be conclusively presumed to have
been created in reliance
- 4 -
<PAGE>
on this Guarantee. Each of Guarantors shall continue to be liable hereunder
until one of Lender's officers actually receives a written termination notice
from a Guarantor sent to Lender at is address set forth above by certified mail,
return receipt requested and thereafter as set forth below. Such notice received
by Lender from any one of Guarantors shall not constitute a revocation or
termination of this Guarantee as to any of the other Guarantors. Revocation or
termination hereof by any of Guarantors shall not affect, in any manner, the
rights of Lender or any obligations or duties of any of Guarantors (including
the Guarantor which may have sent such notice) under this Guarantee with respect
to (a) Guaranteed Obligations which have been created, contracted, assumed or
incurred prior to the receipt by Lender of such written notice of revocation or
termination as provided herein, including, without limitation, (i) all
amendments, extensions, renewals and modifications of such Guaranteed
Obligations (whether or not evidenced by new or additional agreements, documents
or instruments executed on or after such notice of revocation or termination),
(ii) all interest, fees and similar charges accruing or due on and after
revocation or termination, and (iii) all attorneys' fees and legal expenses,
costs and other expenses paid or incurred on or after such notice of revocation
or termination in attempting to collect or enforce any of the Guaranteed
Obligations against any Borrower, Guarantors or any other Obligor (whether or
not suit be brought), or (b) Guaranteed Obligations which have been created,
contracted, assumed or incurred after the receipt by Lender of such written
notice of revocation or termination as provided herein pursuant to any contract
entered into by Lender prior to receipt of such notice. The sole effect of such
revocation or termination by any of Guarantors shall be to exclude from this
Guarantee the liability of such Guarantor for those Guaranteed Obligations
arising after the date of receipt by Lender of such written notice which are
unrelated to Guaranteed Obligations arising or transactions entered into prior
to such date. Without limiting the foregoing, this Guarantee may not be
terminated and shall continue so long as the Loan Agreement shall be in effect
(whether during its original term or any renewal, substitution or extension
thereof).
7. Reinstatement. If after receipt of any payment of, or proceeds of
collateral applied to the payment of, any of the Guaranteed Obligations, Lender
is required to surrender or return such payment or proceeds to any Person for
any reason, then the Guaranteed Obligations intended to be satisfied by such
payment or proceeds shall be reinstated and continue and this Guarantee shall
continue in full force and effect as if such payment or proceeds had not been
received by Lender. Each of Guarantors shall be liable to pay to Lender, and
does indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 7 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 7 shall survive the termination or
revocation of this Guarantee.
8. Amendments and Waivers. Neither this Guarantee nor any provision hereof
shall be amended, modified, waived or discharged orally or by course of conduct,
but only by a written agreement signed by an authorized officer of Lender.
Lender shall not, by any act, delay, omission or otherwise be deemed to have
expressly or impliedly waived any of its rights, powers and/or remedies unless
such waiver shall in writing and signed by an authorized officer of Lender. Any
such waiver shall be enforceable only to the extent
- 5 -
<PAGE>
specifically set forth therein. A waiver by Lender of any right, power and/or
remedy on any one occasion shall not be construed as a bar to or waiver of any
such right, power and/or remedy which Lender would otherwise have on any future
occasion, whether similar in kind or otherwise.
9. Corporate Existence, Power and Authority. Each of Guarantors is a
corporation duly organized and in good standing under the laws of its state or
other jurisdiction of incorporation and is duly qualified as a foreign
corporation and in good standing in all states or other jurisdictions where the
nature and extent of the business transacted by it or the ownership of assets
makes such qualification necessary, except for those jurisdictions in which the
failure to so qualify would not have a material adverse effect on the financial
condition, results of operation or businesses of any of Guarantors or the rights
of Lender hereunder or under any of the other Financing Agreements. The
execution, delivery and performance of this Guarantee is within the corporate
powers of each of Guarantors, have been duly authorized and is not in
contravention of law or the terms of the certificates of incorporation, by-laws,
or other organizational documentation of each of Guarantors, or any indenture,
agreement or undertaking to which any of Guarantors is a party or by which any
of Guarantors or its property are bound. This Guarantee constitutes the legal,
valid and binding obligation of each of Guarantors enforceable in accordance
with its terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
enforcement of creditors rights generally, and by general principles of equity
(whether considered at law or in equity). Any one of Guarantors signing this
Guarantee shall be bound hereby whether or not any of the other Guarantors or
any other person signs this Guarantee at any time.
10. Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
(a) The validity, interpretation and enforcement of this Guarantee
and any dispute arising out of the relationship between any of Guarantors and
Lender, whether in contract, tort, equity or otherwise, shall be governed by the
internal laws of the State of New York (without giving effect to principles of
conflicts of law).
(b) Each of Guarantors hereby irrevocably consents and submits to
the non-exclusive jurisdiction of the Supreme Court of the State of New York for
New York County and the United States District Court for the Southern District
of New York and waives any objection based on venue or forum non conveniens with
respect to any action instituted therein arising under this Guarantee or any of
the other Financing Agreements or in any way connected with or related or
incidental to the dealings of any of Guarantors and Lender in respect of this
Guarantee or any of the other Financing Agreements or the transactions related
hereto or thereto, in each case whether now existing or hereafter arising and
whether in contract, tort, equity or otherwise, and agrees that any dispute
arising out of the relationship between any of Guarantors or any of Borrowers
and Lender or the conduct of any such persons in connection with this Guarantee,
the other Financing Agreements or otherwise shall be heard only in the courts
described above (except that Lender shall have the right to bring any action or
proceeding against any of Guarantors or its property in the courts of any other
jurisdiction which Lender deems necessary or appropriate in order to realize on
- 6 -
<PAGE>
collateral at any time granted by any of Borrowers or any of Guarantors to
Lender or to otherwise enforce its rights against any of Guarantors or its
property).
(c) Each of Guarantors hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon any of Guarantors in any other manner
provided under the rules of any such courts. A copy of any service upon any of
Guarantors shall be sent to Silverman, Collura & Chernis, P.C., 381 Park Avenue
South, Suite 1601, New York, New York 10016, Attention: Peter R. Silverman,
Esq., but the delivery of such copy shall not be a condition to the
effectiveness of service upon any Guarantor. Within thirty (30) days after such
service, any of Guarantors so served shall appear in answer to such process,
failing which such Guarantors shall be deemed in default and judgment may be
entered by Lender against Guarantors for the amount of the claim and other
relief requested.
(d) EACH OF GUARANTORS HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS GUARANTEE OR
ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF ANY OF GUARANTORS AND LENDER IN RESPECT
OF THIS GUARANTEE OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH OF GUARANTORS
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY OF GUARANTORS
OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF GUARANTORS AND LENDER TO THE WAIVER
OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Guarantors (whether in
tort, contract, equity or otherwise) for losses suffered by Guarantors in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Guarantee, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of the Loan Agreement and
the other Financing Agreements.
11. Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth above and to each of
Guarantors and to Atlantic Express Transportation Corp. (the "Parent") at its
chief executive office set forth below, or
- 7 -
<PAGE>
to such other address as a party may designate by written notice to the other in
accordance with this provision, and (b) deemed to have been given or made: if
delivered in person, immediately upon delivery; if by telex, telegram or
facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next business day, one (1) business day after sending; and if by
certified mail, return receipt requested, five (5) days after mailing. A copy of
any notice given to a Guarantor shall be sent to Silverman, Collura & Chernis,
P.C., 381 Park Avenue South, Suite 1601, New York, New York 10016, Attention:
Peter R. Silverman, Esq.
12. Partial Invalidity. If any provision of this Guarantee is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Guarantee as a whole, but this Guarantee shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
13. Entire Agreement. This Guarantee represents the entire agreement and
understanding of this parties concerning the subject matter hereof, and
supersedes all other prior agreements, understandings, negotiations and
discussions, representations, warranties, commitments, proposals, offers and
contracts concerning the subject matter hereof, whether oral or written.
14. Successors and Assigns. This Guarantee shall be binding upon
Guarantors and their respective successors and assigns and shall inure to the
benefit of Lender and its successors, endorsees, transferees and assigns. The
liquidation, dissolution or termination of any of Guarantors shall not terminate
this Guarantee as to such entity or as to any of the other Guarantors.
15. Construction. All references to the term "Guarantors" wherever used
herein shall mean each and all of Guarantors and their respective successors and
assigns, individually and collectively, jointly and severally (including,
without limitation, any receiver, trustee or custodian for any of Guarantors or
any of their respective assets or any of Guarantors in its capacity as debtor or
debtor-in-possession under the United States Bankruptcy Code). All references to
the term "Lender" wherever used herein shall mean Lender and its successors and
assigns and all references to the term "Borrower" or "Borrowers" wherever used
herein shall mean such Borrower or Borrowers, as the case may be, and their
respective successors and assigns (including, without limitation, any receiver,
trustee or custodian for a Borrower or any of its assets or a Borrower in its
capacity as debtor or debtor-in-possession under the United States Bankruptcy
Code). All references to the term "Person" or "person" wherever used herein
shall mean any individual, sole proprietorship, partnership, corporation
(including, without limitation, any corporation which elects subchapter S status
under the Internal Revenue Code of 1986, as amended), business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality of political
subdivision thereof. All references to the plural shall also mean the singular
and to the singular shall also mean the plural.
- 8 -
<PAGE>
16. Guarantors' Representative. Each of the Guarantors hereby appoints the
Parent as its agent and representative for the purposes of all communications
and authorizations between such Guarantor and Lender in connection with this
Guarantee or any of the other Financing Agreements, including, without
limitation, giving notices to Lender and receiving notices from Lender and
giving any direction or instruction to Lender contemplated by this Guarantee.
Each of the Guarantors hereby authorizes and directs Lender to act in accordance
with any and every authorization, request, notice, instruction, or direction
received on such Guarantor's behalf from the Parent without requiring Lender to
confirm such Guarantor's authorization therefor, and each Guarantor hereby
releases Lender from and indemnifies Lender and holds Lender harmless against
any liability, claim, loss, damages, cost, or expense arising from or relating
in any way to Lender's acting upon such authorization, request, notice,
instruction, or direction. Notwithstanding the foregoing, Lender may require a
Guarantor to confirm such request, notice, instruction, or direction, or to
execute personally any agreement or instrument between such Guarantor and
Lender, whenever Lender in its sole discretion deems it necessary or desirable
to do so.
- 9 -
<PAGE>
IN WITNESS WHEREOF, each of Guarantors has executed and delivered this
Guarantee as of the day and year first above written.
AMBOY BUS CO., INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
ATLANTIC-CONN. TRANSIT, INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
ATLANTIC-HUDSON, INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
<PAGE>
ATLANTIC PARATRANS, INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
ATLANTIC PARATRANS OF
KENTUCKY INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
ATLANTIC EXPRESS COACHWAYS,
INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
<PAGE>
ATLANTIC EXPRESS OF MISSOURI
INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
ATLANTIC EXPRESS OF
PENNSYLVANIA, INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
BROOKFIELD TRANSIT, INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
<PAGE>
COURTESY BUS CO., INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
K. CORR, INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
MERIT TRANSPORTATION CORP.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
<PAGE>
METROPOLITAN ESCORT SERVICE,
INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
RAYBERN BUS SERVICE, INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
RAYBERN CAPITAL CORP.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
<PAGE>
RAYBERN EQUITY CORP.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
STATEN ISLAND BUS, INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
- The undersigned irrevocably agrees
to the terms set forth in Sections 11
and 16 above -
ATLANTIC EXPRESS
TRANSPORTATION CORP.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
Chief Executive Office
7 North Street
Staten Island, New York 10302
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Amboy Bus Co., Inc., the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
_______________________________
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Atlantic-Conn. Transit, Inc., the corporation described
in and which executed the foregoing instrument; and that he signed his name
thereto by order of the Board of Directors of said corporation.
_______________________________
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Atlantic-Hudson, Inc., the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
_______________________________
Notary Public
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Atlantic Paratrans, Inc., the corporation described in
and which executed the foregoing instrument; and that he signed his name thereto
by order of the Board of Directors of said corporation.
_______________________________
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Atlantic Paratrans of Kentucky Inc., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the Board of Directors of said corporation.
_______________________________
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Atlantic Express Coachways, Inc., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the Board of Directors of said corporation.
_______________________________
Notary Public
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Atlantic Express of Missouri Inc., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the Board of Directors of said corporation.
_______________________________
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Atlantic Express of Pennsylvania, Inc., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the Board of Directors of said corporation.
_______________________________
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Brookfield Transit, Inc., the corporation described in
and which executed the foregoing instrument; and that he signed his name thereto
by order of the Board of Directors of said corporation.
_______________________________
Notary Public
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Courtesy Bus Co., Inc., the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
_______________________________
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of K. Corr, Inc., the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the Board of Directors of said corporation.
_______________________________
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Merit Transportation Corp., the corporation described in
and which executed the foregoing instrument; and that he signed his name thereto
by order of the Board of Directors of said corporation.
_______________________________
Notary Public
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Metropolitan Escort Service, Inc., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the Board of Directors of said corporation.
_______________________________
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Raybern Bus Service, Inc., the corporation described in
and which executed the foregoing instrument; and that he signed his name thereto
by order of the Board of Directors of said corporation.
_______________________________
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Raybern Capital Corp., the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
_______________________________
Notary Public
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Raybern Equity Corp., the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
_______________________________
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Staten Island Bus, Inc., the corporation described in
and which executed the foregoing instrument; and that he signed his name thereto
by order of the Board of Directors of said corporation.
_______________________________
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Atlantic Express Transportation Corp., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the Board of Directors of said corporation.
_______________________________
Notary Public
<PAGE>
Exhibit 4.3
EXECUTION COPY
GUARANTEE
February 4, 1997
Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Re: The parties identified as "Borrowers" in the Loan Agreement (as
defined hereinbelow) (collectively the "Borrowers")
Gentlemen:
Congress Financial Corporation ("Lender") and Borrowers have entered into
certain financing arrangements pursuant to which Lender may make loans and
advances and provide other financial accommodations to Borrowers as set forth in
the Loan and Security Agreement, dated February 4, 1997, by and between
Borrowers, Atlantic Express Transportation Corp. and Lender (as the same now
exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced, the "Loan Agreement"), and other agreements, documents and
instruments referred to therein or at any time executed and/or delivered in
connection therewith or related thereto, including, but not limited to, this
Guarantee (all of the foregoing, together with the Loan Agreement, as the same
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced, being collectively referred to herein as the
"Financing Agreements").
Due to the close business and financial relationships between each of the
Borrowers and each and all of the undersigned (individually and collectively,
"Guarantors"), in consideration of the benefits which will accrue to Guarantors
and as an inducement for and in consideration of Lender making loans and
advances and providing other financial accommodations to any one or more of
Borrowers pursuant to the Loan Agreement and the other Financing Agreements,
each of Guarantors hereby jointly and severally agrees in favor of Lender as
follows:
1. Guarantee.
a. Each of Guarantors absolutely and unconditionally, jointly and
severally, guarantees and agrees to be liable for the full and indefeasible
payment and performance when due of the following (all of which are collectively
referred to herein as the "Guaranteed
<PAGE>
Obligations"): (1) all obligations, liabilities and indebtedness of any kind,
nature and description of any one or more of Borrowers to Lender and/or its
affiliates, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, whether arising under the Loan Agreement, the other Financing
Agreements or otherwise, whether now existing or hereafter arising, whether
arising before, during or after the initial or any renewal term of the Loan
Agreement or after the commencement of any case with respect to any Borrower
under the United States Bankruptcy Code or any similar statute (including,
without limitation, the payment of interest and other amounts, which would
accrue and become due but for the commencement of such case and including loans,
interest, fees, charges and expenses related thereto and all other obligations
of any Borrower or its successors to Lender arising after the commencement of
such case), whether direct or indirect, absolute or contingent, joint or
several, primary or secondary, liquidated or unliquidated, secured or unsecured,
and however acquired by Lender and (2) all expenses (including, without
limitation, attorneys' fees and legal expenses) incurred by Lender in connection
with the preparation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of any one or more of
Borrowers' obligations, liabilities and indebtedness as aforesaid to Lender, the
rights of Lender in any collateral or under this Guarantee and all other
Financing Agreements or in any way involving claims by or against Lender
directly or indirectly arising out of or related to the relationships between
any one or more of Borrower, any of Guarantors or any other Obligor (as
hereinafter defined) and Lender, whether such expenses are incurred before,
during or after the initial or any renewal term of the Loan Agreement and the
other Financing Agreements or after the commencement of any case with respect to
any Borrower or any of Guarantors under the United States Bankruptcy Code or any
similar statute.
b. This Guarantee is a guaranty of payment and not of collection.
Each of Guarantors agrees that Lender need not attempt to collect any Guaranteed
Obligations from any Borrower, any one of Guarantors or any other Obligor or to
realize upon any collateral, but may require any one of Guarantors to make
immediate payment of all of the Guaranteed Obligations to Lender when due,
whether by maturity, acceleration or otherwise, or at any time thereafter.
Lender may apply any amounts received in respect of the Guaranteed Obligations
to any of the Guaranteed Obligations, in whole or in part (including attorneys'
fees and legal expenses incurred by Lender with respect thereto or otherwise
chargeable to a Borrower or Guarantors) and in such order as Lender may elect.
c. Payment by Guarantors shall be made to Lender at the office of
Lender from time to time on demand as Guaranteed Obligations become due.
Guarantors shall make all payments to Lender on the Guaranteed Obligations free
and clear of, and without deduction or withholding for or on account of, any
setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions,
withholding, restrictions or conditions of any kind. One or more successive or
concurrent actions may be brought hereon against any of Guarantors either in the
same action in which any one or more of Borrowers or any of the other Guarantors
or any other Obligor is sued or in separate actions. In the event any claim or
action, or action on any judgment, based on this Guarantee is brought against
any of Guarantors, each of Guarantors agrees not to deduct, set-off, or seek any
counterclaim for or recoup any amounts which are or may be owed by Lender to any
of Guarantors.
2
<PAGE>
2. Waivers and Consents.
a. Notice of acceptance of this Guarantee, the making of loans and
advances and providing other financial accommodations to any one or more of
Borrowers and presentment, demand, protest, notice of protest, notice of
nonpayment or default and all other notices to which any of Borrowers or any of
Guarantors are entitled are hereby waived by each of Guarantors. Each of
Guarantors also waives notice of and hereby consents to, (1) any amendment,
modification, supplement, extension, renewal, or restatement of the Loan
Agreement and any of the other Financing Agreements, including, without
limitation, extensions of time of payment of or increase or decrease in the
amount of any of the Guaranteed Obligations or any collateral, and the guarantee
made herein shall apply to the Loan Agreement and the other Financing Agreements
and the Guaranteed Obligations as so amended, modified, supplemented, renewed,
restated or extended, increased or decreased, (2) the taking, exchange,
surrender and releasing of collateral or guarantees now or at any time held by
or available to Lender for the obligations of any one or more of Borrowers or
any other party at any time liable on or in respect of the Guaranteed
Obligations or who is the owner of any property which is security for the
Guaranteed Obligations (individually, an "Obligor" and collectively, the
"Obligors"), including, without limitation, the surrender or release by Lender
of any one of Guarantors hereunder, (3) the exercise of, or refraining from the
exercise of any rights against any of Borrowers, any of Guarantors or any other
Obligor or any collateral, (4) the settlement, compromise or release of, or the
waiver of any default with respect to, any of the Guaranteed Obligations and (5)
any financing by Lender of any one or more of Borrowers under Section 364 of the
United States Bankruptcy Code or consent to the use of cash collateral by Lender
under Section 363 of the United States Bankruptcy Code. Each of Guarantors
agrees that the amount of the Guaranteed Obligations shall not be diminished and
the liability of Guarantors hereunder shall not be otherwise impaired or
affected by any of the foregoing.
b. No invalidity, irregularity or unenforceability of all or any
part of the Guaranteed Obligations shall affect, impair or be a defense to this
Guarantee, nor shall any other circumstance which might otherwise constitute a
defense available to or legal or equitable discharge of any one or more of
Borrowers in respect of any of the Guaranteed Obligations, or any one of
Guarantors in respect of this Guarantee, affect, impair or be a defense to this
Guarantee. Without limitation of the foregoing, the liability of Guarantors
hereunder shall not be discharged or impaired in any respect by reason of any
failure by Lender to perfect or continue perfection of any lien or security
interest in any collateral or any delay by Lender in perfecting any such lien or
security interest. As to interest, fees and expenses, whether arising before or
after the commencement of any case with respect to any Borrower under the United
States Bankruptcy Code or any similar statute, Guarantors shall be liable
therefor, even if such Borrower's liability for such amounts does not, or ceases
to, exist by operation of law.
c. Each of Guarantors hereby irrevocably and unconditionally
postpones and subordinates, to the prior payment in full of the Guaranteed
Obligations, all statutory, contractual, common law, equitable and all other
claims against each Borrower, any collateral for the Guaranteed Obligations or
other assets of each Borrower or any other
3
<PAGE>
Obligor, for subrogation, reimbursement, exoneration, contribution,
indemnification, setoff or other recourse in respect to sums paid or payable to
Lender by each of Guarantors hereunder and each of Guarantors hereby further
irrevocably and unconditionally postpones and subordinates, to the prior payment
in full of the Guaranteed Obligations, any and all other benefits which
Guarantors might otherwise directly or indirectly receive or be entitled to
receive by reason of any amounts paid by or collected or due from Guarantors,
any Borrower or any other Obligor upon the Guaranteed Obligations or realized
from their property.
3. Subordination. Payment of all amounts now or hereafter owed to
Guarantors by any Borrower or any other Obligor is hereby subordinated in right
of payment to the indefeasible payment in full to Lender of the Guaranteed
Obligations and all such amounts and any security and guarantees therefor are
hereby assigned to Lender as security for the Guaranteed Obligations; provided,
however, that when no Event of Default (as such term is defined in the Loan
Agreement) shall have occurred and be continuing, Borrowers and other Obligors
may make payments to Guarantors of such amounts in accordance with their terms
and past practice.
4. Acceleration. Notwithstanding anything to the contrary contained
herein or any of the terms of any of the other Financing Agreements, the
liability of Guarantors for the entire Guaranteed Obligations shall mature and
become immediately due and payable, even if the liability of any one or more of
Borrowers or any other Obligor therefor does not, upon the occurrence of any
act, condition or event which constitutes an Event of Default as such term is
defined in the Loan Agreement.
5. Account Stated. The books and records of Lender showing the
account between Lender and any one or more of Borrowers shall be admissible in
evidence in any action or proceeding against or involving Guarantors as prima
facie proof of the items therein set forth, and the monthly statements of Lender
rendered to any Borrower, to the extent to which no written objection is made
within thirty (30) days from the date of sending thereof to any Borrower, shall,
absent manifest errors or omissions, be deemed conclusively correct and
constitute an account stated between Lender and such Borrower and be binding on
Guarantors.
6. Termination. This Guarantee is continuing, unlimited, absolute
and unconditional. All Guaranteed Obligations shall be conclusively presumed to
have been created in reliance on this Guarantee. Each of Guarantors shall
continue to be liable hereunder until one of Lender's officers actually receives
a written termination notice from a Guarantor sent to Lender at is address set
forth above by certified mail, return receipt requested and thereafter as set
forth below. Such notice received by Lender from any one of Guarantors shall not
constitute a revocation or termination of this Guarantee as to any of the other
Guarantors. Revocation or termination hereof by any of Guarantors shall not
affect, in any manner, the rights of Lender or any obligations or duties of any
of Guarantors (including the Guarantor which may have sent such notice) under
this Guarantee with respect to a. Guaranteed Obligations which have been
created, contracted, assumed or incurred prior to the receipt by Lender of such
written notice of revocation or termination as provided herein, including,
4
<PAGE>
without limitation, (1) all amendments, extensions, renewals and modifications
of such Guaranteed Obligations (whether or not evidenced by new or additional
agreements, documents or instruments executed on or after such notice of
revocation or termination), (2) all interest, fees and similar charges accruing
or due on and after revocation or termination, and (iii) all attorneys' fees and
legal expenses, costs and other expenses paid or incurred on or after such
notice of revocation or termination in attempting to collect or enforce any of
the Guaranteed Obligations against any Borrower, Guarantors or any other Obligor
(whether or not suit be brought), or b. Guaranteed Obligations which have been
created, contracted, assumed or incurred after the receipt by Lender of such
written notice of revocation or termination as provided herein pursuant to any
contract entered into by Lender prior to receipt of such notice. The sole effect
of such revocation or termination by any of Guarantors shall be to exclude from
this Guarantee the liability of such Guarantor for those Guaranteed Obligations
arising after the date of receipt by Lender of such written notice which are
unrelated to Guaranteed Obligations arising or transactions entered into prior
to such date. Without limiting the foregoing, this Guarantee may not be
terminated and shall continue so long as the Loan Agreement shall be in effect
(whether during its original term or any renewal, substitution or extension
thereof).
7. Reinstatement. If after receipt of any payment of, or proceeds of
collateral applied to the payment of, any of the Guaranteed Obligations, Lender
is required to surrender or return such payment or proceeds to any Person for
any reason, then the Guaranteed Obligations intended to be satisfied by such
payment or proceeds shall be reinstated and continue and this Guarantee shall
continue in full force and effect as if such payment or proceeds had not been
received by Lender. Each of Guarantors shall be liable to pay to Lender, and
does indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 7 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 7 shall survive the termination or
revocation of this Guarantee.
8. Amendments and Waivers. Neither this Guarantee nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
9. Corporate Existence, Power and Authority. Each of Guarantors is a
corporation duly organized and in good standing under the laws of its state or
other jurisdiction of incorporation and is duly qualified as a foreign
corporation and in good standing in all states or other jurisdictions where the
nature and extent of the business transacted by it or the ownership of assets
makes such qualification necessary, except for those jurisdictions in
5
<PAGE>
which the failure to so qualify would not have a material adverse effect on the
financial condition, results of operation or businesses of any of Guarantors or
the rights of Lender hereunder or under any of the other Financing Agreements.
The execution, delivery and performance of this Guarantee is within the
corporate powers of each of Guarantors, have been duly authorized and is not in
contravention of law or the terms of the certificates of incorporation, by-laws,
or other organizational documentation of each of Guarantors, or any indenture,
agreement or undertaking to which any of Guarantors is a party or by which any
of Guarantors or its property are bound. This Guarantee constitutes the legal,
valid and binding obligation of each of Guarantors enforceable in accordance
with its terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
enforcement of creditors rights generally, and by general principles of equity
(whether considered at law or in equity). Any one of Guarantors signing this
Guarantee shall be bound hereby whether or not any of the other Guarantors or
any other person signs this Guarantee at any time.
10. Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
a. The validity, interpretation and enforcement of this Guarantee
and any dispute arising out of the relationship between any of Guarantors and
Lender, whether in contract, tort, equity or otherwise, shall be governed by the
internal laws of the State of New York (without giving effect to principles of
conflicts of law).
b. Each of Guarantors hereby irrevocably consents and submits to the
non-exclusive jurisdiction of the Supreme Court of the State of New York for New
York County and the United States District Court for the Southern District of
New York and waives any objection based on venue or forum non conveniens with
respect to any action instituted therein arising under this Guarantee or any of
the other Financing Agreements or in any way connected with or related or
incidental to the dealings of any of Guarantors and Lender in respect of this
Guarantee or any of the other Financing Agreements or the transactions related
hereto or thereto, in each case whether now existing or hereafter arising and
whether in contract, tort, equity or otherwise, and agrees that any dispute
arising out of the relationship between any of Guarantors or any of Borrowers
and Lender or the conduct of any such persons in connection with this Guarantee,
the other Financing Agreements or otherwise shall be heard only in the courts
described above (except that Lender shall have the right to bring any action or
proceeding against any of Guarantors or its property in the courts of any other
jurisdiction which Lender deems necessary or appropriate in order to realize on
collateral at any time granted by any of Borrowers or any of Guarantors to
Lender or to otherwise enforce its rights against any of Guarantors or its
property).
c. Each of Guarantors hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon any of Guarantors in any other manner
provided under the rules of any such courts. A copy of any service upon any of
Guarantors shall be sent to Silverman, Collura & Chernis, P.C., 381 Park Avenue
South,
6
<PAGE>
Suite 1601, New York, New York 10016, Attention: Peter R. Silverman, Esq., but
the delivery of such copy shall not be a condition to the effectiveness of
service upon any Guarantor. Within thirty (30) days after such service, any of
Guarantors so served shall appear in answer to such process, failing which such
Guarantors shall be deemed in default and judgment may be entered by Lender
against Guarantors for the amount of the claim and other relief requested.
d. EACH OF GUARANTORS HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS GUARANTEE OR
ANY OF THE OTHER FINANCING AGREEMENTS OR (2) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF ANY OF GUARANTORS AND LENDER IN RESPECT
OF THIS GUARANTEE OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH OF GUARANTORS
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY OF GUARANTORS
OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF GUARANTORS AND LENDER TO THE WAIVER
OF THEIR RIGHT TO TRIAL BY JURY.
e. Lender shall not have any liability to Guarantors (whether in
tort, contract, equity or otherwise) for losses suffered by Guarantors in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Guarantee, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of the Loan Agreement and
the other Financing Agreements.
11. Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth above and to each of
Guarantors at its chief executive office set forth below, or to such other
address as a party may designate by written notice to the other in accordance
with this provision, and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver the
next business day, one (1) business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing. A copy of any notice
given to a Guarantor shall be sent to Silverman, Collura & Chernis, P.C., 381
Park Avenue South, Suite 1601, New York, New York 10016, Attention: Peter R.
Silverman, Esq.
7
<PAGE>
12. Partial Invalidity. If any provision of this Guarantee is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Guarantee as a whole, but this Guarantee shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
13. Entire Agreement. This Guarantee represents the entire agreement and
understanding of this parties concerning the subject matter hereof, and
supersedes all other prior agreements, understandings, negotiations and
discussions, representations, warranties, commitments, proposals, offers and
contracts concerning the subject matter hereof, whether oral or written.
14. Successors and Assigns. This Guarantee shall be binding upon
Guarantors and their respective successors and assigns and shall inure to the
benefit of Lender and its successors, endorsees, transferees and assigns. The
liquidation, dissolution or termination of any of Guarantors shall not terminate
this Guarantee as to such entity or as to any of the other Guarantors.
15. Construction. All references to the term "Guarantors" wherever used
herein shall mean each and all of Guarantors and their respective successors and
assigns, individually and collectively, jointly and severally (including,
without limitation, any receiver, trustee or custodian for any of Guarantors or
any of their respective assets or any of Guarantors in its capacity as debtor or
debtor-in-possession under the United States Bankruptcy Code). All references to
the term "Lender" wherever used herein shall mean Lender and its successors and
assigns and all references to the term "Borrower" or "Borrowers" wherever used
herein shall mean such Borrower or Borrowers, as the case may be, and their
respective successors and assigns (including, without limitation, any receiver,
trustee or custodian for a Borrower or any of its assets or a Borrower in its
capacity as debtor or debtor-in-possession under the United States Bankruptcy
Code). All references to the term "Person" or "person" wherever used herein
shall mean any individual, sole proprietorship, partnership, corporation
(including, without limitation, any corporation which elects subchapter S status
under the Internal Revenue Code of 1986, as amended), business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality of political
subdivision thereof. All references to the plural shall also mean the singular
and to the singular shall also mean the plural.
8
<PAGE>
16. Guarantors' Representative. Each of the Guarantors hereby
appoints Atlantic Express Transportation Corp. (the "Parent") as its agent and
representative for the purposes of all communications and authorizations between
such Guarantor and Lender in connection with this Guarantee or any of the other
Financing Agreements, including, without limitation, giving notices to Lender
and receiving notices from Lender and giving any direction or instruction to
Lender contemplated by this Guarantee. Each of the Guarantors hereby authorizes
and directs Lender to act in accordance with any and every authorization,
request, notice, instruction, or direction received on such Guarantor's behalf
from the Parent without requiring Lender to confirm such Guarantor's
authorization therefor, and each Guarantor hereby releases Lender from and
indemnifies Lender and holds Lender harmless against any liability, claim, loss,
damages, cost, or expense arising from or relating in any way to Lender's acting
upon such authorization, request, notice, instruction, or direction.
Notwithstanding the foregoing, Lender may require a Guarantor to confirm such
request, notice, instruction, or direction, or to execute personally any
agreement or instrument between such Guarantor and Lender, whenever Lender in
its sole discretion deems it necessary or desirable to do so.
[THIS SPACE INTENTIONALLY LEFT BLANK]
9
<PAGE>
IN WITNESS WHEREOF, each of Guarantors has executed and delivered
this Guarantee as of the day and year first above written.
GUARANTOR
ATLANTIC EXPRESS
TRANSPORTATION CORP.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
CHIEF EXECUTIVE OFFICE:
7 North Street
Staten Island, New York 10302
GUARANTOR
BLOCK 7932, INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
CHIEF EXECUTIVE OFFICE:
7 North Street
Staten Island, New York 10302
<PAGE>
GUARANTOR
G.V.D. LEASING CO., INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
CHIEF EXECUTIVE OFFICE:
7 North Street
Staten Island, New York 10302
GUARANTOR
180 JAMAICA CORP.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
CHIEF EXECUTIVE OFFICE:
7 North Street
Staten Island, New York 10302
GUARANTOR
METRO AFFILIATES, INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
CHIEF EXECUTIVE OFFICE:
7 North Street
Staten Island, New York 10302
<PAGE>
GUARANTOR
MIDWAY LEASING INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
CHIEF EXECUTIVE OFFICE:
7 North Street
Staten Island, New York 10302
GUARANTOR
TEMPORARY TRANSIT SERVICE, INC.
By: /s/ Domenic Gatto
-------------------------------
Title: President, Chief Executive Officer
-----------------------------------
CHIEF EXECUTIVE OFFICE:
7 North Street
Staten Island, New York 10302
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Atlantic Express Transportation Corp., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the Board of Directors of said corporation.
__________________________
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Block 7932, Inc., the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the Board of Directors of said corporation.
__________________________
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of G.V.D. Leasing Co., Inc., the corporation described in
and which executed the foregoing instrument; and that he signed his name thereto
by order of the Board of Directors of said corporation.
__________________________
Notary Public
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of 180 Jamaica Corp., the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
__________________________
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Metro Affiliates, Inc., the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
__________________________
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Midway Leasing Inc., the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
__________________________
Notary Public
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of February __, 1997, before me personally came
_____________________, to me known, who stated that he is the
____________________ of Temporary Transit Service, Inc., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the Board of Directors of said corporation.
__________________________
Notary Public
<PAGE>
Exhibit 4.4
------------------------------------------------
SECURITY AND PLEDGE AGREEMENT
among
ATLANTIC EXPRESS TRANSPORTATION GROUP INC.,
ATLANTIC EXPRESS TRANSPORTATION CORP.,
CERTAIN OF ITS SUBSIDIARIES
PARTY HERETO
and
THE BANK OF NEW YORK,
as Trustee and Secured Party
Dated as of February 4, 1997.
------------------------------------------------
<PAGE>
SECURITY AND PLEDGE AGREEMENT
THIS SECURITY AND PLEDGE AGREEMENT, dated as of February 4, 1997
(the "Security Agreement"), is entered into among ATLANTIC EXPRESS
TRANSPORTATION GROUP INC. (together with its successors and assigns, "AETG"),
ATLANTIC EXPRESS TRANSPORTATION CORP., a New York corporation and a subsidiary
of AETG (together with its successors and assigns, the "Company"), the
subsidiaries of the Company that are party hereto (collectively, together with
their permitted successors and assigns, the "Restricted Subsidiaries"), and THE
BANK OF NEW YORK, as the trustee under the Indenture (defined below) for the
benefit of the holders of the Notes (defined below) (together with its
successors and assigns, "Secured Party").
NOW, THEREFORE, in consideration of the premises and the covenants
set forth herein and in the Indenture, the parties hereto agree as follows.
ARTICLE I
DEFINITIONS
1.1 Defined Terms. As used herein, capitalized terms defined in the
Indenture and not otherwise defined herein are used herein as so defined. All
terms defined in the UCC (defined below) and not otherwise defined herein or in
the Indenture shall have the meanings assigned to them in the UCC.
"Accounts" shall mean all present and future rights of the Company
and each Restricted Subsidiary to payment for goods sold or leased or for
services rendered, which are not evidenced by instruments or chattel paper, and
whether or not earned by performance.
"Affiliate" of any specified Person shall mean 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") shall mean, with respect to any
Person: (i) 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; (ii) in
the case of a corporation, beneficial ownership of 10% or more of any class of
Capital Stock of such Person; and (iii) in the case of an individual, (A)
members of such Person's immediate family (as defined in Instruction 2 of Item
404(a) of Regulation S-K promulgated under the Securities Act of 1933, as
amended, as in effect on the date hereof), and (B) trusts, any trustee or
beneficiary of which is such Person or members of such Person's
<PAGE>
immediate family. Notwithstanding the foregoing definitions, none of Jefferies &
Company, Inc. and its Affiliates shall be considered Affiliates of the Company
or any of its Subsidiaries.
"Capital Stock" shall mean (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, partnership
interest (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.
"Collateral" shall have the meaning assigned to it in Article II
hereof.
"Indenture" shall mean the Indenture, dated February 4, 1997, among
the Company, the Restricted Subsidiaries and the Secured Party.
"Intercreditor Agreement" shall mean the Intercreditor Agreement,
dated February 4, 1997, between the Lender and the Secured Party.
"Inventory" shall mean all of the Company's and each Restricted
Subsidiary's now owned and hereafter existing or acquired inventory consisting
of fuel and oil and other supplies used or useful in the business of the Company
and each Restricted Subsidiary and spare parts for vehicles, wherever located.
"Lender" shall mean Congress Financial Corporation, as lender under
the Loan Agreement.
"Loan Agreement" shall mean the Loan and Security Agreement, dated
February 4, 1997, among the Lender, certain subsidiaries of the Company, as
borrowers, and the Company, as guarantor.
"Majority Holders" shall mean the Holder or Holders of a majority in
aggregate principal amount of the outstanding Notes.
"Notes" shall mean the 10 3/4% Senior Secured Notes due 2004 of the
Company, in the aggregate principal amount of $110,000,000.
"Person" or "person" shall mean and include any individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Internal Revenue Code of
1986, as amended) limited liability company, business trust, unincorporated
association, joint stock corporation, trust, joint
2
<PAGE>
venture or other entity or any government or any agency or instrumentality or
political subdivision thereof.
"Purchase Agreement" shall mean the Purchase Agreement, dated
January 30, 1997, among the Company, AETG, Jefferies & Company, Inc., as the
purchaser, and each Restricted Subsidiary.
"Records" shall mean all of the present and future books of account
of every kind or nature of the Company and each Restricted Subsidiary, purchase
and sale agreements, invoices, ledger cards, bills of lading and other shipping
evidence, statements, correspondence, memoranda, credit files and other data
relating to the Collateral or any account debtor, together with the tapes,
disks, diskettes and other data and software storage media and devices, file
cabinets or containers in or on which the foregoing are stored (including any
rights of the Company or any Restricted Subsidiary with respect to the foregoing
maintained with or by any other person).
"Secured Parties" shall mean the collective reference to the Secured
Party and each Holder of the Notes.
"Securities" shall have the meaning assigned to it in Article II
hereof.
"Stockholders' Agreement" shall mean the Stockholders' Agreement,
dated as of February 28, 1994, by and among AETG and each of the parties
signatory thereto, as amended by the First Amendment to the Stockholders'
Agreement, dated as of January 30, 1997, among AETG and each of the parties
signatory thereto.
"Subsidiary" shall mean 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 Voting Stock is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other Subsidiaries
of such 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 one or more Subsidiaries of such Person (or any combination thereof);
provided, however, that for the purposes of this Security Agreement, Atlantic
North Casualty Company shall not be considered a Subsidiary of the Company
except as otherwise expressly provided herein.
"UCC" shall mean the Uniform Commercial Code as in effect from time
to time in the State of New York.
"Voting Stock" shall mean, with respect to any Person: (a) one or
more classes of the Capital Stock of such Person having general voting power to
elect at least a majority of the board of directors, managers, or trustees of
such Person (irrespective of whether or not at the time Capital Stock of any
3
<PAGE>
other class or classes has or might have voting power by reason of the happening
of any contingency); and (b) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (a) of this definition.
ARTICLE II
GRANT OF SECURITY INTERESTS
2.1 Security Interest. As security for the prompt and complete
payment and performance in full of all the Obligations, the Company and the
Restricted Subsidiaries hereby grants to the Secured Party, for the benefit of
itself and the Holders, a security interest in and continuing lien on, all of
their right, title and interest in, to and under the following, in each case,
whether now owned or existing or hereafter acquired or arising, and wherever
located (all of which being the "Non-Security Collateral"):
(i) Accounts;
(ii) subject to the final paragraph of this Section 2.1, all present and
future contract rights (including, without limitation, all rights under service
contracts pursuant to which the Company or any Restricted Subsidiary renders its
services to its customers, which rights shall include any and all rights to all
retainages which may arise thereunder), general intangibles (including, but not
limited to, tax and duty refunds, patents, trade secrets, trademarks, service
marks, copyrights, trade names, applications and registrations for the
foregoing, goodwill, processes, drawings, blueprints, customer lists, licenses,
whether as licensor or licensee, choses in action and other claims), chattel
paper, documents, instruments, letters of credit, bankers' acceptances and
guaranties;
(iii) all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of the Company or any Restricted
Subsidiary now or hereafter held or received by or in transit to Lender or its
Affiliates or at any other depository or other institution from or for the
account of the Company or any Restricted Subsidiary, whether for safekeeping,
pledge, custody, transmission, collection or otherwise, and all present and
future liens, security interests, rights, remedies, title and interest in, to
and in respect of Accounts and other Non-Security Collateral, including, without
limitation, (a) rights and remedies under or relating to guaranties, contracts
of suretyship, letters of credit and credit and other insurance related to the
Non-Security Collateral, (b) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (c) goods described in invoices, documents, contracts
or
4
<PAGE>
instruments with respect to, or otherwise representing or evidencing, Accounts
or other Non-Security Collateral, including, without limitation, returned,
repossessed and reclaimed goods, and (d) deposits by and property of account
debtors or other persons securing the obligations of account debtors;
(iv) Inventory;
(v) Records; and
(vi) all products and proceeds of the foregoing, in any form, including
without limitation, insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the foregoing.
In no event shall the Secured Party's security interest in a
contract or agreement of the Company or any Restricted Subsidiary be deemed to
be a present assignment, transfer, cponveyance, subletting or other disposition
(an "Assignment") of such contract or agreement to the Secured Party within the
meaning of any provision in such contract or agreement prohibiting, or requiring
any consent or establishing any other conditions for, an assignment thereof by
the Company or any Restricted Subsidiary. The Secured Party acknowledges that
any sale, transfer or Assignment of any such contract or agreement upon the
enforcement of the Secured Party's security interest therein would be subject to
the terms of such contract or agreement governing Assignment, except as
otherwise provided in Section 9-318 of the UCC. The Secured Party's security
interest in each contract or agreement of the Company or any Restricted
Subsidiary shall attach from the date hereof to all of the following, whether
now existing or hereafter arising or acquired: (i) all of the Company's and each
Restricted Subsidiary's Accounts and general intangibles for money due or to
become due arising under such contract or agreement; (ii) all proceeds paid or
payable to the Company or any Restricted Subsidiary from any sale, transfer or
assignment of such contract or agreement and all rights to receive such
proceeds; and (iii) all other rights and interests of the Company or any
Restricted Subsidiary in, to and under such contract or agreement to the fullest
extent that attachment thereto would not be a violation of such contract or
agreement directly or indirectly entitling a party thereto (other than the
Company or any Restricted Subsidiary or Affiliate thereof) to a legally
enforceable right to terminate such contract or agreement.
2.2 Pledge. As security for the prompt and complete payment and
performance in full of all the Obligations, each of AETG, the Company and each
Restricted Subsidiary hereby pledges, assigns, transfers, sets over and delivers
unto the Secured Party, for the benefit of itself and the Holders, and hereby
grants to the Secured Party, for the benefit of itself and the Holders, a
continuing security interest in all of the right, title and interest of AETG,
the Company or any Restricted
5
<PAGE>
Subsidiary in, to and under any and all of the following described property,
rights and interests, whether now owned or hereafter acquired:
(i) the issued and outstanding shares of capital stock of the Company and
the Subsidiaries identified on Schedule I hereto as owned by AETG and the
Company, respectively, on the date hereof and all shares of capital stock of the
Company and the Subsidiaries acquired by AETG, the Company or any Restricted
Subsidiary after the date hereof (collectively, the "Pledged Stock") and all
certificate(s) representing such capital stock; and
2.3 all proceeds and products of the Pledged Stock and such other
additional property, including without limitation dividends, distributions,
cash, instruments and other property or securities, now or hereafter at any time
or from time to time received or receivable or otherwise distributed or
distributable in respect of or in exchange for any or all of the Pledged Stock
and such other additional property (together with the Pledged Stock, the
"Securities" and, the Securities together with the Non-Security Collateral, the
"Collateral");
TO HAVE AND TO HOLD the Securities, together with all rights, titles, interests,
powers, privileges and preferences pertaining or incidental thereto, unto the
Secured Party and their respective successors and assigns.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each of AETG, the Company and each Restricted Subsidiary hereby
jointly and severally represents and warrants to the Secured Party, which
representations and warranties shall survive execution and delivery of this
Security Agreement, as follows:
3.1 Validity, Perfection and Priority. (a) The security interests in
the Collateral granted to the Secured Party hereunder constitute valid and
continuing security interests in the Collateral.
(b) The security interests in the Collateral granted to the
Secured Party hereunder will constitute perfected security interests therein, to
the extent that such security interests may be perfected by the actions
described in subsection (i), (ii) and (iii), superior and prior to all Liens and
rights or claims of all other Persons, subject only to the terms of the
Intercreditor Agreement upon (i) the filing of financing statements naming the
Company or any Restricted Subsidiary as "debtor" and the Secured Party as
"secured party" and describing the Non-Security Collateral in the filing offices
set forth on Schedule
6
<PAGE>
II hereto, (ii) to the extent not subject to Article 9 of the Uniform Commercial
Code in any applicable jurisdiction, the recordation of the security interests
granted hereunder in patents, trademarks and copyrights in the applicable
patent, trademark and copyright registries and the registration of all
copyrights, and (iii) the delivery of certificates and instruments evidencing
all of the Securities identified on Schedule I hereto to the Secured Party,
indorsed in blank or accompanied by undated stock powers duly executed in blank,
as the case may be, with respect thereto.
3.2 No Liens; Other Financing Statements. (a) Except for the Lien
granted to the Secured Party hereunder and the Lien granted to the Lender under
the Loan Agreement, the Company and each Restricted Subsidiary owns and, as to
all Collateral whether now existing or hereafter acquired will continue to own,
each item of the Collateral free and clear of all Liens, rights and claims, and
the Company and each Restricted Subsidiary shall defend the Collateral against
all claims and demands of all Persons at any time claiming the same or any
interest therein adverse to the Secured Party on the Collateral entitled to
priority therein under applicable law.
(b) No financing statement or other evidence of Lien covering
or purporting to cover any of the Collateral is on file and is effective in any
public office other than (i) financing statements filed or to be filed in
connection with the security interests granted to the Secured Party hereunder,
(ii) financing statements filed in connection with the Loan Agreement, and (iii)
financing statements for which proper, executed termination statements have been
delivered to the Secured Party for filing.
3.3 Chief Executive Office. The chief executive office of the
Company and each Restricted Subsidiary is 7 North Street, Staten Island, New
York 10302. The originals of the Records are located at such chief executive
office of the Company. All Records are maintained at, and controlled and
directed (including, without limitation, for general accounting purposes) from
the chief executive office or other offices identified on Schedule III as such.
3.4 Location of Inventory. All Inventory is kept only at (or shall
be in transit to) the locations listed on Schedule III hereto. None of such
Inventory is in the possession of an issuer of a negotiable document (as defined
in Section 7-104 of the UCC) therefor or otherwise in the possession of a bailee
or other Person.
3.5 Tradenames; Prior Names. The only names under which the Company
or any Restricted Subsidiary has conducted business during the last five years
are as set forth on Schedule IV hereto.
7
<PAGE>
3.6 Pledged Securities. (a) AETG and the Company are the legal,
record and beneficial owners of, and have good title to, the Securities listed
on Schedule I hereto and such Securities are not subject to any put, call,
option or other right in favor of any other Person whatsoever, (b) except for
the capital stock of the Subsidiaries of AETG that are not engaged in the
transportation business, the Securities listed on Schedule I hereto constitute
all of the capital stock or other ownership or equity interests owned legally or
beneficially by AETG, the Company or any Restricted Subsidiary and all other
instruments in which AETG, the Company or any Restricted Subsidiary has a legal
or beneficial ownership interest on the date hereof, (c) neither AETG, the
Company, nor any Restricted Subsidiary has options or other rights to acquire
any capital stock or other ownership or equity interests of any other Person,
(d) neither AETG, the Company nor any Restricted Subsidiary is a party to or
bound by any agreement with any other Person (including, without limitation, any
Subsidiary or any other stockholder of any Subsidiary) that restricts the
ability of AETG, the Company or any Restricted Subsidiary to vote, transfer or
dispose of any capital stock or any of the other Securities, except for such
restrictions on AETG under the Stockholders' Agreement, (e) other than the
consent of the Commissioner of the Vermont Department of Banking, Insurance,
Securities and Health Care Administration (the "Vermont Department") for the
pledge, voting, and the exercise of other corporate rights by the Secured Party,
whether in connection with the exercise of remedies pursuant to this Security
Agreement or otherwise, with respect to the shares of capital stock of Atlantic
North Casualty Company pledged hereunder, which consent for the pledge of
Securities hereunder has already been obtained, no consent of any other Person
is required to be obtained in connection with the pledge of any of the
Securities or the consummation of the other transactions contemplated hereby,
including, without limitation, the exercise by the Secured Party of the voting
or other rights provided for in this Security Agreement with respect to the
Securities or the remedies in respect of the Securities provided pursuant to
this Security Agreement, and (f) all of the Securities listed on Schedule I have
been duly and validly issued, and are fully paid and nonassessable.
3.7 Receivables.
(a) Each Account arises from the actual and bonafide sale and
delivery of goods by the Company or a Restricted Subsidiary or rendition of
services by the Company or a Restricted Subsidiary in the ordinary course of its
business which transactions are completed in all material respects with those
terms and provisions contained in any document related thereto.
(b) The representations and warranties contained in this
Section shall be deemed to be repeated by the Company and each Restricted
Subsidiary as of the time when each Account arises.
8
<PAGE>
3.8 Intellectual Property. (a) Schedule IV sets forth (i) all United
States, state and foreign registrations of and applications for patents,
trademarks, servicemarks and copyrights of the Company and each Restricted
Subsidiary and (ii) all patent licenses, trademark and servicemark licenses and
copyright licenses material to the business of the Company and the Restricted
Subsidiaries; and
(b) the Company and each Restricted Subsidiary owns, or has
valid rights to use, all patents, trademarks, trade secrets, copyrights, and
similar intellectual property rights material to the business of the Company and
the Restricted Subsidiaries and used in the conduct of the Company's or any
Restricted Subsidiary's business.
3.9 Basic Representations and Warranties. Each of AETG, the Company
and each Restricted Subsidiary (a) is duly organized and validly existing in
good standing (except in the case of the Restricted Subsidiaries identified on
Schedule 3.9 hereto, where the failure to be in good standing would not, in the
aggregate, have a Material Adverse Effect (as defined in the Purchase
Agreement)) under the laws of the jurisdiction of its formation or other
jurisdiction in which it is qualified to do business; (b) has the power and
authority to execute, deliver and carry out the terms and provisions of this
Security Agreement and consummate the transactions contemplated hereby; (c) has
taken all necessary action to authorize the execution, delivery and performance
of this Security Agreement and the consummation of the transactions contemplated
hereby; and (d) has duly executed and delivered this Security Agreement. This
Security Agreement constitutes each such party's legal, valid and binding
obligation, enforceable against each such party in accordance with its terms.
ARTICLE IV
COVENANTS
Each of AETG, the Company and each Restricted Subsidiary jointly and
severally, covenants and agrees with the Secured Party that from and after the
date of this Security Agreement:
4.1 Further Assurances. Each of AETG, the Company and each
Restricted Subsidiary will from time to time at its own expense, promptly
execute, deliver, file and record all further instruments, indorsements and
other documents, and take such further action as the Secured Party may deem
necessary or desirable in obtaining the full benefits of this Security Agreement
and of the rights, remedies and powers herein granted, including, without
limitation, the following:
9
<PAGE>
(i) the filing of any financing statements, in form acceptable
to the Secured Party under the Uniform Commercial Code in effect in any
jurisdiction with respect to the liens and security interests granted
hereby (and each of AETG, the Company and each Restricted Subsidiary
hereby (x) authorizes the Secured Party to file any such financing
statement without its respective signature to the extent permitted by
applicable law and (y) agrees that a photocopy or other reproduction of
this Security Agreement shall be sufficient as a financing statement and
may be filed in lieu of the original to the extent permitted by applicable
law); and
(ii) furnish to the Secured Party from time to time statements
and schedules further identifying and describing the Collateral and such
other reports in connection with the Collateral as the Secured Party may
request, all in reasonable detail and in form satisfactory to the Secured
Party.
4.2 Change of Name, Identity, Corporate Structure, Chief Executive
Office, or Location of Inventory. Neither the Company nor any Restricted
Subsidiary will change its name, identity, corporate structure or the location
of its chief executive office or location of its Inventory without (i) giving
the Secured Party at least thirty (30) days' prior written notice clearly
describing such new name, identity, corporate structure or new location and
providing such other information in connection therewith as the Secured Party
may reasonably request, and (ii) taking all action reasonably satisfactory to
the Secured Party as the Secured Party may reasonably request to maintain the
security interest of the Secured Party in the Collateral intended to be granted
hereby at all times fully perfected with the same or better priority and in full
force and effect. All Accounts and Records of the Company and each Restricted
Subsidiary will continue to be maintained at, and controlled and directed
(including, without limitation, for general accounting purposes) from, such
chief executive office or a location identified as a location at which Accounts
or Records are maintained, controlled and directed on Schedule III, or such new
locations as the Company or any Restricted Subsidiary may establish in
accordance with this Section 4.2.
4.3 Maintain Records. The Company and each Restricted Subsidiary
will keep and maintain at its own cost and expense satisfactory and complete
records of the Collateral, including, but not limited to, the originals of all
documentation with respect to all Accounts and records of all payments received
and all credits granted on the Accounts, and all other dealings therewith.
4.4 Right of Inspection. The Secured Party shall at all times have
full and free access during normal business hours
10
<PAGE>
and upon reasonable notice to all the books, correspondence and records of AETG,
the Company and each Restricted Subsidiary, and the Secured Party and its
representatives may examine the same, take extracts therefrom and make
photocopies thereof, and each of AETG, the Company and each Restricted
Subsidiary agrees to render the Secured Party at the cost and expense of AETG,
the Company and the Restricted Subsidiaries, such clerical and other assistance
as may be reasonable requested with regard thereto.
4.5 Payment of Obligations. AETG, the Company and each Restricted
Subsidiary will pay promptly when due all taxes, assessments and governmental
charges or levies imposed upon the Collateral, as well as all claims of any kind
(including, without limitation, claims for labor, materials, supplies and
services) against or with respect to the Collateral, except that no such charge
need be paid if (i) the validity thereof is being contested in good faith by
appropriate proceedings, (ii) such proceedings do not involve, in the sole
opinion of the Secured Party, any material danger for the sale, forfeiture or
loss of any of the Collateral or any interest therein and (iii) such charge is
adequately reserved against on the books of AETG, the Company or the applicable
Restricted Subsidiary, as the case may be, in accordance with GAAP.
4.6 Negative Pledge. None of AETG, the Company nor any Restricted
Subsidiary will create, incur or permit to exist, and each of them will defend
the Collateral against, and will take such other action as is necessary to
remove, any Lien or claim on or to the Collateral, other than the Liens created
hereby, Liens in favor of the Lender under the Loan Agreement and Permitted
Liens.
4.7 Limitations on Dispositions of Collateral. None of AETG, the
Company nor any Restricted Subsidiary will sell, transfer, lease or otherwise
dispose of any of the Collateral, or attempt, offer or contract to do so except
as permitted in the Indenture.
4.8 Subsequently Acquired Securities, etc. If at any time or from
time to time after the date hereof, AETG, the Company or any Restricted
Subsidiary shall acquire any additional Securities (by purchase, stock dividend,
in lieu of interest or otherwise), AETG, the Company or such Restricted
Subsidiary, as the case may be, will forthwith pledge and deposit such
Securities with the Secured Party and deliver to the Secured Party certificates
or instruments therefor, indorsed in blank or accompanied by undated stock
powers duly executed in blank, and such other documentation required by the
Secured Party to perfect its first-priority Lien therein.
4.9 Performance by the Secured Party of the Obligations of AETG, the
Company or any Restricted Subsidiary; Reimbursement. If AETG, the Company or any
Restricted Subsidiary fails to perform or comply with any of its agreements
contained
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<PAGE>
herein, the Secured Party may, without consent by AETG, the Company or any
Restricted Subsidiary, but upon notice to the Company reasonably given, perform
or comply or cause performance or compliance therewith, and the expenses of the
Secured Party incurred in connection with such performance or compliance,
together with interest thereon at a rate per annum borne by the Notes, shall be
payable by AETG, the Company and the Restricted Subsidiaries to the Secured
Party on demand and such reimbursement obligation shall be secured hereby.
4.10 No Impairment. Except as expressly permitted herein or in the
Indenture, neither AETG, the Company nor any Restricted Subsidiary will take or
knowingly permit to be taken any action which could impair the Secured Party's
rights in the Collateral.
4.11 Insurance. Except as otherwise permitted by the terms of the
Indenture, (a) AETG, the Company and each Restricted Subsidiary will maintain,
with financially sound and reputable insurers acceptable to the Secured Party
and licensed to do business in each state in which any of the Collateral covered
by any policy is located, insurance with respect to the Collateral and its use,
against loss or damage of the kinds customarily insured against by reputable
companies in the same or similar businesses, similarly situated, such insurance
to be of such types and in such amounts (with such deductible amounts) as is
customary for such companies under the same or similar circumstances, similarly
situated. All policies of insurance shall (i) name the Secured Party as
additional insured (with respect to liability insurance policies) or loss payees
with a lender's loss payable endorsement, in each case as their respective
interests may appear, (ii) include waivers by the insurer of all claims for
insurance premiums against the Secured Party, (iii) provide that any losses
shall be payable to the Secured Party notwithstanding (A) any act, failure to
act or negligence of or violation of warranties, declarations or conditions
contained in such policy by AETG, the Company, or the Secured Party, (B) any
foreclosure or other proceedings or notice of sale relating to any Collateral
insured thereunder, or (C) any change in the title to or ownership of any
Collateral insured thereunder, and (iv) provide that no cancellation,
termination or lapse in coverage thereof shall be effective until at least 30
days after receipt by the Secured Party of written notice thereof.
12
<PAGE>
ARTICLE V
POWER OF ATTORNEY
AETG, the Company and each Restricted Subsidiary hereby irrevocably
constitute and appoint the Secured Party and any officer or agent thereof, with
full power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of AETG, the Company and
each Restricted Subsidiary and in the name of AETG, the Company and each
Restricted Subsidiary, from time to time in the Secured Party's discretion, for
the purpose of carrying out the terms of this Security Agreement, to take any
and all appropriate action, and to execute in any appropriate manner any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Security Agreement.
AETG, the Company and each Restricted Subsidiary hereby ratifies all
that said attorneys shall lawfully do or cause to be done by virtue hereof. This
power of attorney is a power coupled with an interest and shall be irrevocable.
ARTICLE VI
REMEDIES; RIGHTS UPON DEFAULT
6.1 Voting, etc. (a) Unless and until an Event of Default shall have
occurred and be continuing under the Indenture, AETG, the Company and the
Restricted Subsidiaries shall be entitled to (i) receive all cash dividends,
interest and other payments made upon or with respect to the Securities and (ii)
vote any and all of the Securities and to give consents, waivers or
ratifications in respect thereof; provided, that no vote shall be cast or any
consent, waiver or ratification given or any action taken that would violate or
be inconsistent with any of the terms of this Security Agreement, the Purchase
Agreement or the Indenture or any other instrument or agreement relating to the
Obligations, or that would have the effect of impairing the position or
interests of the Secured Party hereunder or thereunder or that would authorize
or effect actions prohibited under the terms of this Security Agreement, the
Purchase Agreement, the Indenture or any instrument or agreement relating to the
Obligations. Upon the occurrence and during the continuance of any Event of
Default, all such rights to vote and to give consents, waivers and ratifications
shall cease upon notice from the Secured Party. AETG, the Company and each
Restricted Subsidiary hereby grants to the Secured Party an irrevocable proxy to
vote the Securities, which proxy shall be effective immediately upon the
occurrence and during the continuance of an Event of Default. After the
occurrence and during the continuance of an Event of Default and upon request of
the Secured Party, AETG, the Company and each Restricted Subsidiary agree to
13
<PAGE>
deliver to the Secured Party such further evidence of such irrevocable proxy or
such further irrevocable proxies to vote the Securities as the Secured Party may
request.
(b) If an Event of Default shall occur and be continuing under the
Indenture, the Secured Party shall be entitled to (i) on notice to the Company,
receive all cash dividends, interest and other payments made upon or with
respect to the Securities; (ii) exercise all voting, corporate and other rights
pertaining to all or any portion of the Securities at any meeting of the
shareholders of the issuer thereof or otherwise pursuant to the irrevocable
proxy granted to it by the Company or any Subsidiary herein and (iii) the
Secured Party may register all or any portion of the Securities in the name of
the Secured Party or its nominee, and the Secured Party or its nominee may
thereafter exercise all voting, corporate and other rights pertaining to such
Securities at any meeting of shareholders of the issuer thereof or otherwise and
any and all rights of conversion, exchange, subscription and any other rights,
privileges or options pertaining to such Securities as if it were the absolute
owner thereof (including, without limitation, the right to exchange at its
discretion any and all of such Securities upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in the corporate
structure of the issuer thereof, or upon the exercise by the Company, its
Subsidiaries or the Secured Party of any right, privilege or option pertaining
to such Securities, and in connection therewith, the right to deposit and
deliver any and all of such Securities with any committee, depositary, transfer
agent, registrar or other designated agency upon such terms and conditions as it
may determine), all without liability except to account for property actually
received by it, but the Secured Party shall have no duty to the Company and its
Subsidiary to exercise any such right, privilege or option and shall not be
responsible for any failure to do so or delay in so doing. The Secured Party
hereby acknowledges that (i) the rights contained herein regarding voting,
corporate and other rights pertaining to the capital stock of Atlantic North
Casualty Company are subject in all cases to the prior approval of the
Commissioner of the Vermont Department and (ii) such stock may not be
registered.
6.2 Rights and Remedies Generally. (a) If an Event of Default shall
occur and be continuing, then and in every such case, the Secured Party shall
have all the rights of a secured party under the UCC, shall have all rights now
or hereafter existing under all other applicable laws, and, subject to any
mandatory requirements of applicable law then in effect, shall have all the
rights set forth in this Security Agreement and all the rights set forth with
respect to the Collateral or this Security Agreement in any other agreement
between the parties.
(b) If an Event of Default occurs and is continuing, the
Secured Party may, and within three Business Days after instructions from the
Majority Holders shall, commence the
14
<PAGE>
taking of such actions toward collection or enforcement of this Security
Agreement and the Collateral (or any portion thereof), including, without
limitation, action toward foreclosure upon any Collateral, as the Secured Party
deems in its discretion to be appropriate or as otherwise instructed by the
Majority Holders. The Secured Party hereby acknowledges that taking any action
toward collection or enforcement of its rights with respect to the capital stock
of Atlantic North Casualty Company is subject to the supervision and approval of
the Commissioner of the Vermont Department.
6.3 Assembly of Collateral. If an Event of Default shall occur and
be continuing, upon five days notice to AETG, the Company and each Restricted
Subsidiary, AETG, the Company or any such Restricted Subsidiary shall, at its
own expense, assemble the Collateral (or from time to time any portion thereof)
and make it available to the Secured Party at any place or places designated by
the Secured Party which is reasonably convenient to both parties.
6.4 Disposition of Collateral. The Secured Party will determine the
circumstances and manner in which the Collateral will be disposed of,
including, but not limited to, the determination of whether to foreclose on the
Collateral following an Event of Default. The Secured Party will give AETG, the
Company and each Restricted Subsidiary reasonable notice of the time and place
of any public sale of the Collateral or any part thereof or of the time after
which any private sale or any other intended disposition thereof is to be made.
AETG, the Company and each Restricted Subsidiary agrees that the requirements of
reasonable notice to it shall be met if such notice is mailed, postage prepaid
to its address specified in Section 7.3 of this Security Agreement (or such
other address that AETG, the Company or any Restricted Subsidiary may provide to
the Secured Party in writing) at least ten (10) days before the time of any
public sale or after which any private sale may be made.
6.5 Proceeds. If an Event of Default shall occur and be continuing,
(i) all proceeds and distributions on the Collateral received by AETG, the
Company or any Restricted Subsidiaries shall be held in trust for the Secured
Party, segregated from other funds of AETG, the Company and the Restricted
Subsidiaries in a separate deposit account containing only such proceeds and
distributions, and shall forthwith upon receipt thereof, be turned over to the
Secured Party in the same form received (appropriately indorsed or assigned to
the order of the Secured Party or in such other manner as shall be satisfactory
to the Secured Party) and (ii) any and all such proceeds and distributions
received by the Secured Party (whether from AETG, the Company or any Restricted
Subsidiary or otherwise), or any part thereof, may, in the sole discretion of
the Secured Party, be held by the Secured Party in a separate account as
Collateral hereunder and/or then or at any time or from time to time thereafter,
be applied by the Secured Party against the
15
<PAGE>
Obligations (whether matured or unmatured) and related expenses, including
attorney's fees as provided in Section 6.8 below.
6.6 Registration Rights; Private Sales.
(a) If the Secured Party shall determine to exercise its
rights to sell any or all of the Securities, and if in the opinion of the
Secured Party it is necessary or advisable to have the Securities, or that
portion thereof to be sold, registered under the provisions of the Securities
Act of 1933, as amended (the "Securities Act"), each of AETG, the Company and
each Restricted Subsidiary will use its reasonable best efforts to cause the
issuer thereof to, (i) execute and deliver, and cause the directors and officers
of the issuer thereof to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts as may be, in the
reasonable opinion of the Secured Party, necessary to register the Securities,
or that portion thereof to be sold, under the provisions of the Securities Act
and, (ii) use its reasonable best efforts to cause the registration statement
relating thereto to become effective and to remain effective for a period of
three years from the date of the first public offering of the Securities, or
that portion thereof to be sold, (iii) make all amendments thereto and/or to the
related prospectus which, in the opinion of the Secured Party, are necessary or
advisable, all in conformity with the requirements of the Securities Act and the
rules and regulations of the Securities and Exchange Commission applicable
thereto, (iv) comply with the provisions of the securities or "Blue Sky" laws of
any and all jurisdictions which the Secured Party shall designate and (v) make
available to its security holders, as soon as practicable, an earnings statement
(which need not be audited) which will satisfy the provisions of Section 11(a)
of the Securities Act.
(b) Each of AETG, the Company and each Restricted Subsidiary
(i) recognizes that the Secured Party may be unable to effect a public sale of
any or all the Securities, by reason of certain prohibitions contained in the
Securities Act and applicable state securities laws or otherwise, and may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers that will be obliged to agree, among other things, to acquire such
securities for their own account for investment and not with a view to the
distribution or resale thereof and (ii) acknowledges and agrees that any such
private sale may result in prices and other terms less favorable than if such
sale were a public sale and, notwithstanding such circumstances, agrees that any
such private sale shall not be deemed to have been made in a commercially
unreasonable manner by virtue of such sale having been private. The Secured
Party shall be under no obligation to delay a sale of any of the Securities for
the period of time necessary to permit the issuer to register such securities
for public sale under the Securities Act, or under applicable state securities
laws, even if the issuer thereof would agree to do so.
16
<PAGE>
(c) Each of AETG, the Company and each Restricted Subsidiary
further agrees (i) to use its reasonable best efforts to do or cause to be done
all such other acts as may be necessary to make such sale or sales of all or any
portion of the Securities pursuant to this Section 6.6 valid and binding and in
compliance with any and all other applicable requirements of law and (ii) that a
breach of any of the covenants contained in this Section 6.6 will cause
irreparable injury to the Secured Party and the Holders, that the Secured Party
and the Holders have no adequate remedy at law in respect of such breach and, as
a consequence, that each and every covenant contained in this Section 6.6 shall
be specifically enforceable against AETG, the Company, and the Restricted
Subsidiaries and each such person hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants except for
a defense that no Event of Default has occurred.
6.7 Recourse. AETG, the Company and the Restricted Subsidiaries
shall jointly and severally pay or remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
satisfy the Obligations. AETG, the Company and the Restricted Subsidiaries shall
also be jointly and severally liable for all expenses of the Secured Party
incurred in connection with collecting such deficiency, including, without
limitation, the fees and disbursements of any attorneys employed by the Secured
Party to collect such deficiency.
6.8 Expenses; Attorneys Fees. AETG, the Company and the Restricted
Subsidiaries shall jointly and severally pay or reimburse the Secured Party for
all its expenses in connection with the exercise of its rights hereunder,
including, without limitation, (i) all reasonable attorneys' fees and legal
expenses incurred by the Secured Party and (ii) all filing fees and related
expenses contemplated by Section 4.1 hereof. Expenses of retaking, holding,
preparing for sale, selling or the like shall include the reasonable attorneys'
fees and legal expenses of the Secured Party. All such expenses shall be secured
hereby.
6.9 Limitation on Duties Regarding Preservation of Collateral. (a)
The Secured Party's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the UCC or otherwise, shall be to deal with it in the same manner as the
Secured Party deals with similar property for its own account.
(b) The Secured Party shall have no obligation to take any
steps to preserve rights against prior parties to any Collateral.
(c) Neither the Secured Party nor any of its directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon all or any part of the Collateral or for any delay in doing so or
shall be under any
17
<PAGE>
obligation to sell or otherwise dispose of any Collateral upon the request of
the Debtor or otherwise.
ARTICLE VII
MISCELLANEOUS
7.1 Indemnity. Each of AETG, the Company and each Restricted
Subsidiary agrees jointly and severally to indemnify, reimburse and hold the
Secured Party and its officers, directors, employees, representatives and agents
("Indemnitees") harmless from any and all liabilities, obligations, losses,
damages, penalties, claims, actions, judgments, suits, costs or expenses or
disbursements (including reasonable attorneys' fees and expenses) for whatsoever
kind or nature ("Losses") which may be imposed on, asserted against or incurred
by any of the Indemnitees in any way relating to or arising out of this Security
Agreement or the transactions contemplated hereby, except to the extent that
such Losses are caused by the gross negligence or wilful misconduct of such
Indemnitees. The obligations of AETG, the Company and each Restricted Subsidiary
under this Section shall be secured hereby and shall survive payment and
performance or discharge of the Obligations and the termination of this Security
Agreement.
7.2 Governing Law. THIS SECURITY AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAWS).
7.3 Notices. Except as otherwise expressly provided herein, all
notices, requests and demands to or upon the respective parties hereto to be
effective shall be in writing (including by telecopy, telex, or cable
communication), and shall be deemed to have been duly given or made when
delivered by hand, or five days after being deposited in the United States mail,
postage prepaid, or, in the case of telex notice, when sent, answer-back
received, or in the case of telecopy notice, when sent, or in the case of a
nationally recognized overnight courier service, one business day after delivery
to such courier service, addressed, in the case of each party hereto as follows:
c/o Atlantic Express Transportation Corp., 7 North Street, Staten Island, New
York 10302-1205, telecopy number: (718)442-5105, or to such other address as may
be designated by any party in a written notice to the other party hereto, with a
copy to Silverman, Collura & Chernis, P.C., 381 Park Avenue South, Suite 1601,
New York, New York 10016, telecopy number (212) 779-8858, Attention: Peter
Silverman.
7.4 Successors and Assigns. This Security Agreement shall be binding
upon and inure to the benefit of AETG, the Company and each Restricted
Subsidiary, the Secured Party, all
18
<PAGE>
future holders of the Obligations and their respective successors and assigns,
except that AETG, the Company and each Restricted Subsidiary may not assign or
transfer any of its rights or obligations under this Security Agreement without
the prior written consent of the Secured Party.
7.5 Waivers and Amendments. None of the terms or provisions of this
Security Agreement may be waived, amended, supplemented or otherwise modified
except in accordance with the terms of Article IX of the Indenture. In the case
of any waiver, AETG, the Company, each Restricted Subsidiary and the Secured
Party shall be restored to their former position and rights hereunder and under
the outstanding Obligations, and any Default or Event of Default waived shall be
deemed to be cured and not continuing, but no such waiver shall extend to any
subsequent or other Default or Event of Default, or impair any right consequent
thereon.
7.6 No Waiver; Remedies Cumulative. No failure or delay on the part
of the Secured Party in exercising any right, power or privilege hereunder and
no course of dealing among AETG, the Company, each Restricted Subsidiary and the
Secured Party shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by the Secured Party of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the
Secured Party would otherwise have on any future occasion. The rights and
remedies herein expressly provided are cumulative and may be exercised singly or
concurrently and as often and in such order as the Secured Party deems expedient
and are not exclusive of any rights or remedies which the Secured Party would
otherwise have whether by security agreement or now or hereafter existing under
applicable law. No notice to or demand on AETG, the Company and each Restricted
Subsidiary in any case shall entitle AETG, the Company and each Restricted
Subsidiary to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Secured Party to any
other or future action in any circumstances without notice or demand.
7.7 Termination; Release. When the Obligations have been
indefeasibly paid and performed in full this Security Agreement shall terminate,
and the Secured Party, at the request and sole expense of AETG, the Company and
each Restricted Subsidiary, will execute and deliver to AETG, the Company and
each Restricted Subsidiary the proper instruments (including UCC termination
statements) acknowledging the termination of this Security Agreement, and will
duly assign, transfer and deliver to the AETG, the Company and each Restricted
Subsidiary, without recourse, representation or warranty of any kind whatsoever,
such of the Collateral and Securities as may be in possession of the
19
<PAGE>
Secured Party and has not theretofore been disposed of, applied or released.
7.8 Headings Descriptive. The headings of the several sections and
subsections of this Security Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Security Agreement.
7.9 Severability. In case any provision in or obligation under this
Security Agreement or the Obligations shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
7.10 Additional Restricted Subsidiaries. Each new Restricted
Subsidiary of the Company shall become a party to this Security Agreement for
purposes of this Security Agreement upon execution and delivery by such
Restricted Subsidiary of an addendum to this Security Agreement in the form of
Annex 1 hereto.
7.11 Counterparts. This Security Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Security
Agreement by signing any such counterpart.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Security and
Pledge Agreement to be duly executed and delivered as of the date first above
written.
ATLANTIC EXPRESS TRANSPORTATION ATLANTIC EXPRESS TRANSPORTATION
GROUP INC. CORP.
By: /s/ Domenic Gatto By: /s/ Domenic Gatto
------------------------------- -------------------------------
Name: Domenic Gatto Name: Domenic Gatto
Title: President, Chief Executive Title: President, Chief Executive
Officer Officer
AMBOY BUS CO., INC. COURTESY BUS CO., INC.
By: /s/ Domenic Gatto By: /s/ Domenic Gatto
------------------------------- -------------------------------
Name: Domenic Gatto Name: Domenic Gatto
Title: President, Chief Executive Title: President, Chief Executive
Officer Officer
STATEN ISLAND BUS, INC. K. CORR, INC.
By: /s/ Domenic Gatto By: /s/ Domenic Gatto
------------------------------- -------------------------------
Name: Domenic Gatto Name: Domenic Gatto
Title: President, Chief Executive Title: President, Chief Executive
Officer Officer
RAYBERN CAPITAL CORP. RAYBERN EQUITY CORP.
By: /s/ Domenic Gatto By: /s/ Domenic Gatto
------------------------------- -------------------------------
Name: Domenic Gatto Name: Domenic Gatto
Title: President, Chief Executive Title: President, Chief Executive
Officer Officer
21
<PAGE>
METROPOLITAN ESCORT SERVICE, INC. METRO AFFILIATES, INC.
By: /s/ Domenic Gatto By: /s/ Domenic Gatto
------------------------------- -------------------------------
Name: Domenic Gatto Name: Domenic Gatto
Title: President, Chief Executive Title: President, Chief Executive
Officer Officer
MERIT TRANSPORTATION CORP. MIDWAY LEASING INC.
By: /s/ Domenic Gatto By: /s/ Domenic Gatto
------------------------------- -------------------------------
Name: Domenic Gatto Name: Domenic Gatto
Title: President, Chief Executive Title: President, Chief Executive
Officer Officer
TEMPORARY TRANSIT SERVICE, INC. BROOKFIELD TRANSIT INC.
By: /s/ Domenic Gatto By: /s/ Domenic Gatto
------------------------------- -------------------------------
Name: Domenic Gatto Name: Domenic Gatto
Title: President, Chief Executive Title: President, Chief Executive
Officer Officer
ATLANTIC-HUDSON, INC. ATLANTIC PARATRANS, INC.
By: /s/ Domenic Gatto By: /s/ Domenic Gatto
------------------------------- -------------------------------
Name: Domenic Gatto Name: Domenic Gatto
Title: President, Chief Executive Title: President, Chief Executive
Officer Officer
180 JAMAICA CORP. BLOCK 7932, INC.
By: /s/ Domenic Gatto By: /s/ Domenic Gatto
------------------------------- -------------------------------
Name: Domenic Gatto Name: Domenic Gatto
Title: President, Chief Executive Title: President, Chief Executive
Officer Officer
22
<PAGE>
ATLANTIC EXPRESS COACHWAYS, INC. ATLANTIC-CONN. TRANSIT, INC.
By: /s/ Domenic Gatto By: /s/ Domenic Gatto
------------------------------- -------------------------------
Name: Domenic Gatto Name: Domenic Gatto
Title: President, Chief Executive Title: President, Chief Executive
Officer Officer
ATLANTIC EXPRESS OF PENNSYLVANIA, INC. ATLANTIC EXPRESS OF MISSOURI INC.
By: /s/ Domenic Gatto By: /s/ Domenic Gatto
------------------------------- -------------------------------
Name: Domenic Gatto Name: Domenic Gatto
Title: President, Chief Executive Title: President, Chief Executive
Officer Officer
ATLANTIC PARATRANS OF KENTUCKY INC. G.V.D. LEASING CO., INC.
By: /s/ Domenic Gatto By: /s/ Domenic Gatto
------------------------------- -------------------------------
Name: Domenic Gatto Name: Domenic Gatto
Title: President, Chief Executive Title: President, Chief Executive
Officer Officer
RAYBERN BUS SERVICE, INC. THE BANK OF NEW YORK, as Trustee
and Secured Party
By: /s/ Domenic Gatto By: /s/ Domenic Gatto
------------------------------- -------------------------------
Name: Domenic Gatto Name: Domenic Gatto
Title: President, Chief Executive Title: President, Chief Executive
Officer Officer
23
<PAGE>
Annex A
ADDENDUM TO SECURITY AND PLEDGE AGREEMENT
The undersigned, [INSERT NAME OF NEW RESTRICTED SUBSIDIARY], a
corporation:
(i) agrees to all of the provisions of the Security and Pledge
Agreement, dated as of February 4, 1997 (as amended, supplemented or otherwise
modified prior to the date hereof (the "Security Agreement"), made by AETG, the
Company and the Restricted Subsidiaries (each as defined therein), in favor of
The Bank of New York (the "Secured Party") pursuant to the Indenture, dated as
of February 4, 1997 among the Company, the Restricted Subsidiaries and the
Secured Party (the "Indenture"), and
(ii) effective on the date hereof becomes a party to the Security
Agreement, as a Restricted Subsidiary, with the same effect as if the
undersigned were an original signatory to the Security Agreement (with the
representations and warranties contained therein) being deemed to be made by the
undersigned Restricted Subsidiary as of the date hereof.
Terms defined in the Security Agreement and the Indenture shall have such
defined meanings when used herein.
By its acceptance hereof, each undersigned Restricted Subsidiary
hereby ratifies and confirms its respective obligations under the Guaranty, as
supplemented hereby.
[NAME OF NEW SUBSIDIARY]
By:___________________________________
Name:_________________________________
Title:________________________________
Date: __________, 199__
24
<PAGE>
SCHEDULE I
Pledged Securities Owned By Atlantic Express Transportation Group Inc.
<TABLE>
<CAPTION>
Percentage
Stock Number of
Stock Class of Certificate Par of Outstanding
Issuer Stock Number Value Shares Shares*
- ----------------- ---------- -------------- ------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Atlantic Express common 1 None 100 100%
Transportation Corp.
</TABLE>
Pledged Securities Owned By Atlantic Express Transportation Corp.
<TABLE>
<CAPTION>
Percentage
Stock Number of
Stock Class of Certificate Par of Outstanding
Issuer Stock Number Value Shares Shares
- ------------------ ------------ --------------- -------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Raybern Capital common 4 None 10 100%
Corp.
Raybern Bus common 2 None 10 100%
Service, Inc
Atlantic-Hudson, common 4 None 100 100%
Inc.
Atlantic Express of common 4 None 100 100%
Pennsylvania, Inc.
Raybern Equity common 6 None 20 100%
Corp.
K. Corr, Inc. common 3 None 10 100%
Courtesy Bus Co., common 10 None 100 100%
Inc.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Percentage
Stock Number of
Stock Class of Certificate Par of Outstanding
Issuer Stock Number Value Shares Shares
- ------------------ ------------ --------------- -------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Staten Island Bus, common 29 None 247 100%
Inc.
Merit Transporta- common 3 None 100 100%
tion Corp.
Metropolitan Escort common 10 None 100 100%
Service, Inc.
Metro Affiliates, Inc. common 10 None 100.1 100%
Brookfield Transit common 3 None 100 100%
Inc.
Atlantic Express common 5 None 100 100%
Coachways, Inc.
Temporary Transit common 9 None 99.9 100%
Service, Inc.
Amboy Bus Co., common 14A None 600 100%
Inc.
Atlantic-Conn. common 5 None 100 100%
Transit, Inc.
G.V.D. Leasing common 12 None 200 100%
Co., Inc.
Block 7932, Inc. common 2 None 10 100%
180 Jamaica Corp. common 2 None 10 100%
Atlantic North common 2 None 10 100%
Casualty Company
Atlantic Paratrans common 2 None 10 100%
of Kentucky Inc.
Atlantic Express of common 2 None 10 100%
Missouri Inc.
Atlantic Paratrans, common 9 None 100 100%
Inc.
Midway Leasing common 9 None 99.9 100%
Inc.
</TABLE>
26
<PAGE>
Schedule II
Filing Offices
27
<PAGE>
Schedule III
Location of Collateral
Atlantic Express Coachways, Inc. Amboy Bus Co., Inc.
7 North Street Gnarled Hollow Road
Staten Island, New York Setauket
Staten Island Bus, Inc. Amboy Bus Co., Inc.
52 Bayview Avenue 1575 Route 112
Staten Island, New York Port Jefferson Station, New York
Atlantic Express Coachways, Inc. Courtesy Bus Co., Inc.
1401 East Service Road Lawson Blvd.
West Shore Expressway Oceanside, New York
Staten Island, New York
Amboy Bus Co., Inc. K. Corr, Inc.
Atlantic Paratrans, Inc. 1620 New Highway
Merit Transportation Corp. Farmingdale, New York
46081 Metropolitan Avenue
Ridgewood, New York
Amboy Bus Co., Inc. Raybern Bus Service, Inc.
107-10 180th Street 91 Baiting Place Road
Jamaica, New York Farmingdale, New York
Amboy Bus Co., Inc. Atlantic Paratrans, Inc.
1752 Shore Parkway 2628 Fire Road
Brooklyn Egg Harbor Township, New Jersey
Amboy Bus Co., Inc. Atlantic Express of Pennsylvania, Inc.
1380-86 Ralph Avenue 3740 Thompson Street
Brooklyn, New York Philadelphia, Pennsylvania
Amboy Bus Co., Inc. Atlantic Express of Pennsylvania, Inc.
Atlantic-Hudson, Inc. 6940 Norwitch Drive
Exterior Street Philadelphia, Pennsylvania
Bronx, New York
Amboy Bus Co., Inc. Atlantic Express of Pennsylvania, Inc.
c/o Somers Jr. High School 6971 Norwitch Drive
Route 202 Somers, New York Philadelphia, Pennsylvania
Atlantic Paratrans Inc. Atlantic-Conn Transit, Inc.
870 Nepperhan Ave. 57 South St.
Yonkers, New York Ridgefield, Connecticut
28
<PAGE>
Atlantic Paratrans of Kentucky Inc.
925 West Broadway
Louisville, Kentucky
Atlantic Express of Missouri Inc.
200 Sidney St.
St. Louis, Missouri
Atlantic Express of Missouri Inc.
5411 Brown Avenue
St. Louis, Missouri
Atlantic Express of Missouri Inc.
1808 So. 3rd St.
St. Louis, Missouri
Atlantic Express of Missouri Inc.
6810 Prescott St.
St. Louis, Missouri
29
<PAGE>
Schedule IV
1. Tradenames
ATLANTIC EXPRESS
2. Registered Trademarks and Servicemarks and Application
AE ATLANTIC EXPRESS U.S. Ser. No. Filed
TRANSPORTATION GROUP and DESIGN ------------ ----------
75-121,810 6/18/96
ATLANTIC EXPRESS U.S. Reg. No. Registered
------------ ----------
1,964,915 4/2/96
AE (Stylized Letters) U.S. Reg. No. Registered
------------ ----------
1,667,874 12/10/91
3. Patents and Patent Applications
None
4. Copyright Registrations and Applications
None
5. Material Licenses
None
30
<PAGE>
Schedule 3.9
Raybern Equity Corp.
Metropolitan Escort Service, Inc.
Midway Leasing Inc.
Atlantic-Huson, Inc.
G.V.D. Leasing Co., Inc.
31
<PAGE>
Exhibit 4.5
EXECUTION COPY
COLLATERAL ASSIGNMENT OF TRADEMARKS
(SECURITY AGREEMENT)
COLLATERAL ASSIGNMENT OF TRADEMARKS (SECURITY AGREEMENT) dated as of
February 4, 1997, between ATLANTIC EXPRESS TRANSPORTATION CORP., a New York
corporation with offices at 7 North Street, Staten Island, New York 10302
("Assignor"), and CONGRESS FINANCIAL CORPORATION, a California corporation with
an office at 1133 Avenue of the Americas, New York, New York 10036 ("Assignee").
Capitalized terms used in this Agreement which are defined in the Loan Agreement
(as hereinafter defined) shall have the respective meanings given them in the
Loan Agreement, unless otherwise defined herein.
W I T N E S S E T H:
WHEREAS, Amboy Bus Co., Inc., Atlantic-Conn. Transit, Inc., Atlantic
Hudson, Inc., Atlantic Paratrans, Inc., Atlantic Paratrans of Kentucky Inc.,
Atlantic Express Coachways, Inc., Atlantic Express of Missouri Inc., Atlantic
Express of Pennsylvania, Inc., Brookfield Transit Inc., Courtesy Bus Co., Inc.,
K. Corr, Inc., Merit Transportation Corp., Metropolitan Escort Service, Inc.,
Raybern Bus Service, Inc., Raybern Capital Corp., Raybern Equity Corp., Staten
Island Bus, Inc. (each a "Borrower" and collectively, "Borrowers"), Assignor,
and Assignee have entered into a Loan and Security Agreement dated the date
hereof (together with all supplements and amendments thereto and all extensions,
renewals, restatements and replacements thereof, the "Loan Agreement," and such
Loan Agreement together with all agreements, instruments and documents now or
hereafter entered into or delivered in connection therewith, collectively, the
"Financing Agreements"), pursuant to which Assignee may make loans and advances
and provide other financial arrangements to Borrower, subject to the terms and
provisions of the Financing Agreements;
WHEREAS, Assignor is the sole stockholder of each Borrower;
WHEREAS, Assignor owns all right, title, and interest in and to,
among other things, certain United States and foreign trademarks and service
marks, trademark and service mark registrations, and trademark and service mark
applications and trade names, including, but not limited to, those set forth on
Exhibit 1 hereto (the "Trademarks"), which are used in the business of one or
more of the Borrowers, along with the goodwill of the business symbolized
thereby and the Licenses (as hereinafter defined);
WHEREAS, in order to secure Borrowers' Obligations (as defined in
the Loan Agreement) to Assignee, Assignor has agreed to grant to Assignee a
security interest and continuing lien in, to and under the Trademarks, the
goodwill and the Licenses and certain
<PAGE>
other assets with respect to the Trademarks, the goodwill and the Licenses, as
further set forth herein, and Assignee has requested Assignor to enter into this
Agreement to evidence such security interest.
NOW THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that for
valuable consideration received and to be received, as security for the full
payment and performance of the Obligations, and to induce Assignee to make loans
and advances to Borrowers, Assignor hereby grants to Assignee a security
interest in and continuing lien on Borrowers' right, title and interest in, to
and under the following property of Assignor to the extent, and only to the
extent, that the following property is part of, is related to, or arises in
connection with or from any "Accounts" or "Inventory" of Assignor (as such terms
are defined in the Loan Agreement):
(a) the Trademarks;
(b) all applications and registrations of the Trademarks in any
state of the United States and any foreign countries and
localities;
(c) all trade names, trademarks and service marks and trademark
and service mark applications and registrations hereafter
adopted or acquired and used by Assignor or any Borrower in
its business, including, but not limited to, those which are
based upon or derived from the Trademarks or any variations
thereof (the "Future Trademarks");
(d) all extensions, renewals, and continuations of the Trademarks
and Future Trademarks and the registrations and applications
referred to in clause (b) above;
(e) all rights to sue for past, present and future infringements
of the Trademarks and Future Trademarks, and any trademarks
and service marks covered by any licenses of trademarks,
trademark applications or registrations, or trade names used
in the business of one or more of Borrowers and under which
Assignor is licensee, to the extent that the assignment
thereof will not result in Assignor's loss of the benefits
thereof ("Licenses");
(f) all packaging, labeling, trade names, service marks, logos,
and trade dress including or containing the Trademarks, Future
Trademarks, and the trademarks and service marks covered by
the Licenses, or a representation thereof, or any variation
thereof;
(g) all licenses and other agreements under which Assignor is
licensor, and all fees, rents, royalties, proceeds or monies
thereunder, relating to the Trademarks, Future Trademarks, and
the trademarks and service marks covered by the Licenses, and
the use thereof, to the extent that the
-2-
<PAGE>
assignment thereof will not result in Assignor's loss of the
benefits thereof;
(h) all goodwill of Assignor's business connected with, symbolized
by or in any way related to the items set forth in clauses (a)
through (g) above; and
(i) all proceeds of the foregoing, including without limitation,
license royalties, income, payments, claims, damages and
proceeds of suit.
All of the foregoing items set forth in clauses (a) through (i) are hereinafter
referred to collectively as the "Collateral."
Assignor hereby covenants with Assignee as follows:
1. Assignor's Obligations. Assignor agrees that, notwithstanding
this Agreement, it will perform and discharge and remain liable for all its
covenants, duties, and obligations arising in connection with the Collateral and
any licenses and agreements related thereto. Assignee shall have no obligation
or liability in connection with the Collateral or any licenses or agreements
relating thereto by reason of this Assignment or any payment received by
Assignee relating to the Collateral and Assignee shall not be required to
perform any covenant, duty or obligation of Assignor arising in connection with
the Collateral or any license or agreement related thereto or to take any other
action regarding the Collateral or any such licenses or agreement, except and
only to the extent that Assignee has acquired absolute ownership of the
Collateral upon an exercise of its remedies under Section 4 hereof.
2. Representations and Warranties. Assignor represents and warrants
to Assignee that: (a) Assignor is the beneficial and record owner of the
Collateral, and no adverse claims have been made with respect to its title to or
the validity of the Collateral; (b) the Trademarks and the trademarks and
service marks covered by the Licenses are the only trademarks, service marks,
trademark and service mark registrations and applications therefor and trade
names in which Assignor has any or all right, title and interest; (c) none of
the Collateral is subject to any mortgage, pledge, lien, security interest,
lease, charge, encumbrance, settlement or consent, covenant not to sue,
non-assertion assurance, release or license (by Assignor as licensor), except as
set forth on Exhibit 1; (d) Assignor has performed all acts and has paid all
renewal, maintenance and other fees and taxes required to maintain each and
every registration and application of the Collateral in full force and effect;
(e) no claims have been made that the use of any of the Collateral violates the
asserted rights of any third party; (f) to the best of Assignor's knowledge, no
third party is infringing upon any of the Collateral; and (g) when this
Agreement is filed in and recorded by the United States Patent and Trademark
Office (the "Trademark Office") and the Assignee has taken the other actions
contemplated by the Loan Agreement and in this Agreement, this Agreement will
create a legal and valid perfected and continuing lien on and security interest
in the Collateral in favor of Assignee, enforceable against Assignor and all
third parties, subject to no other mortgage, lien, charge, encumbrance, or
security or other interest except as expressly permitted by the Loan Agreement.
-3-
<PAGE>
3. Covenants. Assignor will maintain and renew all items of
Collateral necessary for the conduct of its or any Borrower's business and all
registrations of the Collateral necessary for the conduct of its or any
Borrower's business and will defend the Collateral against the claims of all
persons. Assignor will maintain, and will cause each Borrower or other person
that uses the Collateral to maintain, the same standards of quality for the
goods and services in connection with which the Trademarks and the trademarks
covered by the Licenses are used as Assignor or such other persons maintained
for such goods and services prior to entering into this Agreement. Assignee
shall have the right to enter upon Assignor's premises at all reasonable times
to monitor such quality standards. Assignor shall promptly notify Assignee if it
knows or has reason to know that any of the Collateral may become subject to any
adverse determination or development (including the institution of proceedings)
in any action or proceeding in the United States Patent and Trademark Office or
any court. In the event that any of the Collateral is infringed or diluted by a
third party, promptly after the Assignor becomes aware of such infringement or
dilution, Assignor shall take all reasonable actions to stop such infringement
or dilution and protect its exclusive rights in such Collateral including, but
not limited to, the initiation of a suit for injunctive relief and to recover
damages. Without limiting the generality of the foregoing, Assignor shall not
permit the expiration, termination or abandonment of any Trademark, Future
Trademark or License used in or necessary for the conduct of its or any
Borrower's business without the prior written consent of Assignee. If, before
the Obligations have been satisfied in full, Assignor shall obtain rights to or
be licensed to use any new trademark, or become entitled to the benefit of any
trademark or service mark application or trademark or service mark registration
not identified on Exhibit 1 hereto, the provisions of Section 1 hereof shall
automatically apply thereto and Assignor shall give Assignee prompt notice
thereof in writing.
4. Remedies Upon Default. Whenever any Event of Default shall occur
and be continuing, Assignee shall have all the rights and remedies granted to it
in such event by the Loan Agreement, which rights and remedies are specifically
incorporated herein by reference and made a part hereof. Assignee in such event
may collect directly any payments due to Assignor in respect of the Collateral
and, subject to any limitations imposed under any license agreements
constituting part of the Collateral, may sell, license, lease, assign, or
otherwise dispose of the Collateral in the manner set forth in the Loan
Agreement. Assignor agrees that, in the event of any disposition of the
Collateral upon any such Event of Default, it will duly execute, acknowledge,
and deliver all documents necessary or advisable to record title to the
Collateral in any transferee or transferees thereof, including, without
limitation, valid, recordable assignments of the Trademarks, Future Trademarks,
and Licenses. In the event Assignor fails or refuses to execute and deliver such
documents, Assignor hereby irrevocably appoints Assignee as its
attorney-in-fact, with power of substitution, to execute, deliver, and record
any such documents on Assignor's behalf. Notwithstanding any provision hereof to
the contrary, during the continuance of an Event of Default, Assignor
may sell, and permit Borrowers to sell, merchandise or services bearing the
Trademarks, Future Trademarks, and trademarks covered by the Licenses in the
ordinary course of their respective business and in a manner consistent with its
past practices, until it receives written notice from Assignee of an intended
sale or disposition of the Collateral. The preceding
-4-
<PAGE>
sentence shall not limit any right or remedy granted to Assignee with respect to
Assignor's inventory under the Loan Agreement or any other agreement now or
hereinafter in effect.
5. Power of Attorney. Concurrently with the execution and delivery
hereof, Assignor shall execute and delivery to the Assignee, in the form of
Exhibit 2 hereto, five (5) originals of a Special Power of Attorney for the
implementation of the assignment, sale, license, lease or other disposition of
the Trademarks, Future Trademarks, and Licenses pursuant to Section 4. Assignor
hereby releases Assignee from any claims, causes of action and demands at any
time arising out of or with respect to any actions taken or omitted to be taken
by Assignee in accordance with Section 4 under the powers of attorney granted
therein, other than actions taken or omitted to be taken through the bad faith,
willful misconduct or gross negligence of Assignee, as determined by a final,
non-appealable order of a court of competent jurisdiction.
6. Cumulative Remedies. The rights and remedies provided herein are
cumulative and not exclusive of any other rights or remedies provided by law.
The security interest granted hereby is granted in conjunction with the security
interest granted to Assignee under the Loan Agreement and the other Financing
Agreements. The rights and remedies of Assignee with respect to the security
interest granted hereby are in addition to those set forth in the Loan Agreement
and the other Financing Agreements and those which are now or hereafter
available to Assignee as a matter of law or equity. The exercise by Assignee of
any one or more of the rights, powers or remedies provided for in this
Agreement, in the Loan Agreement, in the other Financing Agreements or now or
hereafter existing at law or in equity shall not preclude the simultaneous or
later exercise by any person, including Assignee, of any or all other rights,
powers or remedies. The rights and remedies provided herein are intended to be
in addition to and not in substitution of the rights and remedies provided by
the Loan Agreement.
7. Amendments and Waivers. This Agreement may not be modified,
supplemented, or amended, or any of its provisions waived at the request of
Assignor, without the prior written consent of Assignee. Assignor hereby
authorizes Assignee to modify this Agreement by amending Exhibit 1 hereto to
include any Future Trademarks or additional licenses.
8. Waiver of Rights. No course of dealing between the parties to
this Agreement or any failure or delay on the part of any such party in
exercising any rights or remedies hereunder shall operate as a waiver of any
rights and remedies of such party or any other party, and no single or partial
exercise of any rights or remedies by one party hereunder shall operate as a
waiver or preclude the exercise of any other rights and remedies of such party
or any other party. No waiver by Assignee of any breach or default by Assignor
shall be deemed a waiver of any other previous breach or default or of any
breach or default occurring thereafter.
9. Assignment. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of the
parties hereto; provided, however, that no interest herein or in or to the
Collateral may be assigned by
-5-
<PAGE>
Assignor without the prior written consent of Assignee; and, provided further,
that the Assignee may assign the rights and benefits hereof to any party
acquiring any interest in the Obligations or any part thereof.
10. Further Acts. Assignor shall have the duty to prosecute
diligently any application for the Trademarks and Future Trademarks necessary
for the conduct of its or any Borrower's business pending as of the date of this
Agreement or thereafter, until the Obligations shall have been paid in full, and
to make applications on material unregistered but registrable trademarks
necessary for the conduct of its or any Borrower's business in any location
where Assignor does business and to preserve and maintain all rights in the
Trademarks and the other Collateral necessary for the conduct of its or any
Borrower's business. Any expenses incurred in connection with such applications
shall be borne by Assignor. Assignor shall not abandon any right to file a
trademark or service mark application or registration for any trademark or
service mark used in or necessary for the conduct of its business, or abandon
any such pending trademark application or registration necessary for the conduct
of its or any Borrower's business, without the consent of Assignee.
11. Enforcement. Upon Assignor's failure to do so after Assignee's
demand, or upon an Event of Default, Assignee shall have the right but shall in
no way be obligated to bring suit in its own name to enforce the Trademarks,
Future Trademarks, Licenses, or the trademarks covered by the Licenses, and any
license under any of the foregoing, in which event Assignor shall at the request
of Assignee do any and all lawful acts and execute any and all proper documents
that may be reasonably requested by Assignee in aid of such enforcement
including, but not limited to, joining as a plaintiff in any such enforcement
action and Assignor shall promptly, upon demand, reimburse and indemnify
Assignee or its agents for all reasonable costs and expenses incurred by
Assignee in the exercise of its rights under this Section 11.
12. Release and Re-Assignment. At such time as all of the
Obligations have been satisfied, and the Financing Agreements have been
terminated, other than upon enforcement of Assignee's remedies under the
Financing Agreements after an Event of Default, Assignee will execute and
deliver to Assignor all deeds, assignments and other instruments as may be
necessary or proper to release Assignor's lien in the Collateral and reassign to
Assignee any and all rights of Assignor therein which were granted to Assignor
hereunder, subject to any dispositions thereof which may have been made by
Assignee pursuant hereto.
13. Severability. If any clause or provision of this Agreement shall
be held invalid or unenforceable, in whole or in part, in any jurisdiction, such
invalidity or unenforceability shall attach only to such clause or provision, or
part thereof, in such jurisdiction, and shall not in any manner affect any other
clause or provision in any other jurisdiction.
14. Notices. All notices, requests and demands to or upon Assignor
or Assignee under this Agreement shall be given in the manner prescribed by the
Loan Agreement.
-6-
<PAGE>
15. Governing Law. This Agreement shall be governed by and
construed, applied, and enforced in accordance with the federal laws of the
United States of America applicable to trademarks and the laws of the State of
New York, except that no doctrine of choice of law shall be used to apply the
laws of any other state or jurisdiction.
16. Financing Agreement. This Agreement is one of the Financing
Agreements.
17. Counterparts. This Agreement may be signed in one or more
counterparts, and by each party in separate counterparts, which, when taken
together, shall constitute one and the same document.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as
of the date first above written.
ATLANTIC EXPRESS TRANSPORTATION
CORP.,
Assignor
By:/s/ DOMENIC GATTO
-----------------------------------------
Name: Domenic Gatto
Title: President, Chief Executive Officer
CONGRESS FINANCIAL CORPORATION,
Assignee
By: /s/ KENNETH SANDS
-----------------------------------------
Name: Kenneth Sands
Title: Senior Vice President
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 3rd day of February 1997 before me personally came Domenic Gratto, to
me known, who being by me duly sworn, did depose and say that he is the
President of ATLANTIC EXPRESS TRANSPORTATION CORP., the corporation described
in and which executed the foregoing instrument; and that he signed his name
thereto by order of the Board of Directors of said corporation.
/s/ ROBERT W. REICHENBACH
-----------------------------------------
Notary Public
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 4th day of February 1997, before me personally came Kenneth Sands, to
me known, who being by me duly sworn, did depose and say that she is a Senior
Vice President of CONGRESS FINANCIAL CORPORATION, the corporation described
in and which executed the foregoing instrument; and that he signed his name
thereto by order of the Board of Directors of said corporation.
/s/ MARION I. NELSON
-----------------------------------------
Notary Public
<PAGE>
EXHIBIT 1
LIST OF ASSIGNOR'S TRADEMARKS
Registered Trademarks
and Service Marks U.S. Registration No. Date Registered
- ----------------- --------------------- ---------------
ATLANTIC EXPRESS 1,964,915 4/2/96
AE 1,667,874 12/10/91
Applications
for Registration Serial No. Date Filed
- ---------------- ---------- ----------
AE ATLANTIC EXPRESS
TRANSPORTATION GROUP 75-121,810 6/18/96
Trade Names
- -----------
ATLANTIC EXPRESS
<PAGE>
EXHIBIT 2
SPECIAL POWER OF ATTORNEY
STATE OF NEW YORK )
): ss
COUNTY OF NEW YORK )
KNOW ALL MEN BY THESE PRESENTS, THAT ATLANTIC EXPRESS TRANSPORTATION
CORP., a New York corporation with its principal office at 7 North Street,
Staten Island, New York 10302 (hereinafter called "Assignor"), hereby appoints
and constitutes CONGRESS FINANCIAL CORPORATION, a California corporation
(hereinafter called "Assignee"), its true and lawful attorney, with full power
of substitution, and with full power and authority to perform the following acts
on behalf of Assignor:
1. For the purpose of assigning, selling, licensing or otherwise disposing
of all right, title and interest of Assignor in and to any trademarks and
service marks, and all registrations, renewals, recordings and all pending
applications therefor, and all licenses therefor, and for the purpose of the
recording, registering and filing of, or accomplishing any other formality with
respect to, the foregoing, to execute and deliver any and all agreements,
documents, instruments of assignment or other papers necessary or advisable to
effect such purpose; and
2. To execute any and all documents, statements, certificates or other
papers necessary or advisable in order to obtain the purposes described above as
Assignee may in its sole discretion determine.
This power of attorney is made pursuant to a Collateral Assignment of
Trademarks (Security Agreement) dated the date hereof, between Assignor and
Assignee and takes effect solely for the purposes of Section 4 thereof and is
subject to the conditions thereof and may not be revoked until the payment in
full of all "Obligations" as defined in such Security Agreement.
Dated: February ___, 1997
ATLANTIC EXPRESS TRANSPORTATION
CORP.
By:____________________________
Name:
Title:
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the ____ day of February 1997 before me personally came _________________, to
me known, who being by me duly sworn, did depose and say that he is the
_________________ of Atlantic Express Transportation Corp., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the Board of Directors of said corporation.
______________________________
Notary Public
<PAGE>
SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTURE, dated as of December 12, 1997, among
Atlantic Express Transportation Corp., a New York corporation (the "Company"),
the Guarantors named herein and The Bank of New York, a New York
banking corporation, as trustee (the "Trustee").
WHEREAS, the Company has duly issued its 10 3/4% Senior Secured Notes Due
2004 (the "Notes"), in the aggregate principal amount of $150,000,000 pursuant
to an Indenture dated as of February 4, 1997, among the Company, the
Guarantors named therein and the Trustee, as amended by the First Supplemental
Indenture dated as of August 14, 1997, among the Company, the Guarantors named
therein and the Trustee (as amended, the "Indenture"), and the Notes are
outstanding on the date hereof; and
WHEREAS, the Company has caused to be incorporated Atlantic-Chittenango
Real Property Corp., a New York corporation, Jersey Business Land Co., Inc., a
New Jersey corporation, and 201 West Sotello Realty, Inc., a California
corporation; and
WHEREAS, Section 10.12 of the Indenture provides, among other things, that
the Company shall cause each Restricted Subsidiary that is formed or acquired
after the date of the Indenture to become a Guarantor thereunder and execute and
deliver a supplemental indenture pursuant to which such Restricted Subsidiaries
shall unconditionally guarantee all of the Company's Obligations as set forth in
Section 10.7 of the Indenture; and
WHEREAS, Section 9.1 of the Indenture provides, among other things, that
the Company, the Guarantors and the Trustee may amend or supplement the
Indenture without the consent of any Holder to comply with Article 10.12 thereof
and execute a supplemental indenture; and
WHEREAS, it is provided in Section 9.4 of the Indenture that a supplemental
indenture becomes effective in accordance with its terms and thereafter binds
every Holder; and
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1 DEFINITIONS.
Capitalized terms not defined herein shall have the meanings given to such
terms in the Indenture.
SECTION 2 GUARANTEE BY RESTRICTED SUBSIDIARIES.
<PAGE>
Each of Atlantic-Chittenango Real Property Corp., Jersey Business Land Co.,
Inc. and 201 West Sotello Realty, Inc. (collectively, the "Additional
Guarantors") unconditionally guarantees all of the Company's Obligations as set
forth in Section 10.7 of the Indenture in the same manner and to the same extent
as if it had executed the Indenture as one of the parties thereto defined as the
"Guarantors" therein.
SECTION 3 MISCELLANEOUS.
Section 3.1 Governing Law.
THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE CONSTRUED, INTERPRETED AND THE
RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE ADDITIONAL
GUARANTORS HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OR
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS
FOR ITSELF AND IN RESPECT OR ITS PROPERTY, GENERALLY AND UNCONDITIONALLY,
JURISDICTION OF THE AFORESAID COURTS. EACH OF THE ADDITIONAL GUARANTORS
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE
ADDITIONAL GUARANTORS IRREVOCABLY CONSENTS, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS
ADDRESS SET FORTH IN THE INDENTURE, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS
AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PURCHASER TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST EACH OF THE ADDITIONAL GUARANTORS IN
ANY OTHER JURISDICTION.
Section 3.2 Continuing Agreement.
2
<PAGE>
Except as herein amended, all terms, provisions and conditions of the
Indenture, all Exhibits thereto and all documents executed in connection
therewith shall continue in full force and effect and shall remain enforceable
and binding in accordance with their terms.
Section 3.3 Conflicts.
In the event of a conflict between the terms and conditions of the
Indenture and the terms and conditions of this Second Supplemental Indenture,
then the terms and conditions of this Second Supplemental Indenture shall
prevail.
Section 3.4 Counterpart Originals.
The parties may sign any number of copies of this Second Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
Section 3.5 Headings, etc.
The Headings of the Sections of this Second Supplemental Indenture have
been inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof.
3
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Supplemental Indenture as of the date first written above.
ATLANTIC EXPRESS
TRANSPORTATION CORP.
By: /s/ DOMENIC GATTO
----------------------------------
Name: Domenic Gatto
Title: President, Chief Executive
Officer
GUARANTORS
BROOKFIELD TRANSIT INC. ATLANTIC PARATRANS, INC
AMBOY BUS CO., INC. 180 JAMAICA CORP.
STATEN ISLAND BUS, INC. ATLANTIC EXPRESS COACHWAYS, INC.
RAYBERN CAPITAL CORP. ATLANTIC EXPRESS OF PENNSYLVANIA, INC.
METROPOLITAN ESCORT SERVICE, INC. ATLANTIC PARATRANS OF KENTUCKY INC.
MERIT TRANSPORTATION CORP. RAYBERN BUS SERVICE, INC.
TEMPORARY TRANSIT SERVICE, INC. G.V.D. LEASING CO., INC.
ATLANTIC-HUDSON, INC. BLOCK 7932, INC.
COURTESY BUS CO., INC. ATLANTIC-CONN. TRANSIT, INC.
K. CORR, INC. ATLANTIC EXPRESS OF MISSOURI INC.
RAYBERN EQUITY CORP. ATLANTIC EXPRESS OF L.A. INC.
METRO AFFILIATES, INC. JERSEY BUS SALES, INC.
MIDWAY LEASING INC. JERSEY BUSINESS LAND CO. INC.
CENTRAL NEW YORK COACH 201 WEST SOTELLO REALTY, INC.
SALES & SERVICE, INC.
ATLANTIC-CHITTENANGO REAL
PROPERTY CORP.
By: /s/ DOMENIC GATTO
----------------------------------
Name: Domenic Gatto
Title: President, Chief Executive
Officer
4
<PAGE>
THE BANK OF NEW YORK, as Trustee
By: /s/ VAN BROWN
-----------------------------
Name: Van Brown
Title: Vice President
5
<PAGE>
Exhibit 4.9
SECOND AMENDMENT
TO THE
SECURITY AND PLEDGE AGREEMENT, WITH ADDENDA
Second Amendment, dated as of December 12, 1997 (the "Second
Amendment") to the Security and Pledge Agreement (the "Security Agreement"),
dated as of February 4, 1997, among Atlantic Express Transportation Group Inc.,
a New York corporation (together with its successors and assigns, "AETG"),
Atlantic Express Transportation Corp., a New York corporation and a subsidiary
of AETG (together with its successors and assigns, the "Company"), the
subsidiaries of the Company that are party thereto and The Bank of New York, as
the trustee under the Indenture for the benefit of the holders of the Notes
(together with its successors and assigns, the "Secured Party"), as amended by
the First Amendment to the Security and Pledge Agreement, dated as of August 14,
1997, among AETG, the Company, the subsidiaries of the Company that are party
thereto and the Secured Party. Capitalized terms not defined herein shall have
the respective meaning set forth for such terms in the Security Agreement.
WHEREAS, the parties to Security Agreement desire to amend the
Security Agreement as set forth below.
NOW, THEREFORE, in consideration of the agreements set forth herein
and for other and good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Schedules I, II and III shall hereby be amended to include the
information set forth on such corresponding Schedules I, II and III attached
hereto.
2. Except as herein amended, all terms, provisions and conditions of the
Security Agreement, all Annexes and Schedules thereto and all documents executed
in connection therewith shall continue in full force and effect and shall remain
enforceable and binding in accordance with their terms.
3. This Amendment may be executed in any number of counterparts, each of
which shall for all purposes be deemed an original and all of which constitute,
collectively, one agreement.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE
OF NEW YORK (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS).
<PAGE>
5. In the event of a conflict between the terms and conditions of the
Security Agreement and the terms and conditions of this Amendment, then the
terms and conditions of this Amendment shall prevail.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the date first above written.
ATLANTIC EXPRESS TRANSPORTATION ATLANTIC EXPRESS
GROUP INC. TRANSPORTATION CORP.
By: /s/ DOMENIC GATTO By: /s/ DOMENIC GATTO
------------------------- -------------------------
Name: Domenic Gatto Name: Domenic Gatto
<TABLE>
<S> <C>
Title: President, Chief Executive Officer Title: President, Chief Executive Officer
</TABLE>
GUARANTORS
BROOKFIELD TRANSIT INC. ATLANTIC PARATRANS, INC.
AMBOY BUS CO., INC. 180 JAMAICA CORP.
STATEN ISLAND BUS, INC. ATLANTIC EXPRESS COACHWAYS, INC.
RAYBERN CAPITAL CORP. ATLANTIC EXPRESS OF PENNSYLVANIA, INC.
METROPOLITAN ESCORT SERVICE, INC. ATLANTIC PARATRANS OF KENTUCKY, INC.
MERIT TRANSPORTATION CORP. ATLANTIC-CONN. TRANSIT, INC.
TEMPORARY TRANSIT SERVICE, INC. RAYBERN BUS SERVICE, INC.
ATLANTIC-HUDSON, INC. G.V.D. LEASING CO., INC.
COURTESY BUS CO., INC. BLOCK 7932, INC.
K. CORR, INC. ATLANTIC EXPRESS OF MISSOURI INC.
RAYBERN EQUITY CORP. ATLANTIC EXPRESS OF L.A. INC.
METRO AFFILIATES, INC. JERSEY BUSINESS LAND CO., INC.
MIDWAY LEASING INC. JERSEY BUS SALES, INC.
CENTRAL NEW YORK COACH 201 WEST SOTELLO REALTY, INC.
SALES & SERVICE, INC.
ATLANTIC-CHITTENANGO REAL
PROPERTY CORP.
By: /s/ DOMENIC GATTO
-------------------------
Name: Domenic Gatto
Title: President, Chief Executive Officer
<PAGE>
THE BANK OF NEW YORK, as
Trustee and Secured Party
By: /s/ VAN BROWN
-----------------------
Name: Van Brown
Title: Vice President
<PAGE>
Schedule I
Pledged Securities Owned By Atlantic Express Transportation Corp.
-----------------------------------------------------------------
<TABLE>
<CAPTION>
Stock Percentage of
Stock Class of Certificate Number Outstanding
Issuer Stock Number Par Value of Shares Shares
----------- ---------- ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Atlantic-Chittenango common 1 None 100 100%
Real Property Corp.
Jersey Business Land Co., common 1 None 100 100%
Inc.
201 West Sotello Realty, common 1 None 100 100%
Inc.
</TABLE>
<PAGE>
Schedule II
Filing Offices
----------------
<TABLE>
<CAPTION>
Debtor Name Jurisdictions Where UCC-1s Filed
---------------- -----------------------------------
<S> <C>
Atlantic-Chittenango Secretary of State, New York
Real Property Corp. Richmond County, New York
Madison County, New York
Jersey Business Land Co., Inc. Secretary of State, New York
Richmond County, New York
Secretary of State, New Jersey
Burlington County, New York
201 West Sotello Realty, Inc. Secretary of State, California
Secretary of State, New York
Richmond County, New York
</TABLE>
<PAGE>
Schedule III
Location of Collateral
-------------------------
Atlantic-Chittenango Real Property Corp.
7765 Lakeport Road
Chittenango New York
Jersey Business Land Co., Inc.
2015 Route 206
Bordentown New Jersey
201 West Sotello Realty, Inc.
201 West Sotello Street
Los Angeles, California
<PAGE>
ADDENDUM TO SECURITY AND PLEDGE AGREEMENT
The undersigned, ATLANTIC-CHITTENANGO REAL PROPERTY CORP., a New York
corporation:
(i) agrees to all of the provisions of the Security and Pledge
Agreement, dated as of February 4, 1997, among AETG, the Company and the
Restricted Subsidiaries (each as defined therein), in favor of The Bank of
New York (the "Secured Party"), as amended by the First Amendment to the
Security and Pledge Agreement, dated as of August 14, 1997, among the AETG,
the Company and the Restricted Subsidiaries (each as defined therein), in
favor of the Secured Party (the "Security Agreement"), pursuant to the
Indenture, dated as of February 4, 1997, among the Company, the Restricted
Subsidiaries (each as defined therein) and the Secured Party, as amended by
the First Supplemental Indenture dated as of August 14, 1997, among the
Company, Restricted Subsidiaries (each as defined therein and the Secured
Party) (the "Indenture"), and
(ii) effective on the date hereof becomes a party to the Security
Agreement, as a Restricted Subsidiary, with the same effect as if the
undersigned were an original signatory to the Security Agreement (with the
representations and warranties contained therein) being deemed to be made by
the undersigned Restricted Subsidiary as of the date hereof.
Terms defined in the Security Agreement and the Indenture shall have such
defined meanings when used herein.
By its acceptance hereof, each undersigned Restricted Subsidiary
hereby ratifies and confirms its respective obligations under the Guaranty,
as supplemented hereby.
ATLANTIC-CHITTENANGO REAL PROPERTY CORP.
By: /s/ DOMENIC GATTO
-----------------------------------------
Name: Domenic Gatto
Title: President, Chief Executive Officer
Date: December 12, 1997
<PAGE>
ADDENDUM TO SECURITY AND PLEDGE AGREEMENT
The undersigned, JERSEY BUSINESS LAND CO., INC., a New Jersey
corporation:
(i) agrees to all of the provisions of the Security and Pledge
Agreement, dated as of February 4, 1997, among AETG, the Company and the
Restricted Subsidiaries (each as defined therein), in favor of The Bank of
New York (the "Secured Party"), as amended by the First Amendment to the
Security and Pledge Agreement, dated as of August 14, 1997, among the AETG,
the Company and the Restricted Subsidiaries (each as defined therein), in
favor of the Secured Party (the "Security Agreement"), pursuant to the
Indenture, dated as of February 4, 1997, among the Company, the Restricted
Subsidiaries (each as defined therein) and the Secured Party, as amended by
the First Supplemental Indenture dated as of August 14, 1997, among the
Company, the Restricted Subsidiaries (each as defined therein) and the
Secured Party (the "Indenture"), and
(ii) effective on the date hereof becomes a party to the Security
Agreement, as a Restricted Subsidiary, with the same effect as if the
undersigned were an original signatory to the Security Agreement (with the
representations and warranties contained therein) being deemed to be made by
the undersigned Restricted Subsidiary as of the date hereof.
Terms defined in the Security Agreement and the Indenture shall have such
defined meanings when used herein.
By its acceptance hereof, each undersigned Restricted Subsidiary
hereby ratifies and confirms its respective obligations under the Guaranty,
as supplemented hereby.
JERSEY BUSINESS LAND CO., INC.
By: /s/ DOMENIC GATTO
-----------------------------------------
Name: Domenic Gatto
Title: President, Chief Executive Officer
Date: December 12, 1997
<PAGE>
ADDENDUM TO SECURITY AND PLEDGE AGREEMENT
The undersigned, 201 WEST SOTELLO REALTY, INC., a California
corporation:
(i) agrees to all of the provisions of the Security and Pledge
Agreement, dated as of February 4, 1997, among AETG, the Company and the
Restricted Subsidiaries (each as defined therein), in favor of The Bank of
New York (the "Secured Party"), as amended by the First Amendment to the
Security and Pledge Agreement, dated as of August 14, 1997, among the AETG,
the Company and the Restricted Subsidiaries (each as defined therein), in
favor of the Secured Party (the "Security Agreement"), pursuant to the
Indenture, dated as of February 4, 1997, among the Company, the Restricted
Subsidiaries (each as defined therein) and the Secured Party, as amended by
the First Supplemental Indenture dated as of August 14, 1997, among the
Company, the Restricted Subsidiaries (each as defined therein) and the
Secured Party (the "Indenture"), and
(ii) effective on the date hereof becomes a party to the Security
Agreement, as a Restricted Subsidiary, with the same effect as if the
undersigned were an original signatory to the Security Agreement (with the
representations and warranties contained therein) being deemed to be made by
the undersigned Restricted Subsidiary as of the date hereof.
Terms defined in the Security Agreement and the Indenture shall have such
defined meanings when used herein.
By its acceptance hereof, each undersigned Restricted Subsidiary
hereby ratifies and confirms its respective obligations under the Guaranty,
as supplemented hereby.
201 WEST SOTELLO REALTY, INC.
By: /s/ DOMENIC GATTO
------------------------------
Name: Domenic Gatto
Title: President, Chief Executive Officer
Date: December 12, 1997
<PAGE>
Exhibit 10.18
ATLANTIC EXPRESS TRANSPORTATION CORP.
$150,000,000 10 3/4% Senior Secured Notes due 2004
ASSUMPTION AGREEMENT TO REGISTRATION RIGHTS AGREEMENT
December 12, 1997
JEFFERIES & COMPANY, INC.
11100 Santa Monica Boulevard
10th Floor
Los Angeles, California 90025
Ladies and Gentlemen:
ATLANTIC EXPRESS TRANSPORTATION CORP., a New York corporation (the
"Company"), issued and sold to Jefferies & Company, Inc. (the "Original
Purchaser"), upon the terms set forth in a Purchase Agreement, dated February 4,
1997 (the "Original Purchase Agreement") $110,000,000 aggregate principal amount
of the Company's 10 3/4% Senior Secured Notes due 2004, Series A, including the
guarantees endorsed thereon (the "Original Notes"), and upon the terms set forth
in a Purchase Agreement, dated August 7, 1997 (the "Additional Purchase
Agreement"), $40,000,000 aggregate principal amount of the Company's 10 3/4%
Senior Secured Notes due 2004, Series A, including the guarantees endorsed
thereon (the "Additional Notes").
The Company has recently incorporated the following three wholly owned
subsidiaries: Atlantic-Chittenango Real Property Corp., a New York corporation,
Jersey Business Land Co., Inc., a New Jersey corporation, and 201 West Sotello
Realty, Inc., a California corporation (the "Additional Subsidiaries"). Each of
the Additional Subsidiaries hereby agrees with you as follows:
1. Registration Rights Agreement. Each of the Additional
Subsidiaries:
(a) hereby agrees to all of the provisions of the Registration
Rights Agreement, dated February 4, 1997 (the "Registration Rights
Agreement") among the
<PAGE>
Company, each of the Guarantors named therein and the Original Purchaser (as
amended, supplemented or otherwise modified prior to the date hereof); and
(b) effective on the date hereof becomes a party to the Registration
Rights Agreement, as a Guarantor, with the same effect as if such Additional
Subsidiary were an original signatory to the Registration Rights Agreement (with
the representation and warranties contained therein being deemed to be made by
such signatory as of the date hereof).
2. Purchase Agreement. Each of the Additional Subsidiaries agrees
that, as provided in the Additional Purchase Agreement, holders of the
Additional Notes (including subsequent transferees) will have the same
registration rights as the registration rights accorded to the holders of the
Original Notes, as such rights were set forth in the Registration Rights
Agreement.
3. Obligations of Additional Subsidiaries. The obligations of the
Additional Subsidiaries under the Registration Rights Agreement are identical to
the obligations of the Guarantors thereunder, whether the latter obligations
arose prior to, contemporaneously with, or after the date hereof.
4. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York (without giving
effect to any principles of conflicts of law).
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
GUARANTORS
ATLANTIC-CHITTENANGO REAL JERSEY BUSINESS LAND CO., INC.
PROPERTY CORP.
By: /s/Domenic Gatto By: /s/Domenic Gatto
------------------------------ ----------------------------
Name: Domenic Gatto Name: Domenic Gatto
Title:President, Chief Executive Title:President, Chief Executive
Officer Officer
201 WEST SOTELLO REALTY, INC.
By: /s/Domenic Gatto
------------------------------
Name: Domenic Gatto
Title:President, Chief Executive Officer
<PAGE>
EXHIBIT 10.19
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of February 28, 1994, by and among
ATLANTIC EXPRESS TRANSPORTATION GROUP INC., a New York corporation (the
"Company"), and each of the parties signatory hereto.
R E C I T A L S:
WHEREAS, the Company is authorized by its Certificate of
Incorporation to issue 300 shares of capital stock, consisting of (a) 228 shares
of Common Stock, no par value ("Common Stock"), and (b) 72 shares of Series A
Cumulative Convertible Preferred Stock, par value $.01 per share (Preferred
Stock);
WHEREAS, the Company has issued an aggregate of 101.0287 shares of
Common Stock to Dominic Gatto, Michael Gatto, Patrick Gatto (collectively, the
"Gatto Group") and Richard Gatto, such shares being all the shares of Common
Stock issued and outstanding;
WHEREAS, Busco Capital Inc., a corporation organized under the laws
of the British Virgin Islands ("Busco") has acquired an aggregate of 13.5287
shares of Common Stock from Richard Gatto and the Gatto Group;
WHEREAS, pursuant to a Stock Purchase Agreement, dated as of
February 28, 1994 (the "Stock Purchase Agreement"), between the Company and
Busco, Busco is purchasing from the Company 72 shares of Preferred Stock
(representing 100% of the authorized Preferred Stock, and upon conversion, 45%
of the issued and outstanding Common Stock, on a fully diluted basis) in
exchange for $12,750,000 and 13.5287 shares of Common Stock with a value of
$2,950,000; and
WHEREAS, the Company, Busco and the Gatto Group desire to set forth
their agreement concerning the management of the Company and such other matters
as are set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual and
dependent promises set forth in this Agreement, the Company, Busco and the Gatto
Group agree as follows:
<PAGE>
2
ARTICLE I
DEFINITIONS AND OTHER GENERAL MATTERS
SECTION 1.01. Definitions. The following terms shall be used in this
Agreement with the meanings set forth in this Section 1.01:
"Affiliate" means, with respect to any person or entity, any other
person or entity that directly or indirectly through one or more
intermediates controls, is specified by or is under common control with
the first person or entity.
"Board" means the Board of Directors of the Company.
"Business" means (i) the provision of bus, van or car transportation
and related services under contract to state or local government agencies
as well as to private sector purchasers of such transportation services
and (ii) the operation of a bowling center complex and joint venture
interests in two multiplex movie theaters in Staten Island.
"By-laws" means the restated by-laws of the Company.
"CEO" means the officer elected by the Board to the post designated
in the By-laws as the chief executive officer of the Company. Domenic
Gatto will be the initial CEO and Chairman of the Board.
"Certificate of Incorporation" means the Restated Certificate of
Incorporation of the Company.
"Closing" shall have the meaning given in the Stock Purchase
Agreement, dated as of February 28, 1994, between the Company and Busco.
"Common Stock" means the common stock, no par value, of the Company.
"Consenting Stockholder" means any beneficial owner of shares of
Voting Securities that is a party to this Agreement.
"Conversion Price" means the conversion price per share of Common
Stock for which the Preferred Stock is convertible, as such Conversion
Price is initially set and may be adjusted under the Certificate of
Designation.
<PAGE>
3
"Default" means any failure of the Company to pay debt for borrowed
money when due and any event which would permit acceleration of debt for
borrowed money. A Default shall not occur with respect to any failure to
pay debt for borrowed money when due or any event which would permit
acceleration of debt for borrowed money:
(a) where the failure or event has been cured or waived and
such cure or waiver is effective as to all cross defaults;
(b) if the total amount of outstanding debt to which the
failure or event related (together with cross defaults) does not
exceed $500,000;
(c) if the applicable grace period with respect to such
Default has not expired; and/or
(d) with respect to any debt which the Company, with the
reasonable concurrence of the directors designated by Busco disputes
in good faith.
No event shall be a Default (other than a money default) if the Company
shall cure within the greater of thirty (30) days or the cure period
provided in the subject contract or instrument.
"Employment Agreements" means the Employment Agreements, dated
February 28, 1994, between the Company and each of Domenic Gatto, Patrick
Gatto, Michael Gatto and Nathan Schlenker.
"Public Offering" means the offering of Common Stock pursuant to a
registration statement on a form applicable to the sale of securities to
the general public.
"Purchase Agreements" means the Stock Purchase Agreement, together
with the letter agreements, each dated February 28, 1994, between Busco,
Richard Gatto and each member of the Gatto Group.
"Preferred Stock" means the Series A Cumulative Convertible
Preferred Stock, par value $.01 per share, of the Company.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated February 28, 1994, between the Company, Busco and the
members of the Gatto Group.
"Significant Transaction" means, with respect to the Company or any
affiliates, any of the following actions:
<PAGE>
4
(A) conducting any business other than the Business;
(B) (i) any creation of (x) any additional class of capital
stock or (y) any security having a direct or indirect equity
participation in the Company or any affiliate or (ii) the sale or
issuance of shares of capital stock or warrants, options or rights
to acquire shares of capital stock or securities convertible into or
exchangeable for capital stock or any security having a direct or
indirect equity participation in the Company or any affiliate;
(C) any declaration or issuance of any dividend or other
distribution on any shares of capital stock or any payment on
account of the purchase, redemption, retirement or other acquisition
for value of any shares of capital stock;
(D) except as provided in paragraph (E) below, any acquisition
(including, by way of merger or consolidation) outside of the
ordinary course of business or the addition of any new participants
or partners in any entity controlled by the Company;
(E) any transaction with a value of $3,500,000 or more that
relates to the operations of the Company or any affiliates,
including without limitation financing, bidding, acquisitions, new
contracts and contract renewal arrangements (except renewals of
transportation contracts); provided that any offering, borrowing or
other transaction entered into by the Company or its affiliates for
the purpose of redeeming Busco's shares of Voting Securities shall
not be deemed a "Significant Transaction"; provided further that (1)
for so long as there is a non-compliance or projected non-compliance
with Schedule B attached hereto, the foregoing amount of $3,500,000
shall be reduced to $2,000,000, (2) for so long as Busco is unable
to redeem any of its unconverted Preferred Stock as set forth in
Section 3.04, the foregoing amount of $3,500,000 shall be reduced to
$1,000,000, and (3) in the event that Domenic Gatto shall no longer
be the CEO of the Company, the foregoing amount of $3,500,000 shall
be reduced to $350,000;
<PAGE>
5
(F) any amendment to or modification of any provision of the
Certificate of Incorporation or By-laws of the Company;
(G) any change in the auditors for, or in the accounting
policies or procedures of, the Company;
(H) entering into any agreement or obtaining any license or
franchise which restricts the transfer of shares of Common Stock or
Preferred Stock;
(I) (i) an extension of any Employment Agreement on its then
current terms for a period of time greater than three years beyond
its scheduled termination date or (ii) any amendment or modification
of any such Employment Agreement;
(J) any consolidation or merger of the Company or its
affiliates with any other entity in which the Company or its
affiliates will not be the continuing or surviving corporation or
the sale of all or substantially all of the assets of the Company or
its affiliates;
(K) any sale of all or substantially all of the assets of the
Company or its affiliates; or
(L) any transaction or transactions inconsistent with Section
5.01 of this Agreement.
"Voting Securities" means the Common Stock and Preferred Stock.
"Wafra Direct Equity Group" means Division of Wafra Investment
Advisory Group Inc., which purchases large block positions of private and
public securities for investment purposes, and any successors.
SECTION 1.02. Voting; Written Consent. (a) Any agreement by the
Consenting Stockholders herein to vote their shares of Voting Securities in a
certain manner shall be deemed, in each instance, to include an agreement by
each Consenting Stockholder to use such Consenting Stockholder's best efforts
and to take all actions necessary to call, or cause the Company and the
appropriate officers and directors of the Company to call, as promptly as
practicable, a special or annual meeting of stockholders or to act by written
consent.
<PAGE>
6
(b) When any action is required to be taken by a Consenting
Stockholder pursuant to this Agreement, such Consenting Stockholder shall take
all steps necessary to implement such action, including, without limitation,
executing or causing to be executed, as promptly as practicable, a consent in
writing in lieu of an annual or special meeting of the stockholders pursuant to
Section 615 of the Business Corporation Law of New York or any successor statute
thereto to effect such stockholder action.
(c) Unless expressly stated to the contrary herein, any action
requiring the vote of the directors (or any committee thereof) may be effected
by consent in lieu of a meeting of the directors or committee members, as the
case may be, pursuant to Section 708 of the Business Corporation Law of New York
or any successor statute thereto.
(d) Except as otherwise provided in Section 2.01(b), each share of
Preferred Stock will have the same vote as a share of Common Stock and shall be
convertible on a share for share basis at any time to Common Stock at the option
of Busco or any subsequent holder of the Preferred Stock. The Company may
require conversion at the time of a Public Offering provided (i) the Public
Offering shall provide at least $20,000,000 in net proceeds to the Company from
a sale underwritten by an underwriter listed on Schedule A hereto and (ii) (A)
the per share issue price shall be equal to or greater than Busco's price to
convert to Common Stock at the time of such offering compounded at the rate of
30% annually from the date of this Agreement to the date of such offering and
(B) Busco has the opportunity to sell 75% of its Voting Securities at such
price.
ARTICLE II
BOARD OF DIRECTORS AND STOCKHOLDERS
SECTION 2.01. Composition of the Board of Directors. (a) General.
The Board shall initially consist of five directors, of which (i) Busco shall
have the right to designate two individuals to serve as directors and (ii)
except as provided in Section 2.03(a), the Gatto Group shall have the right to
designate three individuals to serve as directors. In no event shall the Board
be composed of fewer than five directors. Except as otherwise provided in this
Section 2.01, the ratio of directors designated by Busco to those designated by
the Gatto Group shall be maintained as set forth in this Section 2.01(a) should
the Board be increased in number.
<PAGE>
7
(b) Event of Default. From and after a Default the Preferred Stock
shall be entitled to vote on shareholder issues as if it had four times the vote
it would have on conversion. The Board shall be increased in number so that the
ratio of Busco designated directors to Gatto Group designated directors is
maintained at a level of 4:3. During the period in which the additional Busco
designated directors serve, the Busco designees will take such measures in their
capacity as directors as are reasonably available to have cured or to have
waived any such default, provided that Busco shall have no obligation to either
make any concession with respect to its equity position or to advance additional
funds to the Company.
(c) Default Cured. The additional Busco designated directors shall
be retired and the additional voting rights terminated in the event that a
Default is cured without the need for additional capital or financing, and
without any concession materially adverse to the equity interest of Busco.
(d) Transactions During Default Period. Any loan transaction, sale
of equity or an investment convertible into equity during the period in which
the Busco designees control the Board, shall be based upon an independent
appraisal conducted by an appraiser (selected from Schedule A hereto) mutually
acceptable to the Gatto Group and Busco. If they are unable to agree, the
appraiser shall be selected by lot. The Gatto Group shall have a right of first
refusal to purchase such position or fund such loan or to secure a third party
to purchase such position or fund such loan provided that Busco shall have the
right, superior to any such third party, to purchase the position if it agrees
to abide by the same terms and conditions relating to control of the Company as
provided in the third party offer. In the event the Gatto Group shall purchase
the position, fund such loan or arrange third party financing for such loan or
position, control of the Board shall be as provided in such arrangement.
(f) Public Offering. In the event the Company shall consummate a
Public Offering, Busco and the Gatto Group agree that until Busco has disposed
of 75% of its shares of Preferred Stock, representatives on the Board (excluding
"independent directors") shall continue to be 40% Busco designees and 60% Gatto
Group designees. After Default Busco shall be entitled to 60% of the
non-independent directors and the Gatto Group 40%. Independent directors shall
be nominated jointly by Busco and the Gatto Group.
<PAGE>
8
(g) Election of Directors. Each Consenting Stockholder hereby agrees
to vote all shares of Voting Securities owned by such Consenting Stockholder to
cause the election to the Board of Directors of the individuals designated by
the Consenting Stockholders in accordance with this Section 2.01.
SECTION 2.02. Removal of Directors. Each Consenting Stockholder
shall vote all shares of Voting Securities owned by such Consenting Stockholder
for the removal (with or without cause) of any director designated and elected
pursuant to Section 2.01 hereof if the Consenting Stockholder entitled to
designate such director pursuant to Section 2.01 requests such removal by
written notice to the other Consenting Stockholders.
SECTION 2;03. Vacancies. (a) If, as a result of death, disability,
retirement, resignation, removal (with or without cause) of Domenic Gatto, there
is a vacancy on the Board and the position of CEO.
(i) a special committee shall be formed consisting of a Busco
designee and such of the following, as remain in the employ of the
Company: Michael Gatto, Patrick Gatto and Nathan Schlenker, to select a
successor CEO who shall also serve, with the unanimous consent of such
committee and with the approval of the Board, as a neutral director upon
the Board, along with any other neutral directors unaminously selected by
such committee and with the approval of the Board (together, the "neutral
directors"). The Board shall thereafter be configured of two Busco
designated directors, two Gatto Group designated directors and one or more
neutral directors. The vote of the committee must be unanimous, provided
that if no successor CEO has been chosen within three months of such
vacancy, an executive search company shall be retained from Schedule C
attached hereto to recommend a new CEO which recommendation shall be
subject to approval by the vote of 75% of such committee. If there is no
agreement as to the search company, the same shall be chosen by lot from
Schedule C, and
(ii) each Consenting Stockholder shall vote its respective shares in
favor of the individual designated in accordance with clause (i) above to
fill such vacancy.
(b) If, as a result of death, disability, retirement, resignation,
removal (with or without cause) or otherwise there shall exist or occur any
vacancy on the Board other than as provided in Section 2.03(a),
<PAGE>
9
(i) the Consenting Stockholders entitled to designate (pursuant to
Section 2.01 hereof) the director whose death, disability, retirement,
resignation or removal resulted in such vacancy may designate another
individual to fill such capacity and to serve as a director of the
Company, and
(ii) each Consenting Stockholder shall vote its respective shares in
favor of the individual designated in accordance with clause (i) above to
fill such vacancy.
SECTION 2.04. Conflicting Charter or By-law Provisions. Each
Consenting Stockholder, shall vote its shares of Common Stock, and shall take
all other actions necessary, to ensure that the Certificate of Incorporation and
By-laws facilitate and do not at any time conflict with the provisions of this
Agreement.
SECTION 2.05. Action by the Board of Directors. (a) Except as
otherwise provided in Sections 2.05(b) and 2.05(c), all actions of the Board of
Directors shall require the affirmative vote of the majority of directors
present at a duly convened meeting of the Board at which a quorum is present or,
in lieu of a meeting, by the unanimous written consent of the members of the
Board of Directors.
(b) Neither the Company nor any entity controlled by the Company
shall take, and no party to this Agreement shall cause the Company or any entity
controlled by the Company to take, any action with respect to any Significant
Transaction without
(i) providing to the directors at least 5 business days' notice of
any meeting of the Board at which a Significant Transaction is proposed to
be approved, which notice shall describe such proposed Significant
Transaction and
(ii) the prior approval of 66 2/3% of the directors;
provided, however, that in each case the approval of all of the directors
appointed by the Consenting Stockholders shall be required (x) to amend the
Certificate of Incorporation and By-laws and (y) to enter into any agreement or
to obtain any license or franchise which restricts the transfer of shares of
Common Stock or Preferred Stock in a manner that discriminates among Consenting
Stockholders; and
<PAGE>
10
(c) Notwithstanding the provisions of Sections 2.05(a) and 2.05(b),
in lieu of any other approval provided in such Sections, the approval of a
majority of disinterested members of the Board of Directors shall be required to
approve any transaction between the Company and a Consenting Stockholder or an
Affiliate of a Consenting Stockholder, except in the case of the renewal of any
Employment Agreement, in which the approval of a majority of directors present
at a meeting of the Board shall be sufficient.
SECTION 2.06. Action Following Termination of Certain Employees. The
Busco designated directors shall not unreasonably withhold their consent to the
purchase by the Company of the shares of Common Stock by a member of the Gatto
Group pursuant to Section 7.3 or 7.5 of the applicable Employment Agreement,
provided the price paid for such shares shall be for 90% of the fair market
value as determined by an appraiser selected by lot from Schedule A annexed
thereto.
ARTICLE III
TRANSFERS
Section 3.01. Restrictions on Transfers. Members of the Gatto Group
may transfer Common Stock only if a sale or transfer (other than to a family
member) shall include a cash offer to bring Busco along on the same terms for
that percentage of its ownership (as converted) as the sale represents of the
total Gatto Group holdings, and provided that the Gatto Group shall retain
ownership interest of at least 51% of the equity securities of the Company prior
to a Public Offering. The foregoing limitation shall not apply to a sale or
transfer of shares from the Gatto Group to Nathan Schlenker upon his exercise of
options issued by the Gatto Group to purchase the equivalent of 1% of the
outstanding Voting Securities, provided Nathan Schlenker agrees to be bound by
this Agreement.
Section 3.02. First Refusal. Busco shall have a right of first
refusal on all shares held by any member of the Gatto Group, excluding shares
transferred in accordance with Section 3.01 or shares transferred to a family
trust, provided the transferee shall be bound by this Agreement and be a member
of the Gatto Group. Domenic Gatto, Michael Gatto and Patrick Gatto shall have a
right of first refusal on all shares held by Busco in proportion to their
respective Common Stock ownership. The foregoing rights of first refusal shall
not apply to sales in Public Offerings or to sales in the public market
subsequent to such a Public Offering.
<PAGE>
11
SECTION 3.03. Busco Transfer. Notwithstanding Section 3.02, Busco
may transfer any shares held hereunder to any Affiliate without the application
of a right of first refusal, provided Busco retains the right to vote such
shares under this Agreement and provided the transferee shall remain subject to
a right of first refusal of the Gatto Group to this Agreement.
SECTION 3.04. Redemption. (a) Busco shall have the right, upon six
months' prior written notice, to require redemption of any shares of unconverted
Preferred Stock. Such right shall be to put 100% of those shares on the fifth
anniversary of the date of this Agreement but payment therefor shall, except to
the extent Section 3.04(b) may be applicable, be made 50% on the fifth
anniversary and 50% on the sixth anniversary of the date of this Agreement. Any
amount not paid to Busco as set forth in this Section 3.04 on such put date
shall be evidenced by a note from the Company (such note to be non-interest
bearing) evidencing such indebtedness. The redemption price (valued as of the
date of such redemption) shall be the higher of (i) fair market value of the
Company, appraised as a public company if there is a reasonable basis upon which
the Company by such fifth anniversary could have been a public company,
otherwise appraised as privately held; (ii) if then publicly traded, valued at
market multiplied by the number of shares redeemed or (iii) liquidation
preference value.
(b) At the option of the Company, the redemption right, if exercised
by Busco shall provide for payment for the redeemed shares in three annual
installments commencing on the fifth anniversary of the date of this Agreement
provided that the valuation of the Company shall be computed as set forth in
Section 3.04(a) and then increased at a per annum rate consistent with an equity
return appropriate in these circumstances as to all funds not received by the
date of the sixth anniversary of this Agreement, but not to exceed a return of
27.5% annually for payments beyond the sixth anniversary date of this Agreement.
(c) Valuation of the Company shall be determined by an appraiser
selected by the Company and Busco from the list of appraisers in Schedule A
attached hereto. In the event the Company and Busco cannot agree upon a single
appraiser they shall each select an appraiser from the annexed list and the
average valuation of such appraisers shall be utilized. The Gatto Group and
Busco shall share equally the expense of the appraisal.
<PAGE>
12
(d) In the event the Company is legally precluded from redeeming the
shares of Voting Securities held by Busco as a result of insufficient surplus:
(i) The Company shall reduce the compensation package of the Gatto
Group by $250,000 annually; and
(ii) Busco's shares shall be redeemed at the rate of 60% of the
Company's cash flow, but not to exceed, on a cumulative basis, the amount
payable under Section 3.04(b).
SECTION 3.05. Legend. Each certificate evidencing outstanding shares
of Voting Securities held by a Consenting Stockholder shall bear the following
legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO
REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE
BOOKS OF THE ISSUER UNLESS SUCH TRANSFER IS MADE IN CONNECTION WITH
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH ACT
DOES NOT APPLY.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCKHOLDERS' AGREEMENT,
DATED AS OF FEBRUARY 28, 1994, AS IT MAY BE AMENDED FROM TIME TO
TIME, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES
OF THE ISSUER. NO REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL
BE MADE ON THE BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH
RESTRICTIONS SHALL HAVE BEEN COMPLIED WITH."
All certificates evidencing shares of Voting Securities hereafter issued by the
Company to a Consenting Stockholder shall bear the legend set forth above. Upon
termination of this Agreement or upon registration of such shares of Voting
Securities in accordance with this Agreement and then upon surrender to the
Company of any certificates bearing the legend set forth above, the Company
shall reissue such certificates to the owner thereof without such legend.
<PAGE>
13
ARTICLE IV
PREEMPTIVE RIGHTS; ANTIDILUTION
SECTION 4.01. Busco Subscription Right. Busco shall have a right of
first refusal on all issuances of shares of New Common Stock (as defined below)
by the Company (except on shares of New Common Stock issued in a Public
Offering) so long as Busco shall own the equivalent, in Voting Securities, of
25% of its initial Preferred Stock. There is to be no further issuance of any
series of preferred stock which has any rights equal to or superior to those of
the Preferred Stock unless there is an active market for Common Stock.
SECTION 4.02. Preemptive Rights. (a) Subject to Section 4.01, each
Consenting Stockholder shall have a right to purchase its aggregate pro rata
portion, based on the ratio of the number of shares of Common Stock or Preferred
Stock held by such stockholder to the total number of shares of Voting
Securities held by all Consenting Stockholders, of any new common stock ("New
Common Stock") which the Company may, from time to time, propose to issue. This
right shall be transferable and shall terminate if unexercised within 30 days
after receipt of the Preemption Notice (as defined below).
(b) In the event the Company proposes to undertake an issuance of
New Common Stock, it shall give each Consenting Stockholder written notice (a
"Preemption Notice") of its intention, describing the type of New Capital Stock,
the price and the general terms upon which the Company proposes to issue the
same. Each Consenting Stockholder shall have 30 days after receipt of the
Preemption Notice to agree to purchase all or any portion of the Consenting
Stockholder's pro rata share of such New Common Stock for the price and upon the
terms specified in the Preemption Notice by giving written notice to the Company
and stating therein the quantity (including amounts, if any, such Consenting
Stockholder would be willing to purchase over and above such Consenting
Stockholder's pro rata portion) of New Common Stock to be purchased.
SECTION 4.03. Busco Antidilution Rights. The Conversion Price shall
be subject to adjustment as set forth in the Certificate of Incorporation.
<PAGE>
14
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Use of Proceeds. The Company agrees that the aggregate
proceeds from the Preferred Stock issued pursuant to the Purchase Agreements
shall be used only for (a) purchase of equipment and facilities to service new
contracts; (b) acquisition of other transportation companies; (c) working
capital; (d) early retirement of debt up to $2MM for FDIC; $1.5MM for taxes;
$2MM for Deutsche Credit and $4MM for Marine Midland Bank (not to exceed $7MM in
the aggregate); and (e) subject to Section 2.05 hereof, such other non-ordinary
course uses as the Board shall approve. The Company agrees that the proceeds
from the Preferred Stock not otherwise put to use in accordance with the terms
of this Agreement shall be invested in investments having a maturity of not
greater than 12 months from the date of acquisition thereof in (x) obligations
issued or unconditionally guaranteed by the United States or any agency thereof,
(y) certificates of deposit of any commercial bank organized under the laws of
the United States or any State thereof and having combined capital and surplus
of at least $1,000,000,000 or (z) commercial paper with a rating of at least
"B-1" by Standard & Poor's Corporation.
SECTION 5.02. Management Fee. Wafra Investment Advisory Group, Inc.
("Wafra") shall receive an annual management fee of (a) $223,166, subject to the
same percentage adjustment, on an annual basis, as the average of the two
highest salaries paid by the Company to its employees (other than Domenic Gatto)
plus (b) $120,000, which fee shall be payable in twelve equal installments of
$28,597.17 each (or otherwise, as the management fee may be adjusted pursuant to
clause (a)) to an account designated by Wafra. The first installment shall be
due upon the Closing, and each installment thereafter will be due on the last
day of each successive calendar month following the Closing; provided, however,
that if the day on which any installment would otherwise become due is a day on
which banks are required or authorized to close in New York City, such
installment shall instead be due on the prior day on which banks are not so
required or authorized to close.
SECTION 5.03. Right of Audit. Busco shall have rights upon
reasonable notice to inspect the Company books and records during normal
business hours and to audit at its own expense provided that such inspection or
audit shall not unduly interfere with the conduct of the Company's business.
<PAGE>
15
SECTION 5.04. Non-Compete. Neither the Wafra Direct Equity Group
(for the later of (i) for so long as it (or Busco) shall retain beneficial
ownership of 25% of its (or Busco's) shares of Preferred Stock owned the date of
this Agreement or (ii) for so long as the Wafra Direct Equity Group shall
exercise a management or consulting position with respect to the Busco
investment) nor any member of the Gatto Group shall acquire an interest in, nor
shall it be a lender to, any company engaged in (a) the school bus
transportation business in the East Coast of the United States or (b) any other
transportation business in which the Company is engaged in any state wherein the
Company operates such business.
SECTION 5.05. Irrevocable Proxy. Michael and Patrick Gatto each
agree to the irrevocable appointment of Domenic Gatto, until termination of this
Agreement, as his attorney and proxy pursuant to the provisions of Section 609
and in compliance with Section 620 of the Business Corporation Law of the State
of New York, with full power of substitution, to vote, and otherwise act (by
written consent or otherwise) with respect to the Common Stock and the other
securities which Michael or Patrick Gatto is entitled to vote at any meeting of
stockholders of the Company (whether annual or special and whether or not an
adjourned or postponed meeting) or consent in lieu of any such meeting or
otherwise, on the matters and in the manner specified in Section 1.02 hereof.
THIS PROXY AND POWER OF ATTORNEY IS IRREVOCABLE AND COUPLED WITH AN INTEREST.
Michael and Patrick Gatto each hereby revokes all other proxies and powers of
attorney with respect to the Common Stock and all other securities which he may
have heretofore appointed or granted, and no subsequent proxy or power of
attorney shall be given or written consent executed (and if given or executed,
shall not be effective) by Michael or Patrick Gatto with respect thereto. All
authority herein conferred or agreed to be conferred shall survive the death or
incapacity of Michael or Patrick Gatto and any obligation of Michael or Patrick
Gatto under this Agreement shall be binding upon the heirs, personal
representatives and successors of each of them.
SECTION 5.06. Death of a Member of the Gatto Group. In the event of
the death of a member of the Gatto Group, the surviving members agree to
purchase the shares of Common Stock of the decedent in proportion to each
surviving member's holdings of Common Stock. Further, in the event of the death
of either Michael or Patrick Gatto, such shares of Common Stock shall remain
subject to the requirements of Section 5.05. In the event of the death of
Domenic Gatto, Michael and Patrick Gatto as shareholders agree to vote their
<PAGE>
16
shares of Common Stock to support Board positions and shall not, in their
position decisions or deadlocks to support Board positions and shall as
shareholders, act to override of the Board.
SECTION 5.07. Public Offering. Without being required to convert its
shares of Preferred Stock, Busco and the Busco designated directors shall
consent to a Public Offering which does not allow for the sale of 75% of such
shares of Preferred Stock, provided (a) the Company and the Gatto Group are in
compliance with Section 13 of the Registration Rights Agreement and (b) the
terms and conditions of the second sentence of Section 1.02(d) hereof are met.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Representations. Each of the parties hereto represents
that this Agreement has been duly authorized, executed and delivered by such
party and constitutes a legal, valid and binding obligation of such party,
enforceable against it in accordance with the terms of this Agreement.
SECTION 6.02. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of their terms hereof, in addition to any other
remedy at law or in equity.
SECTION 6.03. Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any such term may be waived (either generally
or in a particular instance and either retroactively or prospectively) only with
the written consent of the Company and Busco. Each Consenting Stockholder shall
be bound by any amendment or waiver authorized by this Section 6.03, whether or
not such Consenting Stockholder shall have consented thereto.
SECTION 6.04. Notices. All notices and other communications provided
for herein shall be in writing and shall be delivered by hand, telecopied or
sent by certified or registered mail, return receipt requested, postage prepaid,
addressed in the manner set forth on the signature pages of this Agreement (or
in such other manner for a party as shall be specified in a notice given in
accordance with
<PAGE>
17
this Section 6.04). All such notices shall be conclusively deemed to be received
and shall be effective, if sent by hand delivery or telecopied, upon receipt, or
if sent by registered or certified mail, on the fifth day after the day on which
such notice is mailed.
SECTION 6.05. Benefit; Successors and Assigns. Except as otherwise
provided herein, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns; provided, however, that this Agreement shall not inure to the benefit
of any prospective transferee unless such prospective transferee shall have
agreed in writing to be bound by the terms of this Agreement. No Consenting
Stockholder may assign any of its rights hereunder to any person other than a
transferee that has complied with the requirements of this Section 6.05 in all
respects. Nothing in this Agreement either express or implied is intended to
confer on any person other than the parties hereto and their respective
successors and permitted assigns, any rights, remedies or obligations under or
by reason of this Agreement.
SECTION 6.06. Termination. This Agreement shall terminate on
February 28, 2045, or such earlier time as Busco and its Affiliates no longer
own at least 25% of the Preferred Stock.
SECTION 6.07. Miscellaneous. This Agreement sets forth the entire
agreement and understanding among the parties hereto, and supersedes all prior
agreements and understandings, relating to the subject matter hereof. If any
term or other provision of this Agreement is held invalid, all other conditions
and provisions of this Agreement shall nevertheless remain in full force and
effect, unless the term or provision held invalid shall substantially impair the
benefits of the remaining portions of this Agreement and shall not limit or
otherwise affect the meaning hereof. This Agreement shall be governed by the law
of the State of New York. This Agreement may be executed in any
<PAGE>
18
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement in their individual capacity or caused it to be duly executed by their
respective authorized signatories thereunto duly authorized as of the day and
year first above written.
ATLANTIC EXPRESS TRANSPORTATION
GROUP INC.
/s/ Domenic Gatto
-----------------------------------------
Name: Domenic Gatto
Title: President, Chief Executive Officer
7 North Street
Staten Island, New York 10302
Attention: Mr. Domenic Gatto
Fax: (718) 442-5105
Telephone: (718) 442-7000
<PAGE>
19
BUSCO CAPITAL INC.
/s/ John T. Shea
-----------------------------------
Name: John T. Shea
Title: Director
Citco Building
Wickhams Cay
P.O Box 662
Road Town,
Tortola
British Virgin Islands
with a copy to:
Wafra Investment Advisory Group, Inc.
9 West 57th Street, 38th Floor
New York, New York 10019
attn: Mr. John Shea
Fax: (212) 753-7705
Telephone: (212) 644-5554
/s/ Domenic Gatto
-----------------------------------
Domenic Gatto
136 Monmouth Road
Spottswood, NJ 08884
/s/ Patrick Gatto
-----------------------------------
Patrick Gatto
100 Sandalwood Drive
Marlboro, NJ 07746
/s/ Michael Gatto
-----------------------------------
Michael Gatto
4 Continental Court
Marlboro, NJ 07746
<PAGE>
20
Agreed and Accepted By
WAFRA DIRECT EQUITY GROUP
as to, but only to the extent of,
the terms of Section 5.04 hereof:
/s/ John T. Shea
- -----------------------------------
Name: John T. Shea
Title: Director
<PAGE>
SCHEDULE A
UNDERWRITERS AND APPRAISERS
1. Merrill Lynch
2. Lehman Brothers
3. Dillon, Read & Co., Inc.
4. Bear, Stearns & Co., Inc.
5. Donaldson, Lufkin & Jenrette Inc.
6. Paine Webber Incorporated
7. Wertheim Schroder & Co. Incorporated
8. Alex, Brown & Sons Incorporated
9. Josephthal, Lyon & Ross, Inc.
10. Smith Barney/Shearson
<PAGE>
SCHEDULE B
FINANCIAL PERFORMANCE CRITERIA
Year ended 6/30/94 and year ended 12/31/94 net income plus
depreciation plus $13MM shall equal 120% of principal debt payments for
comparable periods.
Commencing 6/30/95 and quarterly thereafter on one-year rollover
basis, cash balance at beginning of year less $2MM plus income for year plus
depreciation shall equal 120% of principal debt payments.
<PAGE>
SCHEDULE C
EXECUTIVE SEARCH
1. Canny Bowen Inc.
2. Russell Reynolds Assoc., Inc.
3. Spencer Stuart & Assoc.
4. Boyden International
5. Gould & McCoy, Inc.
6. Hiedrick & Struggles. Inc.
<PAGE>
EXHIBIT 10.20
First Amendment to Stockholders' Agreement
dated February 28, 1994
This First Amendment to Stockholders' Agreement (this "Amendment") is
executed effective as of the 30th day of January, 1997 by and between Atlantic
Express Transportation Group, Inc. (the "Company"), Busco Capital, Inc.
("Busco"), Domenic Gatto ("D. Gatto"), Patrick Gatto ("P. Gatto") and Michael
Gatto ("M. Gatto"), (D. Gatto, P. Gatto and M. Gatto are hereinafter
collectively referred to as the "Gatto Group").
RECITALS:
WHEREAS, the Company, Busco and the Gatto Group previously entered into a
Stockholders' Agreement dated as of February 28, 1994 (the "Stockholders'
Agreement").
WHEREAS, the parties to the Stockholders' Agreement wish to amend such
Agreement in various respects.
NOW, THEREFORE in consideration of the foregoing and the mutual and
dependant promises set forth herein, the parties agree as follows:
A. SECTION 1.01 is amended:
(i) to insert the following definitions in alphabetical order:
"Subsidiary" shall mean any affiliate under the direct or indirect
control of the Company.
"Transportation" means Atlantic Express Transportation Corp. a New
York corporation wholly owned by the Company.
"Transportation Business" means the provision of bus, van or car
transportation and related services under contract to state or local
government agencies as well as to private sector purchasers of such
transportation services and business ancillary thereto.
"Transportation By-Laws" means the By-Laws of Transportation.
"Transportation CEO" means the officer elected by the Transportation
Board to the post designated in the By-Laws as the chief executive officer
of Transportation. Domenic Gatto will be the initial CEO and chairman of
the Board of Transportation.
"Transportation Certificate of Incorporation" means the Certificate
of Incorporation of Transportation.
<PAGE>
2
"Transportation Employment Agreement" means the Employment
Agreements dated January 21, 1997 between Transportation and each of
Domenic Gatto, Patrick Gatto, Michael Gatto and Nathan Schlenker.
(ii) to amend the definition of "Employment Agreements" to read as
follows:
"Employment Agreements" means the Employment Agreements dated
February 28, 1994 as amended on January 21, 1997 between the Company and
each of Domenic Gatto, Patrick Gatto and Michael Gatto.
(iii) The definition of the term "Default" shall also include (but not be
limited to) (i) any event involving any subsidiary of the Company
which had it involved the Company alone would be a Default (ii) any
event involving the Company and one or more of its subsidiaries on a
consolidated basis which had it involved the Company alone would be
a Default.
The definition of the "Significant Transaction" shall also include
(but not limited to) (i) any transaction involving any subsidiary of
the Company which had it involved the Company alone would be a
Significant Transaction and (ii) any transaction involving the
Company and one or more of its subsidiaries on a consolidated basis
which had it involved the Company alone would be a "Significant
Transaction".
(iv) Amend subpart (A) of the definition of "Significant Transaction" to
add at the end thereof as follows: "or with respect to
Transportation or any of its subsidiaries, conducting any business
other than the Transportation Business".
(v) Amend subpart (F) of the definition of "Significant Transaction" to
add at the end thereof as follows: "or any amendment to or
modification of any provision of the Certificate of Incorporation or
By-Laws of Transportation".
(vi) Amend subpart (I) of the definition "Significant Transaction" to
read in its entirety as follows: "any amendment or modification of
any Employment Agreement or any Transportation Employment Agreement,
or entry into any other agreement of employment or consulting with
any person now covered by any Employment Agreement or Transportation
Employment Agreement".
B. Section 1.02 is amended to add a new subsection (e) as follows:
(e) The Consenting Shareholders agree to use their best efforts to
cause the composition of the Transportation Board and the Boards of
all other subsidiaries to be comprised at all times as provided
herein and to cause all
<PAGE>
3
actions required to be taken by Transportation or its Board and each
other subsidiary and its Board under this Agreement to be taken as
promptly as possible.
C. A new subsection 2.01(h) is added as follows:
(h) Election of Subsidiary Directors. Busco shall be entitled to
designate 40% of the Board of each subsidiary of the Company (other than
Transportation which is dealt with in Section 2.07) for so long as Busco
is entitled to designate two or more directors of the Company.
D. A new Section 2.07 is added as follows:
SECTION 2.07(a). Composition of the Transportation Board of Directors. (a)
General The Transportation Board shall initially consist of seven
directors, of which, (i) Busco shall have the right to designate two
individuals to serve as directors and the Gatto Group shall have the right
to designate 4 individuals to serve as directors. The seventh director
shall be a designee of Jefferies & Co., Inc. for an initial term of 1 year
and thereafter an individual agreed upon by both the Gatto Group and Busco
that shall not be in the employ of either Busco or any affiliate or the
Gatto Group or any affiliate. In no event shall the Transportation Board
be composed of fewer than six directors. Except as otherwise provided in
this Section 2.07, the ratio of directors designated by Busco to those
designated by the Gatto Group shall be maintained as set forth in this
Section 2.07(a) should the Transportation Board be increased in number.
(b) Event of Default. From and after a Default the Transportation
Board shall be increased in number so that Busco designated directors
shall be one more in number than the total of all other directors. In the
event that the Default is cured in a way that results in the retirement of
additional Busco directors under ss. 2.01(c), the directors added by Busco
to the Transportation Board as a result of the Default shall be retired
and the Board shall thereafter be composed as provided in ss. 2.07(a).
(c) Transportation Transactions During Default Period. Any loan
transaction, sale of equity or an investment convertible into equity
during the period in which the Busco designees control the Transportation
Board, shall be based upon an independent appraisal conducted by an
appraiser (selected from Schedule A hereto) mutually acceptable to the
Gatto Group and Busco. If they are unable to agree, the appraiser shall be
selected by lot. The Gatto Group shall have a right of first refusal to
purchase such position or fund such loan or to secure a third party to
purchase such position or fund such loan provided that Busco shall have
the right, superior to any such third party, to purchase the position if
it agrees to abide by the same terms and conditions relating to control of
Transportation as provided in the third party offer.
<PAGE>
4
In the event the Gatto Group shall purchase the position, fund such loan
or arrange third party financing for such loan or position, control of the
Board shall be as provided in such arrangement.
(d) Public Offering. In the event Transportation shall consummate a
Public Offering, Busco and the Gatto Group agree that until Busco has
disposed of 75% of its shares of Preferred Stock, representatives on the
Transportation Board (excluding "independent directors") shall continue to
be 33 1/3% Busco designees and 66 1/2% Gatto Group designees. After
Default Busco shall be entitled to 66 % of the non-independent directors
and the Gatto Group 33 1/3%. Independent directors shall be nominated
jointly by Busco and the Gatto Group. There shall be no change in the
directors of Transportation based upon any Public Offering of its shares.
E. A new Section 2.09 shall be added as follows:
SECTION 2.09 Action by the Transportation Board of Directors. The
Transportation Board shall follow the rules and procedures specified in
the Agreement for action by the Company Board (including but not limited
to those specified in Section 2.03) except that as to votes on Significant
Transactions the prior approval of 76% of the Transportation directors
shall be required.
F. SECTION 3.04 is amended so that in its entirety it shall be as follows:
SECTION 3.04. Redemption (a) Busco shall have the right, upon six months'
prior written notice, to require the redemption of any shares of
unconverted Preferred Stock. Such right shall be to put 100% of those
shares at any time after the fifth anniversary of the date of this
Agreement, but not later than the second to occur of (a) the seventh
anniversary of the date of this Agreement and (b) a date which is 12
months after the date on which the Senior Secured Notes issued by
Transportation in 1997 shall be repaid in full. Payment as to the
redemption shall, except to the extent Section 3.04(b) shall be
applicable, be made 50% on the date of the put and 50% on the first
anniversary of the date of the put. Any amount not paid to Busco as set
forth in this Section 3.04 on such put date shall be evidenced by a note
from the Company (such note to be non-interest bearing) evidencing such
indebtedness. The redemption price (valued as of the date of such
redemption) shall be the higher of (i) fair market value of the Company,
appraised as a public company if there is a reasonable basis upon which
the Company by the date of such notice requiring redemption could have
been a public company, otherwise appraised as privately held, in either
case multiplied by a fraction, the numerator of which is the number of
shares of Common Stock of the Company that Busco would have obtained had
there been a conversion of the redeemed unconverted Preferred Stock on the
put date (such numerator being hereinafter referred to as "the Common
Stock Equivalent") and the denominator of
<PAGE>
5
which is the total number of shares of Common Stock of the Company that
there would have been had there been such conversion; (ii) if the Common
Stock is then publicly traded, valued at market multiplied by the number
of shares constituting the Common Stock Equivalent, or (iii) liquidation
preference value multiplied by the number of shares constituting the
Common Stock Equivalent.
(b) At the option of the Company, the redemption right, if exercised
by Busco shall provide for payment for the redeemed shares in three annual
installments commencing on the date of the put and on the first and second
anniversary of such date, provided that the redemption price shall be
computed as set forth in subsection (a) and then increased at a per annum
rate consistent with an equity return appropriate in these circumstances
as to all funds not received by a date that is one year after the date of
the put ("the One Year Date"), but not to exceed a return of 27.5%
annually for payments after the One Year Date.
(c) Valuation of the Company shall be determined by an appraiser
selected by the Company and Busco from the list of appraisers in Schedule
A attached hereto. In the event the Company and Busco cannot agree upon a
single appraiser they shall each select an appraiser from the annexed list
and the average valuation of such appraisers shall be utilized. The Gatto
Group and Busco shall share equally the expense of the appraisal.
(d) In the event the Company is legally precluded from redeeming the
shares of Voting Securities held by Busco as a result of insufficient
surplus:
(i) The Company shall reduce the compensation package of the
Gatto Group by $250,000 annually; and
(ii) Busco's shares shall be redeemed at the rate of 60% of
the Company's cash flow, but not to exceed, on a
cumulative basis, the amount payable under subsection
(b).
(e) The Company shall notify Busco in writing within 120 days after
receipt of notice from Busco pursuant to subsection (a) either that it is,
or is not able to complete the redemption in accordance with this
Agreement. If the Company notifies Busco that it is unable to complete the
redemption or fails to respond as required or in a timely fashion, then
the provisions of subsection (g) shall immediately be applicable. If the
Company fails to redeem shares as required by subsection (a) hereunder,
regardless of the reason therefor, Busco shall retain all of its rights as
a shareholder hereunder and no exercise of its rights hereunder after such
failure shall be deemed to waive or diminish any claim that it may have
against the
<PAGE>
6
Company arising out of such failure. However, no such failure shall
constitute a "Default" within the meaning of this Agreement.
(f) Should the Company issue a note upon a redemption in full of the
Busco shares under this Section 3.04, this Agreement shall terminate and
shall have no future effect except as specifically provided in this
subsection (t). Any such note issued under this Section 3.04 shall provide
that upon any failure to make a payment of interest or principal when due
Busco shall be entitled to appoint such number of directors of both the
Company and Transportation as will permit it to appoint a majority of each
such Board until such time as it has been paid the full amount of the
principal and interest payable under such note. In addition, the Company
and the Shareholders of the Company at the time of the issuance of such
note shall agree with Busco in writing that if there is any failure to
make a payment of principal or interest under such note when due they will
observe subsection (g) of this Agreement as if it continued to be fully
effective (although Busco is no longer a Shareholder) as an agreement
between them.
(g) If the Company (i) fails to redeem the shares of Voting
Securities held by Busco in accordance with subsection (a) for any reason
or (ii) fails to respond in a timely fashion to a notice given under
subsection (a) hereof by stating that "the Company is able to complete the
redemption in accordance with this Agreement", then, and in either such
event, each Consenting Shareholder hereby agrees as follows: at all times
thereafter until all such shares are redeemed (or converted as required by
the Company under Section 1.02(d) of this Agreement) (i) to vote all
shares of Voting Securities owned by such Consenting Stockholder in favor
of and (ii) to use its best efforts to cause directors designated by it in
accordance with Article II to vote in favor of:
(I) any proposal by Wafra (except a proposal that is not fair
to the stockholders overall) to issue securities of the
Company or any subsidiary to the public or in a private
placement designed to facilitate the sale or redemption in
whole or part of Voting Securities then held by Busco, and
(II) any proposal by Wafra (except a proposal that is not fair
to the stockholders overall) to reduce, refund or defease the
1997 Transportation Note issue, or to obtain waivers
thereunder to facilitate the sale or redemption in whole or
part of the Voting Securities then held by Busco, and
In addition each member of Gatto Group and the Company agrees
to use his or its best efforts to facilitate in all reasonable
respects any such
<PAGE>
7
proposed securities issue, proposed reduction or refunding of
or waiver under the 1997 Transportation Senior Secured Note
issue.
As used in this Section 3.04 a proposal shall conclusively be
deemed fair to the stockholders overall if one of the
underwriters listed on Schedule A chosen as specified below
shall provide a written opinion to the Company at the request
of Busco that the proposal is fair to the stockholders
overall. Upon written notice from Busco to the Gatto Group
each of Busco and the Gatto Group by written notice to each
other within 10 days may (but need not) designate two of the
underwriters listed on Schedule A. If the Gatto Group so
designates any such underwriters, the underwriter chosen to
provide such opinion shall be determined by lot from among
those designated by the Gatto Group and Busco, such choice by
lot to continue until an underwriter so designated agrees to
accept the assignment.
G. SECTION 5.02 shall be amended to insert after the first sentence thereof
the following:
"From and after March 1, 1997 such fee shall be adjusted to
$229,503 to be thereafter adjusted and to be payable as
provided in the prior sentence".
H. SECTION 5.03 shall be amended to insert after the words "Company books and
records" the following words:
"(including the books and records of Transportation and each
other affiliate of the Company)".
I. This Stockholders' Agreement is hereby ratified and confirmed in all
respects except as amended by this First Amendment thereto.
J. Schedule A shall be amended to add Jefferies & Company, Inc. to the
underwriters listed thereon.
<PAGE>
8
IN WITNESS WHEREOF, the parties hereto have duly executed this First
Amendment to Agreement in their individual capacities or caused it to be duly
executed by their respective authorized signatories thereunto duly authorized as
of the day and year first above written.
ATLANTIC EXPRESS TRANSPORTATION GROUP INC.
/s/ Domenic Gatto
------------------------------------------
Name: Domenic Gatto
Title: President and Chief Executive
Officer
7 North Street
Staten Island, New York 10302
Attention: Mr. Domenic Gatto
Fax: (718) 442-5105
Telephone: (718) 442-7000
BUSCO CAPITAL INC.
/s/ John T. Shea
------------------------------------------
Name: John T. Shea
Title: AGENT
Citco Building
Wickhams Cay
P.O Box 662
Road Town,
Tortola
British Virgin Islands
with a copy to:
Wafra Investment Advisory
Group, Inc.
9 West 57th Street, 38th Floor
New York, New York 10019
attn: Mr. John Shea
Fax: (212) 753-7705
Telephone: (212) 644-5554
<PAGE>
9
--------------------------
Domenic Gatto
136 Monmouth Road
Spottswood, NJ 08864
--------------------------
Patrick Gatto
100 Sandalwood Drive
Marlboro, NJ 07746
--------------------------
Michael Gatto
4 Continental Court
Marlboro, NJ 07746
<PAGE>
10
Agreed and Accepted By
WAFRA DIRECT EQUITY GROUP
as to, but only to the extent of,
the terms of Section 5.04 hereof:
/s/ John T. Shea
- --------------------------------------
Name: John T. Shea
Title: Senior Vice President
<PAGE>
Exhibit 12
Atlantic Express Transportation Corp
Ratio of Earnings to fixed charges
<TABLE>
<CAPTION>
AETC
----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1997 3 mths 3 mths
Sept 96 Sept 97
Fixed Charges
Interest 5,880,695 1,452,440 3,496,575 3,830,386 5,728,778 8,107,567 1,492,433 3,877,872
Amortization of deferred finance charges - 25,424 85,000 133,226 191,585 451,497 30,000 259,800
Portion of rent/lease presumed interest 808,138 527,053 1,095,958 1,119,606 1,513,067 1,767,044 443,195 399,119
--------- --------- --------- --------- --------- --------- --------- ---------
Total fixed charges 6,688,833 2,004,917 4,677,533 5,083,218 7,433,430 10,326,108 1,965,628 4,536,791
--------- --------- --------- --------- --------- --------- --------- ---------
Earnings
pre tax income 1,073,331 792,585 1,947,870 1,843,444 1,904,617 (1,211,819)(4,245,891) (3,194,826)
Fixed charges per above 6,688,833 2,004,917 4,677,533 5,083,218 7,433,430 10,326,108 1,965,628 4,536,791
--------- --------- --------- --------- --------- --------- --------- ----------
Earnings before fixed charges 7,762,164 2,797,502 6,625,403 6,926,662 9,338,047 9,114,289 (2,280,263) 1,341,965
--------- --------- --------- --------- --------- --------- --------- ----------
Ratio 1.2 1.4 1.4 1.4 1.3 0.9 (1.2) 0.3
Shortfall - - - - - 1,211,619 4,245,891 3,194,826
<CAPTION>
Pro forma
1997
<S> <C>
Fixed Charges
Interest 15,412,396
Amortization of deferred finance charges 1,278,497
Portion of rent/lease presumed interest 1,656,145
----------
Total fixed charges 21,659,329
----------
Earnings
pre tax income (4,779,728)
Fixed charges per above 21,659,329
----------
Earnings before fixed charges 16,879,601
----------
Ratio 0.8
Shortfall 4,779,728
</TABLE>
<PAGE>
Exhibit 21
NAME
Amboy Bus Co., Inc.
Staten Island Bus, Inc.
Raybern Capital Corp.
Metropolitan Escort Service, Inc.
Merit Transportation Corp.
Temporary Transit Service, Inc.
Atlantic-Hudson, Inc.
Courtesy Bus Co., Inc.
K. Corr, Inc.
Raybern Equity Corp.
Metro Affiliates, Inc.
Midway Leasing Inc.
Brookfield Transit, Inc.
Atlantic Paratrans, Inc.
180 Jamaica Corp.
Atlantic Express Coachways, Inc.
Atlantic Express of Pennsylvania, Inc.
Atlantic Paratrans of Kentucky Inc.
Raybern Bus Service, Inc.
G.V.D. Leasing Co., Inc.
Block 7932, Inc.
Atlantic-Conn. Transit, Inc.
Atlantic Express of Missouri, Inc.
Atlantic Express of L.A. Inc.
201 West Sotello Realty, Inc.
Central New York Coach Sales & Service, Inc.
Jersey Bus Sales, Inc.
Atlantic-Chittenango Real Property Corp.
Jersey Business Land Co., Inc.
Atlantic North Casualty Company.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholder of
Atlantic Express Transportation Corp.
New York, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated September 25, 1997 relating to the
consolidated financial statements of Atlantic Express Transportation Corp.,
which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
New York, New York
December 15, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of
Central New York Sales and Service, Inc. and
Jersey Bus Sales, Inc.
We hereby consent to the use in the Prospectus of Atlantic Express
Transportation Corp. constituting a part of this Registration Statement of
our report dated June 13, 1997 relating to the combined financial statements
of Central New York Sales and Service, Inc. and Jersey Bus Sales, Inc.,
which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
New York, New York
December 15, 1997
<PAGE>
==============================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
- -------------------------------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
- -------------------------------------------------
ATLANTIC EXPRESS TRANSPORTATION CORP.
(Exact name of obligor as specified in its charter)
New York 13-3924567
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
______________________
Table of Additional Registrants
Amboy Bus Co., Inc. New York 11-2501369
Staten Island Bus, Inc. New York 13-2616818
Raybern Capital Corp. New York 11-2556990
Metropolitan Escort
Service, Inc. New York 13-3129197
Merit Transportation Corp. New York 13-3768298
Temporary Transit Service, Inc. New York 13-3240973
Atlantic-Hudson, Inc. New York 13-3625121
Courtesy Bus Co., Inc. New York 13-2975239
K. Corr, Inc. New York 11-2574233
Raybern Equity Corp. New York 11-2543830
Metro Affiliates, Inc. New York 13-3330142
<PAGE>
Midway Leasing Inc. New York 13-3137793
Brookfield Transit, Inc. New York 13-3768247
Atlantic Paratrans, Inc. New York 13-3563789
180 Jamaica Corp. New York 13-3847630
Atlantic Express
Coachways, Inc. New Jersey 22-2982867
Atlantic Express of
Pennsylvania, Inc. Delaware 52-1820389
Atlantic Paratrans of
Kentucky Inc. Kentucky 13-3852086
Raybern Bus Service, Inc. New York 11-1739412
G.V.D. Leasing Co., Inc. New York 13-2990595
Block 7932, Inc. New York 13-3903439
Atlantic-Conn. Transit, Inc. Connecticut 13-3502325
Atlantic Express of
Missouri, Inc. Missouri 13-3823116
Atlantic Express of L.A. Inc. California 95-4631639
201 West Sotello Realty, Inc. California
Central New York Coach Sales
& Service, Inc. New York 16-1107009
Jersey Bus Sales, Inc. New Jersey 16-1333349
Atlantic-Chittenango Real
Property Corp. New York
Jersey Business Land Co., Inc. New Jersey
7 North Street
Staten Island, New York 10302-1205
(Address of principal executive offices) (Zip code)
______________________
103/4% Senior Secured Notes due 2004
(Title of the indenture securities)
==============================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the New York, 2 Rector Street,
State of New York New York, N.Y. 10006, and
Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza,
New York, N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and Rule 24 of the
Commission's Rules of Practice.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 12th day of December, 1997.
THE BANK OF NEW YORK
By: /s/ Thomas E. Tabor
----------------------------
Name: Thomas E. Tabor
Title: Assistant Treasurer
<PAGE>
Exhibit 7
- ------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business June 30, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin ................ $ 7,769,502
Interest-bearing balances .......... 1,472,524
Securities:
Held-to-maturity securities ........ 1,080,234
Available-for-sale securities ...... 3,046,199
Federal funds sold and Securities pur-
chased under agreements to resell...... 3,193,800
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ............................ 35,352,045
LESS: Allowance for loan and
lease losses ...................... 625,042
LESS: Allocated transfer risk
reserve............................ 429
Loans and leases, net of unearned
income, allowance, and reserve 34,726,574
Assets held in trading accounts ....... 1,611,096
Premises and fixed assets (including
capitalized leases) ................. 676,729
Other real estate owned ............... 22,460
Investments in unconsolidated
subsidiaries and associated
companies ........................... 209,959
Customers' liability to this bank on
acceptances outstanding ............. 1,357,731
Intangible assets ..................... 720,883
Other assets .......................... 1,627,267
-----------
Total assets .......................... $57,514,958
-----------
-----------
LIABILITIES
Deposits:
In domestic offices ................. $26,875,596
Noninterest-bearing ................. 11,213,657
Interest-bearing .................... 15,661,939
In foreign offices, Edge and
Agreement subsidiaries, and IBFs .. 16,334,270
Noninterest-bearing ................. 596,369
Interest-bearing .................... 15,737,901
<PAGE>
Federal funds purchased and Securities
sold under agreements to repurchase. 1,583,157
Demand notes issued to the U.S.
Treasury ............................. 303,000
Trading liabilities .................... 1,308,173
Other borrowed money:
With remaining maturity of one year
or less ............................ 2,383,570
With remaining maturity of more than
one year through three years............ 0
With remaining maturity of more than
three years ........................ 20,679
Bank's liability on acceptances exe-
cuted and outstanding ................ 1,377,244
Subordinated notes and debentures ...... 1,018,940
Other liabilities ...................... 1,732,792
-----------
Total liabilities ...................... 52,937,421
-----------
EQUITY CAPITAL
Common stock ........................... 1,135,284
Surplus ................................ 731,319
Undivided profits and capital
reserves ............................ 2,721,258
Net unrealized holding gains
(losses) on available-for-sale
securities .......................... 1,948
Cumulative foreign currency transla-
tion adjustments .................... ( 12,272)
------------
Total equity capital .................. 4,577,537
------------
Total liabilities and equity
capital ............................. $57,514,958
------------
------------
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of
Governors of the Federal Reserve System and is true to the best of my
knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of
our knowledge and belief has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System
and is true and correct.
Alan R. Griffith )
J. Carter Bacot )
Thomas A. Renyi ) Directors
- ------------------------------------------------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AT SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 6,324,597
<SECURITIES> 4,981,273
<RECEIVABLES> 38,919,980
<ALLOWANCES> 250,000
<INVENTORY> 10,324,476
<CURRENT-ASSETS> 63,586,644
<PP&E> 180,951,553
<DEPRECIATION> 81,805,512
<TOTAL-ASSETS> 204,101,768
<CURRENT-LIABILITIES> 15,834,060
<BONDS> 158,565,331
0
0
<COMMON> 250,000
<OTHER-SE> 25,678,705
<TOTAL-LIABILITY-AND-EQUITY> 204,101,768
<SALES> 27,506,696
<TOTAL-REVENUES> 59,153,376
<CGS> 23,889,013
<TOTAL-COSTS> 58,318,684
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,137,672
<INCOME-PRETAX> (3,302,980)
<INCOME-TAX> (1,341,827)
<INCOME-CONTINUING> (3,194,826)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,852,999)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
10 3/4% SENIOR SECURED NOTES DUE 2004
FOR ANY AND ALL OUTSTANDING
10 3/4% SENIOR SECURED NOTES DUE 2004 OF
ATLANTIC EXPRESS TRANSPORTATION CORP.
PURSUANT TO THE PROSPECTUS DATED , 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME ON , 1998, UNLESS EXTENDED. TENDERS MAY BE WITHDRAWN AT ANY TIME
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
BY REGISTERED OR CERTIFIED FACSIMILE TRANSMISSIONS: BY HAND OR OVERNIGHT DELIVERY:
MAIL: (Eligible Institutions Only) The Bank of New York
The Bank of New York (212) 571-3080 101 Barclay Street
101 Barclay Street, 7E Corporate Trust Services Window
New York, New York 10286 TO CONFIRM BY TELEPHONE Ground Level
Attention: Reorganization OR FOR INFORMATION CALL: Attention: Reorganization Section --
Section (212) 815-5920 Floor 7E
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received the Prospectus,
dated , 1998 (the "Prospectus"), of Atlantic Express Transportation
Corp, a New York corporation (the "Company"), and this Letter of Transmittal,
which together constitute the Company's offer (the "Exchange Offer") to exchange
its outstanding 10 3/4% Senior Secured Notes due 2004 (the "Old Notes"), of
which $150,000,000 aggregate principal amount is outstanding as of the date
hereof, for an equal aggregate principal amount of newly issued 10 3/4% Senior
Secured Notes due 2004 (the "New Notes"). The form and terms of the New Notes
will be the same as those of the Old Notes except that the New Notes will have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), and consequently will not be subject to certain transfer restrictions,
registration rights and related liquidated damages provisions applicable to the
Old Notes.
<PAGE>
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Notes (the
"Holders") either if Old Notes are to be forwarded herewith or if tenders of Old
Notes are to be made by book-entry transfer to an account maintained by The Bank
of New York (the "Exchange Agent") at The Depository Trust Company (the
"Book-Entry Transfer Facility" or "DTC") pursuant to the procedures set forth in
"The Exchange Offer -- Procedures for Tendering Old Notes" in the Prospectus.
If a registered Holder of Old Notes desires to tender such Old Notes and the
Old Notes are not immediately available, or time will not permit such Holder's
Old Notes or other required documents to reach the Exchange Agent before the
Expiration Date, or the procedure for book-entry transfer cannot be completed on
a timely basis, Holders must tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange Offer -- Procedures for Tendering
Old Notes" in the Prospectus.
DELIVERY OF DOCUMENTS TO THE DEPOSITORY OR THE COMPANY DOES NOT CONSTITUTE
DELIVERY TO THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
The undersigned has completed the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
<PAGE>
<TABLE>
<S> <C> <C> <C>
DESCRIPTION OF OLD NOTES 1 2 3
Aggregate
Liquidation Liquidation
Name(s) and Address(es) of Registered Holder(s): Certificate Amount of Amount of
(Please fill in, if blank) Number* Old Notes Old Notes
Tendered**
Total
* Need not be completed if Old Notes are being tendered by book-entry holders.
** Old Notes tendered hereby must be in denominations of principal amount of $1,000 and any
integral multiple thereof. See Instruction 4. Unless otherwise indicated in the column, a
holder will be deemed to have tendered all Old Notes represented by the Old Notes indicated
in Column 2. See Instruction 4.
</TABLE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
<TABLE>
<S> <C>
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE
ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution
Account Number
Transaction Code Number
/ / CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED OLD
NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT
TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)
</TABLE>
<PAGE>
Window Ticket Number (if any) _______________________________________________
Date of Execution of Notice of Guaranteed Delivery __________________________
Name of Institution which Guaranteed Delivery _______________________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution _______________________________________________
Account Number ______________________________________________________________
Transaction Code Number _____________________________________________________
/ / CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY ACCOUNT
NUMBER SET FORTH ABOVE.
/ / CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: __________________________________________________________________________
Address: _______________________________________________________________________
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company, the above described aggregate
principal amount of Old Notes in exchange for a like principal aggregate amount
of New Notes which have been registered under the Securities Act upon the terms
and subject to the conditions set forth in the prospectus dated ,
1998 (as the same may be amended or supplemented from time to time, the
"Prospectus"), receipt of which is acknowledged, and in this Letter of
Transmittal (which, together with the Prospectus, constitute the "Exchange
Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with the
Exchange Offer) with respect to the tendered Old Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Old Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the New Notes to be issued in exchange for such Old
Notes; (ii) present Certificates for such Old Notes for transfer, and to
transfer the Old Notes on the books of the Company; and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms and
conditions of the Exchange Offer.
<PAGE>
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL
POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD NOTES
TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE COMPANY
WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF
ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD NOTES
TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY,
AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION
RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE
EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old Notes
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Old Notes. The
Certificate number(s) and the Old Notes that the undersigned wishes to tender
should be indicated in the appropriate boxes above.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if Certificates are submitted for more Old Notes than are
tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Notes will be returned (or, in the case of Old Notes tendered by
book-entry transfer, such Old Notes will be credited to an account maintained at
the Depositary Trust Company (the "Book-Entry Transfer Facility"), without
expense to the tendering holder, promptly following the expiration or
termination of the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to any one of
the procedures described in "The Exchange Offer -- Procedures for Tendering Old
Notes" in the Prospectus and in the instruction, attached hereto will, upon the
Company's acceptance for exchange of such tendered Old Notes, constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer. The undersigned recognizes
that, under certain circumstances set forth in the Prospectus, the Company may
not be required to accept for exchange any of the Old Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the New Notes be issued
in the name(s) of the undersigned or, in the case of a book-entry transfer of
Old Notes, that such New Notes be credited to the account indicated above
maintained at the Book-Entry Transfer Facility. If applicable, substitute
Certificates representing Old Notes not exchanged or not accepted for exchange
will be issued to the undersigned or, in the case of a book-entry transfer of
Old Notes, will be credited to the account indicated above maintained at the
Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
"Special Delivery Instructions," please deliver New Notes to the undersigned at
the address shown below the undersigned's signature.
BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE NEW NOTES ARE BEING
ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS WHETHER OR NOT THE UNDERSIGNED
IS THE HOLDER OF THE OLD NOTES; (II) NEITHER THE UNDERSIGNED NOR ANY SUCH OTHER
PERSON RECEIVING SUCH NEW NOTES HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY
PERSON TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES
ACT) OF THE NEW NOTES TO BE RECEIVED IN THE EXCHANGE OFFER; (III) IF THE
UNDERSIGNED IS NOT A BROKER-DEALER, OR IS A BROKER-DEALER BUT WILL NOT RECEIVE
NEW NOTES FOR ITS OWN ACCOUNT IN EXCHANGE FOR NEW NOTES, NEITHER THE UNDERSIGNED
NOR ANY SUCH OTHER PERSON IS ENGAGED IN, OR INTENDS TO ENGAGE IN, A DISTRIBUTION
(WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH NEW NOTES; AND (IV) NEITHER
THE UNDERSIGNED NOR ANY SUCH OTHER PERSON IS AN "AFFILIATE," AS DEFINED UNDER
<PAGE>
RULE 405 OF THE SECURITIES ACT, OF THE COMPANY. BY TENDERING OLD NOTES PURSUANT
TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL, A HOLDER OF OLD
NOTES WHICH IS A BROKER-DEALER THAT WILL RECEIVE NEW NOTES FOR ITS OWN ACCOUNT
IN EXCHANGE FOR OLD NOTES THAT WERE ACQUIRED AS A RESULT OF MARKET-MAKING
ACTIVITIES OR OTHER TRADING ACTIVITIES REPRESENTS AND AGREES, CONSISTENT WITH
CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION
FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT (A)
SUCH OLD NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH
OLD NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF
MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE
PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE
REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH NEW
NOTES (PROVIDED 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).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME
TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) IN
CONNECTION WITH THE RESALE OF NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES,
WHERE SUCH OLD NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES
AND 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
PARTICIPATING BROKER-DEALER FOR USE IN CONNECTION WITH ANY SUCH RESALE. IN THAT
REGARD, EACH BROKER-DEALER WHO ACQUIRED OLD NOTES FOR ITS OWN ACCOUNT AS A
RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING
BROKER-DEALER"), BY TENDERING SUCH OLD NOTES AND EXECUTING THIS LETTER OF
TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE
OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT
CONTAINED IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE
PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE
STATEMENTS CONTAINED THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY
WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED
IN THE REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL
SUSPEND THE SALE OF NEW NOTES PURSUANT TO THE PROSPECTUS UNTIL THE COMPANY HAS
AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION
AND HAS FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE
PARTICIPATING BROKER-DEALER OR THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE
NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE. IF THE COMPANY GIVES SUCH NOTICE
TO SUSPEND THE SALE OF THE NEW NOTES, IT SHALL EXTEND THE 180-DAY PERIOD
REFERRED TO ABOVE DURING WHICH PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE
THE PROSPECTUS IN CONNECTION WITH THE RESALE OF NEW NOTES BY THE NUMBER OF DAYS
DURING THE PERIOD FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO
AND INCLUDING THE DATE WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED
COPIES OF THE SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF
THE NEW NOTES OR TO AND INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN NOTICE
THAT THE SALE OF NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE.
Interest accrues on the Notes at the rate of 10 3/4% per annum and will be
payable in cash semi-annually in arrears on each February 1 and August 1,
commencing on August 1, 1997. No interest will be
<PAGE>
payable on the Old Notes on the date of the exchange for the New Notes and
therefore no interest will be paid thereon to the Holders at such time.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
herein conferred or agreed to be conferred in this Letter of Transmittal shall
survive the death or incapacity of the undersigned and any obligation of the
undersigned hereunder shall be binding upon the heirs, executors,
administrators, personal representatives, trustees in bankruptcy, legal
representatives, successors and assigns of the undersigned. Except as stated in
the Prospectus, this tender is irrevocable.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX.
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE )
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Old Notes hereby tendered or on the register of holders
maintained by the Book-Entry Transfer Facility, or by any person(s) authorized
to become the registered holder(s) by endorsements and documents transmitted
herewith (including such opinions of counsel, certifications and other
information as may be required by the Company for the Old Notes to comply with
the restrictions on transfer applicable to the Old Notes). If signature is by an
attorney-in-fact, executor, administrator, trustee, guardian, officer of a
corporation or another acting in a fiduciary capacity or representative
capacity, please set forth the signer's full title. See Instruction 5.
<PAGE>
(SIGNATURE(S) OF HOLDERS(S))
Date:
- -----------, 199
- -
Names(s)
- --------------------------------------------------------------------------------
-------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
- --------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
- ------------------------------------------------------------
- --------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
Date:
- -----------, 199
- -
Name of Firm
- ------------------------------------------------------------------------------
Capacity (full title)
- --------------------------------------------------------------------
(PLEASE PRINT)
Address
- --------------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
- ------------------------------------------------------------
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the new Notes or Old Notes not tendered are to be
issued in the name of someone other than the registered holder of the Old Notes
whose name(s) appear(s) above or if Old Notes delivered by book-entry transfer
which are not accepted for exchange are to be returned by credit to an account
maintained at the Book-Entry Transfer Facility other than the account indicated
above.
<TABLE>
<CAPTION>
Issue
<S> <C>
/ / Old Notes not tendered to:
/ / New Notes, to:
</TABLE>
Name(s) ________________________________________________________________________
Address ________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and
Telephone Number _______________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
/ / Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below.
________________________________________________________________________________
(Book-Entry Transfer Facility
Account Number, is applicable)
SPECIAL DELIVERY INSTRUCTION
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if New Notes or Old Notes not tendered are to be sent
to someone other than the registered holder of the Old Notes whose name(s)
appear(s) above, or such registered holder(s) at an address other than that
shown above.
<TABLE>
<CAPTION>
Mail
<S> <C>
/ / Old Notes not tendered to:
/ / New Notes, to:
</TABLE>
Name(s) ________________________________________________________________________
Address ________________________________________________________________________
________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and
Telephone Number _______________________________________________________________
________________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer -- Book-Entry Transfer" in the Prospectus. Certificates, or Book-Entry
Confirmation, as well as this Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
and any other documents required by this Letter of Transmittal, must be received
by the Exchange Agent at its address set forth herein on or prior to the
Expiration Date. Old Notes tendered hereby must be in denominations of principal
amount of $1,000 and any integral multiple thereof.
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, this Letter
of Transmittal and all other required documents to the Exchange Agent on or
prior to the Expiration Date; or (iii) who cannot complete the procedures for
delivery by book-entry transfer on a timely basis, may tender their Old Notes by
properly completing and duly executing a Notice of Guaranteed Delivery pursuant
to the guaranteed delivery procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures" in the Prospectus. Pursuant to such procedures:
a tender may be effected if (i) the tender is made through an Eligible
Institution; (ii) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Letter of
Transmittal (of a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address of the
Holder of Old Notes and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within five New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates of all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
any other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent; and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal, are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery, all as
provided in "The Exchange Offer -- Guaranteed Delivery Procedures" in the
Prospectus.
For Old Notes to be properly tendered pursuant to the guaranteed delivery
procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery on or
prior to the Expiration Date. As used herein and in the Prospectus, "Eligible
Institution" means a firm or other entity identified in Rule 17Ad-15 under the
Exchange Act as "an eligible guarantor institution," including (as such terms
are defined therein) (i) a bank; (ii) a broker, dealer, municipal securities
broker or dealer or government securities broker or dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association.
THE METHOD OF DELIVERY OF OLD NOTES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDER.
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT.
IF DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
<PAGE>
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant in DTC
whose name appears on the register of holders maintained by the Book-Entry
Transfer Facility the owner of the Old Notes) of Old Notes tendered
herewith, unless such holder(s) has completed either the box entitled
"Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" above, or
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned "Description
of Old Notes" is inadequate, the Certificate number(s) and/or the principal
amount of Old Notes and any other required information should be listed on a
separate signed schedule which is attached to this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. If less than all of the Old Notes
evidenced by a submitted certificate are to be tendered, the tendering holder(s)
should fill in the aggregate principal amount of Old Notes to be tendered in the
box above entitled "Description of Old Notes -- Principal Amount Tendered."
Holders whose Old Notes are not tendered or are tendered but not accepted in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights and preferences and subject to the limitations applicable thereto
under the Indenture. Following consummation of the Exchange Offer, the Holders
will continue to be subject to the existing restrictions upon transfer thereof
and the Company will have no further obligation to such Holders to provide for
the registration under the Securities Act of the Old Notes held by them. ALL OF
THE OLD NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN
TENDERED UNLESS OTHERWISE INDICATED.
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date. For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth above or in the
Prospectus under "The Exchange Offer -- Exchange Agent." Any such notice of
withdrawal must specify the name of the person having tendered the Old Notes to
be withdrawn, identify the Old Notes to be withdrawn (including the principal
amount of such Old Notes), and (where certificates for Old Notes have been
transmitted) specify the name in which such Old Notes are registered, if
different from that of the withdrawing Holder. If certificates for Old Notes
have been delivered or otherwise identified to the Exchange Agent, then, prior
to the release of such certificates, the withdrawing Holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such Holder is an Eligible Institution. If Old Notes have been tendered
pursuant to the procedure for book-entry transfer described above or in the
Prospectus under "The Exchange Offer -- Book-Entry Transfer," any note of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Old Notes and otherwise
comply with the procedures of such facility. All questions as to the validity,
form and eligibility (including time of receipt) of such 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 exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the Holder thereof without cost to such Holder (or, in the case
of Old Notes tendered by book-entry transfer procedures described above or in
the Prospectus under "The Exchange Offer -- Book-Entry Transfer," such Old Notes
will be credited to an account maintained with such Book-Entry Transfer Facility
for the Old Notes) 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 under "The Exchange
Offer -- Procedures for Tendering Old Notes" in the Prospectus at any time on or
prior to the Expiration Date.
<PAGE>
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and must submit proper evidence
satisfactory to the Company, in its sole discretion, of each such person's
authority so to act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or
separate bond power(s) are required unless New Notes are to be issued in the
name of a person other than the registered holder(s). Signature(s) on such
Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Notes listed, the Certificates must be endorsed
or accompanied by appropriate bond powers, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information as
the Company, or the Trustee for the Old Notes may require in accordance with the
restrictions on transfer applicable to the Old Notes. Signatures on such
Certificates or bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are to be issued
in the name of a person other than the signer of this Letter of Transmittal, or
if New Notes are to be sent to someone other than the signer of this Letter of
Transmittal or to an address other than that shown above, the appropriate boxes
on this Letter of Transmittal should be completed. Certificates for Old Notes
not exchanged will be returned by mail or, if tendered by book-entry transfer,
by crediting the account indicated above maintained at the Book-Entry Facility.
See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes, which
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders determined by either of them
not to be in proper form or the acceptance of which, or exchange for which, may,
in the view of counsel to the Company, be unlawful. The Company also reserves
the absolute right, subject to applicable law, to waive any of the conditions of
the Exchange Offer set forth in the Prospectus under "The Exchange Offer --
Certain Conditions to the Exchange Offer" or any conditions or irregularity in
any tender of Old Notes of any particular holder whether or not similar
conditions or irregularities are waived in the case of other holders. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including this Letter of Transmittal and the instructions hereto) will be final
and binding. No tender of Old Notes will be deemed to have been validly made
until all irregularities with respect to such tender have been cured or waived.
The Company, any affiliates or assigns of the Company, the Exchange Agent, or
any other person shall not be under any duty to give notification of any
irregularities in tenders or incur any liability for failure to give such
notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
<PAGE>
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. federal income
tax law, a holder whose tendered Old Notes are accepted for exchange is required
to provide the Exchange Agent with such holder's correct taxpayer identification
number ("TIN") on Substitute From W-9 below. If the Exchange Agent is not
provided with the correct TIN, the Internal Revenue Service (the "IRS") may
subject the holder or other payee to a $50 penalty. In addition, payments to
such holders or other payees with respect to Old Notes exchanged pursuant to the
Exchange Offer may be subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the tendering
holder has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future. If the box in Part 2 is checked, the holder or
other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60 day period
will be remitted to the holder and no further amounts shall be retained or
withheld from payments made to the holder thereafter. If, however, the holder
has not provided the Exchange Agent with its TIN within such 60 day period,
amounts withheld will be remitted to the IRS as backup withholding. In addition,
31% of all payments made thereafter will be withheld and remitted to the IRS
until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Old Notes or of the last transferee appearing on the transfers attached to,
or endorsed on, the Old Notes. If the Old Notes are registered in more than one
name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. federal income tax. Rather, the
U.S. federal income tax liability of a person subject to backup withholding will
be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
11. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Old Notes, by
execution of this Letter of Transmittal, shall waive any right to receive notice
of the acceptance of their Old Notes for exchanges.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Notes have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to the
steps that must be taken in order to replace the Certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, destroyed or stolen Certificate(s) have been followed.
<PAGE>
13. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for exchange
will not be obligated to pay any transfer taxes in connection therewith. If,
however, New Notes are to be delivered to, or are to be issued in the name of,
any person other than the registered holder of the Old Notes tendered, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes in
connection with the Exchange Offer, then the amount of any such transfer tax
(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 directly to such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 9)
<TABLE>
<CAPTION>
PAYER'S NAME: THE BANK OF NEW YORK
<S> <C> <C>
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN TIN ------------------------
FORM W-9 ON THE LINE AT RIGHT AND Social Security Number or
CERTIFY BY SIGNING AND DATING Employer Identification Number
BELOW.
PART 2-- TIN APPLIED FOR / /
DEPARTMENT OF THE CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
TREASURY (1) the number shown on this form is my correct taxpayer
INTERNAL REVENUE identification number (or I am waiting for a number to be issued
SERVICE to me).
PAYER'S REQUEST FOR
TAXPAYER
IDENTIFICATION NUMBER
(TIN)
AND CERTIFICATION
(2) I am not subject to backup withholding either because (i) I
am exempt from backup withholding, (ii) I have not been notified
by the Internal Revenue Service (the "IRS") that I am
subject to backup withholding as a result of a failure to
report all interest or dividends, or (iii) the IRS has
notified me that I am no longer subject to backup
withholding, and
(3) any other information provided on this form is true and
correct.
SIGNATURE DATE, 1997
You must cross out item (iii) in Part (2) above if you have been notified by the IRS that
you are subject to backup withholding because of underreporting interest or dividends on
your tax return and you have not been notified by the IRS that you are no longer subject
to backup withholding.
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE EXCHANGE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
</TABLE>
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF
SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future.I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments made to me on account of the Exchange Capital Securities shall be
retained until I provide a taxpayer identification number to the Exchange Agent
and that, if I do not provide my taxpayer identification number within 60 days,
such retained amounts shall be remitted to the Internal Revenue Service as
backup withholding and 31% of all reportable payments made to me thereafter will
be withheld and remitted to the Internal Revenue Service until I provide a
taxpayer identification number.
Signature___________________________________________________ Date , 1997
