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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
COMMISSION FILE NUMBER: 0-24247
--------------------------
ATLANTIC EXPRESS TRANSPORTATION CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 13-392-3467
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation or Number)
organization
7 NORTH STREET,
STATEN ISLAND, NEW YORK 10302-1205
(Address of principal (Zip Code)
executive offices)
(718) 442-7000
Registrant's telephone number, including area
code
Securities Registered Pursuant to Section 12(b)
of the Act: None
Securities Registered Pursuant to Section 12(g)
of the Act: None
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--------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent files pursuant to Item
405 of Regulation S-K is not contained here-in, and will not be contained, to
the best of registrant'(1)s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ______ No ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant'(1)s
classes of common stock, as of the latest practicable date.
As of September 30, 1998, 100 shares of Common Stock, no par value, were
outstanding; all of which were held by an affiliate.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I.
ITEM 1. BUSINESS
GENERAL
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.
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 and mentally
challenged passengers (the "Paratransit Division"), transportation for
pre-kindergarten children and Medicaid recipients (the "Pre-K/Medicaid
Division"), express commuter line and charter and tour bus services (the "Coach
Division") (collectively the "Transportation Operations") and sells school buses
and commercial vehicles (the "Bus Sales Operations"). Atlantic has a fleet of
approximately 3,900 vehicles operating from 32 facilities.
Atlantic is a wholly owned subsidiary of AETG. AETG has contributed to the
Company all of the issued and outstanding stock of the subsidiaries of AETG,
other than those subsidiaries that are engaged in AETG's entertainment business.
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 $27.2 million of revenues in fiscal 1998. 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 $28.3 million in fiscal 1998. 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 1997, the Company consummated six additional
acquisitions in the New York metropolitan area and three acquisitions on Long
Island, New York, which generated approximately $29.1 million of revenues in
fiscal 1998. In addition to the Company's expansion in the New York greater
metropolitan area, the Company extended its operations to Philadelphia in 1993,
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 $8.9 million of revenues in fiscal 1998.
Continuing its strategy of expanding its operations outside New York City, the
Company established operations in St. Louis (in 1995 and 1996) and in Los
Angeles (in 1997) by winning contracts, which contributed $18.6 and $7.6 million
of revenues, respectively in fiscal 1998.
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RECENT TRANSACTIONS
CERTAIN OF THE RECENT TRANSACTIONS DISCUSSED BELOW OCCURRED AFTER JUNE 30,
1998, THE END OF THE FISCAL YEAR COVERED BY THIS FORM 10-K. NEVERTHELESS, THE
DISCUSSION HAS BEEN INCLUDED TO PROVIDE A MORE COMPLETE DESCRIPTION OF THE
BUSINESS OF THE COMPANY AS OF THE DATE OF THE FILING OF THIS FORM 10-K.
ACQUISITION OF AETG. On September 29, 1998, GSCP II Holdings (AE), LLC
("Buyer"), an affiliate of Greenwich Street Capital Partners, Inc., a New York
based private equity fund, signed a Recapitalization and Stock Purchase
Agreement (the "Recapitalization Agreement") with AETG, which owns all of the
issued and outstanding shares of capital stock of the Company, and the
shareholders of AETG, pursuant to which Buyer is to acquire an approximately
88% equity interest in a recapitalized AETG (the "Recapitalization"). The
Recapitalization Agreement is subject to a variety of conditions, including
obtaining the consent of the holders of a majority of the Company's 10 3/4%
Senior Secured Notes due 2004 (the "Notes") to an amendment to the Indenture
relating to the Notes. Such amendment would in substance exempt the
Recapitalization from the definition of "Change of Control" under the Indenture
so that the Company would not be required as a result of the Recapitalization to
offer to purchase all of the Notes then outstanding at a purchase price equal to
101% of the aggregate principal amount thereof plus accrued interest to the date
of repurchase.
No assurance can be given that the recapitalization will be completed. If
the Recapitalization takes effect as currently contemplated, AETG's authorized
capital stock will be amended to consist of a single class of common stock,
Buyer will acquire approximately 88% of the common stock of the recapitalized
AETG, and AETG will repurchase all of the shares of AETG held by Michael and
Patrick Gatto and a portion of shares held by Domenic Gatto and Wafra
Acquisition Fund 4, L.P. ("Wafra"), which would leave them with approximately 8%
and 4% of the common stock, respectively. (See Item 12-Security Ownership of
Certain Beneficial Owners and Management).
NEW SCHOOL BUS CONTRACTS. In March 1998, the Company was awarded additional
contracts for up to 74 school buses by the Los Angeles Unified School District
("LAUSD") and in April 1998, a private school in Los Angeles awarded a 4 vehicle
contract to the Company. In May 1998, Longwood Central School District in New
York awarded the Company a contract for 166 school buses and the City of
Philadelphia School District awarded the Company a contract for 32 school buses.
These contracts require capital expenditures of approximately $12.7 million
including $0.9 million for purchase of real property, $11.6 million for purchase
of vehicles and $0.2 million for real property improvements.
NEW PARATRANSIT CONTACTS. 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")
(the "SEPTA Contract"). Pursuant to the SEPTA Contract, SEPTA provided the
Company with all of the required vehicles and, as a result, the Company did not
need to make significant capital expenditures to fulfill its obligations
thereunder.
In September 1998, the Company was awarded a five-year contract to provide
paratransit services in Denver, Colorado by the Regional Transit District of
Denver ("RTD"). Pursuant to the contract, RTD will provide the Company with all
of the required vehicles and, as a result, the Company will not be required to
make significant capital expenditures to fulfill its obligations thereunder.
SALE OF ENTERTAINMENT NOTE. On October 2, 1998, the Company, after
receiving a fairness opinion issued by an investment banking firm of national
standing, entered into an agreement with Domenic Gatto, Michael Gatto and
Patrick Gatto, shareholders of AETG and executive officers of the Company, to
purchase from the Company a promissory note made by Westshore Partners
("Westshore"), Richmond Investors, Inc. ("Richmond") and Staten Entertainment
Inc. which are subsidiaries of AETG's entertainment division (the
"Entertainment Note"). The agreement provides for the sale of the Entertainment
Note at book value, plus an amount equal to one-half of the net proceeds
received from any sale of the assets of Westshore or Richmond within a period
of 12 months from the closing of such agreement (see Item 13--Certain
Relationships and Related Transactions).
TRANSPORTATION OPERATIONS
SCHOOL BUS DIVISION
The School Bus Division is Atlantic's largest division. The Company has
contracts to provide school bus transportation in 63 school districts in New
York, Missouri, California, Pennsylvania, Connecticut and
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New Jersey. The Company's revenues from school bus operations have increased at
a compound annual growth rate of 15.5%, from $90.3 million in fiscal 1994 to
$160.7 million in 1998.
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 Consumer Price
Index ("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 June 30, 1998, the
Company had provided performance bonds aggregating $24.4 million.
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 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
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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 33.3%, 46.1%, and 49.8% of the Company's revenues in fiscal 1998,
1997 and 1996, respectively. No other customer contributed greater than 7% of
the Company's revenues during these periods.
PARATRANSIT DIVISION
The Paratransit Division is the second largest and fastest growing division
of the Transportation Operations. The Paratransit Division's revenues have
increased from $3.4 million in fiscal 1994 to $30.2 million in fiscal 1998.
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.
Better known national paratransit providers include Laidlaw Transit, Inc.,
Ryder ATE, a division of Ryder Systems 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 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 or an independent third party. At June 30, 1998, the Company had
approximately 430 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.
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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 or through third parties. 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 together with other fixed charges.
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, Montgomery
County and Philadelphia 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 DIVISION
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 June 30, 1998, the
Company transported approximately 140 children each school day with
approximately 15 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 June 30, 1998, the Company utilized approximately 85 vehicles in
the performance of these contracts and received compensation based upon a daily
rate per person transported, which rates of compensation varied based upon
ambulatory and non-ambulatory passengers.
The Company generated approximately 2.3% of its revenues in fiscal 1998 from
its Pre-K/Medicaid Division.
COACH DIVISION
The Company provides express commuter, charter and tour bus transportation
services with a fleet of 34 luxury motor coaches and 14 mini coaches.
For the year ended June 30, 1998, express commuter services were provided to
approximately 650 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.
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 division generated 2.0%
of the Company's revenues in fiscal 1998.
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BUS SALES OPERATIONS
ACQUISITION OF CENTRAL. Effective July 1, 1997, the Company acquired 100%
of the common stock of Central New York Coach Sales & Service, Inc. ("Coach")
and Jersey Bus Sales, Inc. ("Jersey") and certain related real property
(together with Coach and Jersey, collectively "Central") for a total
consideration of $26.5 million less Central's long-term indebtedness as of July
1, 1997 which was $4.8 million. 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 159 school buses in New Jersey. Mr. Thomas Denney, the President and
Chief Executive Officer of Central since July 1978 will continue in such
positions with Central. The Company issued in August 1997 an additional $40.0
million aggregate principal amount of its 103/4% Senior Secured Notes due 2004
(the "Additional Notes"). The additional Notes were issued in a private
placement to fund this acquisition and to fund the Company's entrance into the
Los Angeles market.
The Company's Bus Sales Operations sells school buses and commercial
vehicles within New Jersey and various counties in New York. The Company
generated approximately 22.1% of its revenues in fiscal 1998 from this
operation.
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 June 30, 1998, the Company had a fleet of 3,924 vehicles and the average
age of the Company's fleet was 5.9 years (6.6 years for school buses, which
account for 59.9% of the Company's fleet). School buses have an average useful
life of approximately 16 years.
At June 30, 1998, the fleet was maintained by the Company's trained
mechanics at its 32 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 June 30,
1998:
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SERVICE
LIFT/RAMP AND
SCHOOL MINIVANS EQUIPPED SUPPORT
BUSES AND CARS VEHICLES COACHES VEHICLES
----------- ------------- ------------- ------------- -----------
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Owned................................................ 2,255 745 387 36 56
Leased............................................... 95 97 220 14 19
----- -- --- -- --
Total................................................ 2,350 842 607 50 75
----- --- --- -- --
----- --- --- -- --
Average age (years).................................. 6.6 4.8 4.5 5.4 6.1
----- --- --- -- --
----- --- --- -- --
<CAPTION>
TOTAL
---------
<S> <C>
Owned................................................ 3,479
Leased............................................... 445
---------
Total................................................ 3,924
---------
---------
Average age (years).................................. 5.9
---------
---------
</TABLE>
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In addition to the vehicles in the table above, the Company operates 164
vehicles provided by SEPTA pursuant to the SEPTA contract.
EMPLOYEES
At June 30, 1998, the Company had over 5,800 employees to provide
transportation services, consisting of approximately 4,100 drivers, 800 escorts,
450 mechanics and 25 other employees. In addition, there were approximately 430
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 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 June 30, 1998, approximately 79% of the Company's employees were members
of various labor unions and the Company was a party to 17 collective bargaining
agreements, seven of which, covering approximately 1,500 employees, expire over
the next three years and one of which, covering 310 employees of the Paratransit
Division, has already expired. In addition, the Company is currently negotiating
three additional collective bargaining agreements covering approximately 300
newly unionized employees of the School Bus Division. Management does not
believe that the results of the current negotiations will have a material
increase in its labor costs, although no assurance can be given as to the
outcome of negotiations. 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 June 30, 1998, approximately 38% of the Company's 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.
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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 $56
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 $4.1 million; and (iii)
statutory workers' compensation and employers' liability insurance, subject to
an aggregate annual deductible of $3.4 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 $56 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 premiums charged to operating companies, which, in turn, are limited
to the amount of the combined deductibles on the Company's automobile and
workers' compensation insurance policies (currently $7.5 million annually).
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.
ENVIRONMENTAL MATTERS
The Company's operations are subject to a broad range of 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"). 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,
8
<PAGE>
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, 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
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 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 December 1998. The Company has
adopted this program and is in the process of implementing it. The Company
estimates the remaining costs of implementing such program will not exceed
$750,000. 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 six years of the consummation of the
Central acquisition. The Company has no assurance that the sellers will perform
their indemnification obligations.
GOVERNMENT REGULATION
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
9
<PAGE>
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, left-hand 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 driver's 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 Division 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.
10
<PAGE>
ITEM 2. PROPERTIES
The Company is headquartered in Staten Island, New York. Subsidiaries of the
Company provide transportation services and sales from 32 facilities (of which
eight are owned, 22 leased and two 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 June 30, 1998.
<TABLE>
<CAPTION>
AREA FACILITY LOCATION OWNERSHIP SQUARE 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 Leased 300,250 Coach
West Shore Expressway
Staten Island
46-81 Metropolitan Ave. Owned 203,000 School Bus/Paratransit
Ridgewood Pre-K/Medicaid
107-10 180th St. Leased 221,000 School Bus
Jamaica
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
86 Alexander Street Leased 45,000 Paratransit
Yonkers
Gnarled Hollow Road Owned 128,763 School Bus
Setauket
44 N. Dunton Ave. Owned 199,657 School Bus
Medford
107 Lawson Blvd. Owned 720,000 School Bus
Oceanside
1620 New Highway Leased 161,172 School Bus
Farmingdale(1)
91 Baiting Place Road Leased 130,680 School Bus
Farmingdale
7765 Lakeport Rd. Owned 372,337 Bus-Sales
Chittenango
2926 Lakeville Road Leased 6,000 Bus-Sales
Avon
7730 Wheeler Rd. Leased 9,400 Bus-Sales
Chittenango
New Jersey 2628 Fire Road Leased 12,000 Paratransit
Egg Harbor Township
2015 Route 206 Owned 217,824 Bus-Sales
Bordentown
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AREA FACILITY LOCATION OWNERSHIP SQUARE FOOTAGE TYPE OF OPERATION
- ---------------- -------------------------------- ----------- -------------- --------------------------------
<S> <C> <C> <C> <C>
107 How Lane Leased 6,800 School Bus
New Brunswick
222-226 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
Connecticut 57 South St. Leased 78,408 School Bus
Ridgefield
Kentucky 925 West Broadway Leased 42,385 Paratransit
Louisville
Missouri 200 Sidney St. 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
3376 Chauteau St. Leased 256,000 School Bus
St. Louis
California 201 W. Sotello St. Owned/ 275,973 School Bus
Los Angeles Lease
</TABLE>
(1) These leases are occupied on a statutory month-to-month basis.
ITEM 3. LEGAL PROCEEDINGS
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 $1.0 million to the New York
Board of Education for claimed overpayments for past years. The Company does not
believe that such pending litigation will have a material adverse effect on the
Company.
The Company is a defendant with respect to various claims involving
accidents and other issues arising in the normal conduct of its business.
Management and counsel believe the ultimate resolution of these claims will not
have a material impact on the Consolidated Financial Statements of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MARKETS
The Company is a wholly owned subsidiary of AETG. There is no public trading
market for the Company's common stock.
The Company has never paid any cash dividends on its common stock.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for each of the years in the three-year period
ended June 30, 1998 were derived from the audited historical Consolidated
Financial Statements of the Company included elsewhere in this Form 10-K. The
information contained in this table should be read in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical Consolidated Financial Statements of the Company,
including the notes thereto, included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994(1) 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<CAPTION>
($IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues......................................................... $ 101.5 $ 114.0 $ 142.6 $ 166.1 $ 261.9
Income from operations........................................... 5.6 5.8 7.3 7.4 11.8
Income (loss) before extraordinary items......................... 1.9 1.5 1.4 (0.6) (7.1)
Net Income (loss)................................................ 12.3 2.6 1.4 (1.7) (7.1)
BALANCE SHEET DATA (AT END OF PERIOD)(2):
Total assets..................................................... 68.9 83.0 104.4 154.4 206.5
Long-term debt................................................... 28.9 42.3 59.7 110.5 157.9
Total stockholder's equity....................................... 25.5 28.1 29.5 27.6 20.2
</TABLE>
- ------------------------
(1) In 1994, certain subsidiaries of the Company emerged from bankruptcy. Net
income for the year ended June 30, 1994 included $10.4 million extraordinary
income pertaining to forgiveness of indebtedness.
(2) The Company paid no dividends during any of the periods in the table.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE "SELECTED
FINANCIAL DATA" AND THE HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF THE
COMPANY, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS FORM 10-K.
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 Division, express commuter line and charter and tour
bus services through the Coach Division (collectively the
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<PAGE>
"Transportation Operations") and sells school buses and commercial vehicles (the
"Bus Sales Operations"). At June 30, 1998, Atlantic had a fleet of 3,924
vehicles operating from 32 facilities.
The School Bus Division accounted for 61.3%, 81.3% and 84.4% of the
Company's revenues for each of fiscal 1998, 1997 and 1996, 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 daily price charged 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 required to fulfill the
Company's summer contracts for school and camp activities and special trips. The
Company conducts periodic maintenance and overhauls its school vehicles during
the summer months, which increases costs during a period of lower revenues.
The Paratransit Division, which accounted for 11.5%, 11.4% and 8.3% of the
Company's revenues in fiscal 1998, 1997 and 1996, respectively, is the second
largest and fastest growing division of the Transportation Operations. 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 Item 1, "Business--Paratransit Division-
Contracts."
The Company's Pre-K/Medicaid Division 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
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 2.0%, 3.4% and 3.9% of the Company's
revenues in fiscal 1998, 1997 and 1996, 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 Bus Sales Operations, which accounted for 22.5% of the Company's 1998
revenues, sells school buses and commercial vehicles primarily in New Jersey and
various counties in New York. The Bus Sales Operations were acquired effective
July 1, 1997.
14
<PAGE>
The principal elements of the Company's Transportation Operations 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% of fiscal 1998 costs of sales were variable
costs consisting of direct labor (primarily driver wages and related employment
expenses), fuel costs and maintenance costs. At June 30, 1998, approximately 79%
of the Company's employees were members of various labor unions and the Company
was party to 17 collective bargaining agreements, seven of which, covering
approximately 1,500 employees, expire over the next three years, and one of
which, covering 310 employees of the Paratransit Division, has already expired.
In addition, the Company is currently negotiating three additional collective
bargaining agreements covering approximately 300 newly unionized employees of
the School Bus Division. Management does not believe that the results of the
current negotiations will have a material increase in its labor costs, although
no assurance can be given as to the outcome of negotiations. 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.
General and administrative expenses include costs associated with the
Company's headquarters in Staten Island and terminal office and managerial
salaries. In fiscal 1998, 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.
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 CPI. Thereafter, the contracts provide that the Company will receive
increases based solely upon the applicable CPI increase.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1997 1998
-------------------- -------------------- --------------------
<CAPTION>
($IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenues........................................................ $ 142.6 100.0% $ 166.1 100.0% $ 261.9 $ 100.0%
Gross profit.................................................... 27.4 19.3 30.0 18.1 44.5 17.0
General and administrative expenses............................. 10.4 7.3 12.2 7.3 21.3 8.1
Depreciation and amortization................................... 9.7 6.8 10.4 6.3 11.4 4.3
Income from operations.......................................... 7.3 5.1 7.4 4.5 11.8 4.5
Net interest expense............................................ 5.1 3.6 8.7 5.3 17.8 6.8
Non-recurring item.............................................. -- -- -- -- 4.6 1.8
Income (loss) before extraordinary items........................ 1.4 1.0 (0.6) (0.4) (7.1) (2.7)
Net income (loss)............................................... 1.4 1.0 (1.7) (1.0) (7.1) (2.7)
</TABLE>
TWELVE MONTHS ENDED JUNE 30, 1998 COMPARED TO TWELVE MONTHS ENDED JUNE 30,
1997
REVENUES. Revenues from Transportation Operations were $203.1 million for
twelve months ended June 30, 1998 compared to $166.1 million for twelve months
ended June 30, 1997, an increase of $37.0 million or 22.3%. This increase was
due primarily to (i) $5.1 million in additional Transportation revenues as a
result of the Central acquisition; (ii) new contracts awarded to and increases
in service requirements of existing contracts in the Paratransit Division of
$11.6 million; (iii) the award of the Los Angeles
15
<PAGE>
contracts which added $7.6 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 $5.9 million of revenues; (vi) the
acquisition of a Pre-K/Medicaid business in the State of New York which added
$1.5 million of revenues; (vii) $3.8 million in contract rate increases and
other revenues. Revenues from the Bus Sales Operations were $58.8 million for
the twelve months ended June 30, 1998. These operations were included in the
Company's results of operations effective July 1, 1997.
GROSS PROFIT. Gross profit from Transportation Operations was $37.0 million
for the twelve months ended June 30, 1998 compared to $30.0 million for the
twelve months ended June 30, 1997, an increase of $6.9 million or 23.1%. This
increase was due primarily to the increase in revenues described above. As a
percentage of revenues, gross profit increased to 18.2% for the twelve months
ended June 30, 1998 from 18.1% for the twelve months ended June 30, 1997. This
increase was primarily due to a decrease in fuel and lease costs offset by a one
time $1.7 million bonus and an adjustment to insurance reserves (see Notes 11
and 13 of Notes to Consolidated Financial Statements). Gross profit from the Bus
Sales Operations was $7.6 million for the twelve months ended June 30, 1998.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses for
the Transportation Operations were $18.0 million for the twelve months ended
June 30, 1998 compared to $12.2 million for the twelve months ended June 30,
1997, an increase of $5.8 million or 47.7%. This increase was principally
related to (i) $1.9 million in administrative payroll and benefits due to
expansion to new areas; (ii) $0.9 million in administrative payroll and benefits
due to increased billings on existing contracts and Corporate infrastructure
growth; (iii) $1.1 million in other general and administrative expense due to
expansion to new areas and increased billings on existing contracts; and (iv) an
increase in the provision for doubtful accounts of $1.5 million. General and
administrative expenses for the Bus Sales Operations were $3.3 million for the
twelve months ended June 30, 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of
Transportation Operations was $10.4 million in fiscal 1998 and 1997.
Depreciation increases due to the acquisition of Central's school transportation
operations and increases in connection with the purchase of new vehicles were
offset by a reduction of $1.8 million in depreciation due to the Company
reassessing and extending the useful life of certain fixed assets (see Note 7
of Notes to Consolidated Financial Statements). Depreciation and amortization
expense of the Bus Sales Operations was $1.0 million for the fiscal year ended
June 30, 1998 (including $0.3 million amortization of Goodwill).
INCOME FROM OPERATIONS. Transportation Operations income from operations
was $8.5 million in fiscal 1998 compared to $7.4 million in fiscal 1997, an
increase of $1.2 million or 15.6%. This is increase was due primarily to
increased revenues offset by increases in general and administrative expenses.
Bus Sales Operations income from operations was $3.3 million.
NET INTEREST EXPENSE. Net interest expense was $17.8 million for the year
ended June 30, 1998 compared to $8.7 million for the year ended June 30, 1997,
an increase of $9.0 million or 103.1%. This increase was due primarily to
interest in connection with the $150 million aggregate principal amount of the
Company's 103/4% Senior Secured Notes due 2004 (including an increase of $1.0
million of amortization of deferred finance expenses in connection thereto).
NON-RECURRING ITEM. Non-recurring item was $4.6 million in fiscal year 1998
due to the write-down of a note receivable from affiliates. This indebtedness
resulted from numerous intercompany loans to the various entertainment
subsidiaries of AETG prior to the formation of the Company as a separate entity
(see Note 12 of Notes to Consolidated Financial Statements). There were no
non-recurring items in the fiscal year ended June 30, 1997.
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS. The Company generated a loss
before extraordinary items of $7.1 million in fiscal 1998 compared to a loss of
$0.6 million in fiscal 1997, an increase of $6.5 million. This
16
<PAGE>
increase was due to the following factors: non-recurring item, increases in
interest expense, general and administrative expenses, depreciation and
amortization, offset by an increase in benefit from income taxes.
NET INCOME (LOSS). The Company generated a net loss of $7.1 million for the
fiscal year ended June 30, 1998 compared to 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, an increase of $5.5 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 increase 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 EXPENSES. General and administrative expenses
were $12.2 million in fiscal 1997 compared to $10.4 million in fiscal 1996, an
increase of $1.8 million or 17.3%. This 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 (LOSS) 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.
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 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, partially offset by an
increase in gross profit and an 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.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In February 1997, the Company issued $110.0 million aggregate principal
amount of its 10 3/4% Senior Secured Notes due 2004 (the "Original Notes") in a
private placement. The sale of the Original 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. In August 1997, the Company issued an additional
$40.0 million aggregate principal amount of its 10 3/4% Secured Notes due 2004
(the "Additional Notes") in a private placement. The Company applied the net
proceeds from the sale of the Additional Notes to acquire Central and to fund
the Company's entrance to the Los Angeles market.
Capital expenditures for the fiscal year ended June 30, 1998 totaled $27.7
million including $14.3 million for the purchase of buses and a facility in
connection with Los Angeles contracts and $13.4 million capital expenditures for
additional vehicles, property and equipment. Management anticipates total
capital expenditures of approximately $22.0 million in fiscal 1999 consisting of
$14.4 million in connection with new contracts and increases in service
requirements of existing contracts and $3.8 million for replacement of vehicles,
and $2.9 million for maintenance capital expenditures and $0.6 million for
underground storage tank compliance.
The majority of these capital expenditures will be incurred in the Company's
first quarter which is its seasonal low period. The Company has negotiated an
agreement with Congress Financial Corporation ("Congress"), its revolving credit
lender, to sell Congress excess eligible receivables of up to $15.0 million
through November 30, 1998. The Company believes that this agreement, along with
its Revolving Credit Facility of $30.0 million (of which $28.5 million was
undrawn at June 30, 1998) will provide it with sufficient liquidity to conduct
its operations.
The statements regarding the Company's anticipated capital expenditures and
service requirements are "forward looking" statements which involve unknown
risks and uncertainties, such as the Company's ability to meet or exceed its
growth plans and/or available financing, which may cause actual capital
expenditures to differ materially from currently anticipated amounts.
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES. Net cash provided by
operating activities of $16.6 million for fiscal 1998 resulted primarily from an
increase in source of funds for working capital of $2.4 million, plus non-cash
items of $19.7 million ($12.8 million of depreciation and amortization, $4.6
million write-down of note receivable from affiliates and $2.2 million provision
for and write-off of doubtful accounts receivable), a $1.8 million increase in
other sources of funds and $2.3 million transferred from restricted cash offset
by a net loss of $7.1 million and $2.5 million increase in deferred income
taxes. 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 (USED IN) INVESTING ACTIVITIES. In July 1997, the
Company acquired Central for $21.3 million (net of $0.2 million cash acquired)
which was funded from the proceeds of the Additional Notes and issued $2.2
million in mortgage notes relating to certain real property. For the fiscal year
ended June 30, 1998 the Company made $27.7 million of capital expenditures to
acquire additional vehicles, property 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
Notes. In addition, the Company made a net investment of $1.8 million in
marketable securities, which securities are held by Atlantic North. 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 addition, the Company
purchased $5.0 million of marketable securities, which securities are held by
Atlantic North.
18
<PAGE>
In March 1998, the Company was awarded additional contracts in Los Angeles
for up to 78 buses. In May 1998, Longwood Central School District in New York
awarded the Company a contract for 166 school buses and the City of Philadelphia
awarded the Company a contract for 32 school buses. These contracts will require
capital expenditures of approximately $12.7 million including $0.9 million for
purchase of real property, $11.6 million for purchase of vehicles and $0.2
million for real property improvements. In September 1998, the Company was
awarded a five-year contract to provide paratransit services in Denver, Colorado
by the RTD. Pursuant to the contract, RTD will provide the Company with all of
the required vehicles and as a result, the Company will not be required to make
significant capital expenditures.
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES. Net cash provided by
financing activities totaled $25.0 million for the year ended June 30, 1998 due
primarily to the net proceeds of the offering of the Additional Notes and $1.5
million increase in the borrowings under the Company's revolving line of credit,
offset by $13.5 million principal and debt amortization requirements primarily
in connection with the acquisition of Central and $3.8 million in deferred
financing costs. In addition, the Company incurred $6.4 million of indebtedness
to directly finance capital expenditures for the year ended June 30, 1998. In
fiscal 1997, net cash provided by financing activities totaled $31.2 million,
due primarily to the net proceeds from the offering of the Original 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.
At June 30, 1998, the Company's total debt and stockholder's equity were
$157.9 million and $20.2 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.
QUARTERLY FINANCIAL INFORMATION; SEASONALITY
The table below sets forth unaudited summary financial information for the
Company for the last 12 quarters. This information has been prepared by the
Company on a basis consistent with its audited Consolidated 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 Transportation Operations (primarily 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.
19
<PAGE>
<TABLE>
<CAPTION>
($ IN MILLIONS)
-------------------------------------------------------------------------------
FISCAL 1996 FISCAL 1997
-------------------------------------------- ---------------------------------
SEPT. DEC. MARCH JUNE SEPT. DEC. MAR.
30, 31, 31, 30, 30, 31, 31,
1995 1995 1996 1996 1996 1996 1997
--------- --------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue...................................... $ 18.9 $ 40.7 $ 41.6 $ 41.4 $ 25.2 $ 45.0 $ 45.5
Income (loss) from operations................ (2.8) 3.8 2.6 3.7 (2.8) 2.4 2.0
Net income (loss) before extraordinary
item....................................... (2.5) 1.6 0.8 1.5 (2.5) 0.5 (0.5)
EBITDA(1).................................... (0.5) 6.4 5.2 5.9 (0.2) 5.2 4.7
EBITDA as adjusted (2)....................... (0.5) 6.4 5.2 5.9 (0.2) 5.2 4.7
<CAPTION>
FISCAL 1998
--------------------------------------------
JUNE SEPT. DEC. MAR. JUNE
30, 30, 31, 31, 30,
1997 1997 1997 1998 1998
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenue...................................... $ 50.4 $ 59.2 $ 68.1 $ 67.5 $ 67.1
Income (loss) from operations................ 5.8 0.8 (0.2) 5.1 6.1
Net income (loss) before extraordinary
item....................................... 1.9 (1.9) (2.6) 0.6 (3.2)
EBITDA(1).................................... 8.1 4.1 3.2 7.4 8.5
EBITDA as adjusted (2)....................... 8.1 4.1 6.7 7.4 9.0
</TABLE>
- ------------------------
(1) EBITDA represents income from operations before depreciation and
amortization. EBITDA is used in certain financial covenants in the indenture
relating to the Original Notes and the Additional Notes 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 Form 10-K may not be comparable to "EBITDA" as
reported by other companies.
(2) EBITDA as adjusted is defined as EBITDA plus $4.0 million of one-time
charges, including a $1.7 million bonus and a $2.0 million write-off of
doubtful accounts (See Notes 4 and 11 of Notes to Consolidated Financial
Statements).
The Bus Sales Operations are also seasonal in nature. Approximately 47% of
the annual sales of Bus Sales Operations occurred in the quarter ended September
30, 1998, which is typical for the school bus sales industry. In addition, the
working capital needs of the operation 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.
IMPACT OF YEAR 2000 ON THE COMPANY'S SYSTEMS
The Company has completed an assessment of all of its software systems and
has determined what changes, if any, need to be made so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The total cost of these changes is not expected to be material and
will be expensed as incurred.
Management is in the process of assessing the potential impact of any Year
2000 non-compliant systems of its vendors or customers, but does not expect its
operations to be materially impacted by any potential systems problems incurred
by such vendors or customers.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
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 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
20
<PAGE>
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. Management does not expect implementation of
these two standards will have a material impact on its financial statement
disclosure.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements, which appears on Page F-1
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the members of
the Board of Directors and executive officers of the Company as of September 30,
1998. 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 49 Chairman of the Board, President and Chief Executive
Officer
Michael Gatto 42 Executive Vice President, Secretary, Treasurer and
Director
Patrick Gatto 37 Executive Vice President and Director
Nathan Schlenker 60 Chief Financial Officer
Jerome Dente 52 Chief Operating Officer
Noel Cabrera 38 Executive Vice President
David Kessler 58 Vice President and Director of the Paratransit
Division
John Shea 48 Director
Peter Petrillo 38 Director
</TABLE>
The Company has expanded its Board of Directors to seven seats consisting of
two directors designated by Wafra Investment Advisory Group, Inc. (the minority
stockholder of AETG) (the "Preferred Stockholder"), three directors designated
by the majority stockholders of AETG (Domenic Gatto, Michael Gatto and Patrick
Gatto) (the "Majority Stockholders"), one director to be designated by the
Majority Stockholders and one director to be designated by Jefferies & Company,
Inc. ("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.
21
<PAGE>
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.
JEROME DENTE, CHIEF OPERATING OFFICER. Mr. Dente has been Chief Operating
Officer since December 1997 and was the Director of New York School Bus
Operations for the Company from 1994 through November 1997. 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.
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.
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. 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. There are no family relationships between any of the
aforementioned persons, except that Messrs. Domenic Gatto, Michael Gatto and
Patrick Gatto are brothers.
22
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
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 annually as compensation for services as a
director.
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......................................... 1998 $ 518,009 $ 7,500 $ 105,774(3) $ 1,875
President and Chief Executive Officer 1997 $ 486,755 -- $ 94,292(3) $ 3,193
Michael Gatto......................................... 1998 $ 344,963 $ 7,500 $ 42,224(4) $ 1,250
Executive Vice President, Secretary and Treasurer 1997 $ 324,150 -- $ 42,224(4) $ 3,050
Patrick Gatto......................................... 1998 $ 344,963 $ 7,500 $ 42,224(4) $ 1,250
Executive Vice President 1997 $ 324,150 -- $ 42,224(4) $ 2,850
Nathan Schlenker...................................... 1998 $ 204,143 $ 16,000 -- $ 1,250
Chief Financial Officer 1997 $ 197,725 $ 17,000 -- $ 2,678
</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 401(k) and deferred compensation contributions made. 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) $26,976
and $38,458 for vacation time not taken in 1997 and 1998, respectively.
(4) Includes (i) $19,224 for automobile allowance; and (ii) $23,000 for life
insurance allowance.
(5) Representing contributions under Section 401(k) of the Internal Revenue Code
for fiscal 1997 and contributions to the Atlantic Express Deferred
Compensation Plan for fiscal 1998.
23
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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, 1998 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
NUMBER PERCENTAGE ALL OUTSTANDING
NAME(1) TITLE OF CLASS OF SHARES OF CLASS VOTING 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).......................
Wafra Acquisition Fund 4, L.P.(7)....... Series A Preferred Stock 72 100.0% 45.0%
All directors and executive officers of Common Stock
AETG as a group (9 persons)........... 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.
(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., 345 Park Avenue, New York, New York 10154.
(7) The shares of Series A Preferred Stock held by Wafra represent, upon full
conversion, 45% of the Common Stock. Wafra's business address is 345 Park
Avenue, New York, New York 10154. 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.
24
<PAGE>
ACQUISITION OF AETG. On September 29, 1998, GSCP II Holdings (AE), LLC
("Buyer"), an affiliate of Greenwich Street Capital Partners, Inc., a New York
based private equity fund, signed a Recapitalization and Stock Purchase
Agreement (the "Recapitalization Agreement") with AETG, which owns all of the
issued and outstanding shares of capital stock of the Company, and the
shareholders of AETG pursuant to which Buyer is to acquire an approximately 88%
equity interest in a recapitalized AETG (the "Recapitalization"). The
Recapitalization Agreement is subject to a variety of conditions, including
obtaining the consent of the holders of a majority of the Company's 10 3/4%
Senior Secured Notes due 2004 (the "Notes") to an amendment to the Indenture
relating to the Notes (the "Consent Solicitation"). Such amendment would in
substance exempt the Recapitalization from the definition of "Change of
Control" under the Indenture so that the Company would not be required as a
result of the Recapitalization to offer to purchase all of the Notes then
outstanding at a purchase price equal to 101% of the aggregate principal
amount thereof plus accrued interest to the date of repurchase.
The Recapitalization, including the related transaction costs and
expenses, incurred by the Buyer, Wafra and Domenic, Michael and Patrick Gatto
(except for costs of the Consent Solicitation) will be funded by equity
capital provided to AETG by the Buyer. 50% of the costs of the Consent
Solicitation will be funded by equity capital provided to AETG by the Buyer
and the balance of such costs will be funded by equity capital provided to
AETG by Domenic Gatto and Wafra.
No assurance can be given that the Recapitalization will be completed. If
the Recapitalization takes effect as currently contemplated, AETG's authorized
capital stock will be amended to consist of a single class of common stock,
Buyer will acquire approximately 88% of the common stock of the recapitalized
AETG, and AETG will repurchase all of the shares of AETG held by Michael and
Patrick Gatto and a portion of shares held by Domenic Gatto and Wafra, which
would leave them with approximately 8% and 4% of the common stock, respectively.
At the closing of the Recapitalization Agreement, Domenic Gatto, the
founder, Chairman of the Board, President and Chief Executive Officer of the
Company, and Nathan Schlenker, Chief Financial Officer of the Company, would
enter into new employment agreements and option agreements with AETG. Domenic
Gatto's brothers, Michael Gatto, currently a Director and Executive Vice
President, Secretary and Treasurer of the Company, and Patrick Gatto, currently
a Director and Executive Vice President of the Company, would not continue with
the Company.
As part of the Recapitalization, the Stockholders' Agreement dated as of
February 28, 1994 among AETG, the Gatto Shareholders and Wafra would be
terminated. The Buyer and the other stockholders of AETG, including Domenic
Gatto and Wafra, would enter into a new Stockholders' Agreement (the "New
Stockholders Agreement") to be dated as of the closing of the Recapitalization
Agreement.
As currently proposed, the New Stockholders Agreement would contain
governance provisions that, among other things, (i) provide for election of five
directors, a majority of whom would be designated by the Buyer and which would
include Domenic Gatto for so long as he is employed by AETG, (ii) provide for
removal of any director, with or without cause, upon notification by the Buyer
of its desire for such removal and (iii) provide for replacement of any director
designated by the Buyer who ceases to serve on the board of directors with
another designee of the Buyer.
The New Stockholders Agreement would also contain provisions that, among
other things and subject to certain exceptions, including any restrictions
imposed by applicable law or by AETG's or the Company's debt agreements, (i)
provide for put and call rights in the event Domenic Gatto or a Management
Stockholder (as defined in the New Stockholders Agreement) is no longer
employed by the Company, (ii) provide for put rights for Wafra upon the sixth
anniversary of the New Stockholders Agreement or upon the sale by Domenic
Gatto of all his shares of common stock of AETG, (iii) restrict the ability
of Domenic Gatto and the Management Stockholders to transfer their respective
ownership interests, other than in certain limited circumstances or by
transfers to Permitted Transferees (as defined in the New Stockholders
Agreement), (iv) restrict the ability of Wafra and a certain other
stockholder to transfer their respective ownership interests other than in
certain limited circumstances, (v) provide in certain circumstances for
demand and piggyback registration rights for the Buyer and its affiliates that
own common stock of AETG and for demand registration rights for Wafra, the
costs of such registrations to be borne by AETG, (vi) provide tag-along
rights to the remaining stockholders to participate in certain sales by the
Buyer of common stock of
25
<PAGE>
AETG and (vii) provide drag along rights pursuant to which the stockholders
would agree to sell their shares of common stock to an independent third party
if the Buyer approves such a sale.
In addition, GSCP, Inc. ("GSCP"), an affiliate of Buyer, AETG and the
Company would enter into a Financial Services Agreement (the "FSA") to be dated
as of the closing of the Recapitalization Agreement. Under the FSA, AETG and the
Company would engage GSCP as financial advisor to, among other things, provide
assistance to each of AETG and the Company in connection with its financial and
business affairs, its banking and other business relationships, and the
operating and expansion of its business. The FSA would expire in 2008, subject
to early termination by GSCP upon 15 days' notice to AETG and the Company or
termination immediately upon certain events after which the Buyer no longer
retains voting control of the Company. AETG and the Company would pay GSCP an
annual advisory fee of $500,000 throughout the term of the FSA.
AETG PURCHASE AGREEMENT
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 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
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
26
<PAGE>
matters required to be submitted to stockholders for approval; provided, that
the approval of a super majority 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 case of the renewal of any employment agreements between AETG and Domenic
Gatto, Patrick Gatto and Michael Gatto, 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
relating to the Company's 10 3/4% Senior Secured Notes, due 2004. 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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
27
<PAGE>
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 $4.8
million as of June 30, 1997 pursuant to the Entertainment Note. Such
indebtedness resulted from numerous intercompany loans among the various
subsidiaries of AETG prior to the formation of the Company. During the last
quarter of the Company's fiscal year, certain affiliates of AETG engaged in the
entertainment business suffered significant declines in financial condition and
the Company took a $4.6 million non-recurring charge and wrote the Entertainment
Note down to $510,000. (See Item 1--Business--Recent Transactions--Sale of
Entertainment Note.)
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 current management fee is payable in equal monthly
installments of $29,700. 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 1997 or 1998.
At June 30, 1998, the Company had a non-interest bearing receivable from
AETG of $672,589. Such amount arose as a result of advances to AETG.
In August 1997, in connection with the acquisition of Central, the Company
purchased the real property, which serves as the primary operating facilities of
Central, from Mr. Denney, a former shareholder of Central for a purchase price
of $2.2 million and issued mortgage notes. The notes are being amortized over
fifteen years with a five year balloon payment. Mr. Denney continues to be
employed by the Company as President of Central.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements, which appears on page F-1
hereof. No Schedules are provided as the Schedules are either not applicable, or
the information has been otherwise provided in the Consolidated Financial
Statements.
(b) REPORTS ON FORM 8-K
NONE.
(c) EXHIBITS
The exhibits listed on the Exhibit Index following the signature page hereof
are filed herewith (or incorporated by reference) in response to this Item.
28
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Report of Independent Certified Public Accountants.................................................... F-2
Consolidated Balance Sheets as of June 30, 1997 and 1998.............................................. F-3
Consolidated Statements of Operations for the Years Ended June 30, 1996, 1997
and 1998............................................................................................ F-4
Consolidated Statements of Stockholder's Equity for the Years Ended June 30, 1996, 1997 and 1998...... F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1996, 1997
and 1998............................................................................................ F-6-F-7
Notes to Consolidated Financial Statements............................................................ F-8-F-21
</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, 1997 and 1998, 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, 1998. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Atlantic
Express Transportation Corp. and subsidiaries as of June 30, 1997 and 1998, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended June 30, 1998 in conformity with generally
accepted accounting principles.
BDO SEIDMAN, LLP
New York, New York
September 18, 1998, except for Note 19
which is as of September 29, 1998
F-2
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents........................................................... $16,818,889 $13,772,537
Current portion of marketable securities............................................ 1,030,000 850,000
Accounts receivable, net of allowance for doubtful accounts of $250,000 and
$1,520,000 respectively........................................................... 31,237,975 37,310,006
Inventories......................................................................... 1,969,228 10,762,839
Notes receivable.................................................................... 191,600 1,182,425
Prepaid expenses and other current assets........................................... 4,986,656 5,692,610
----------- -----------
Total current assets.............................................................. 56,234,348 69,570,417
----------- -----------
Property, plant and equipment, less accumulated depreciation.......................... 74,967,594 99,887,054
----------- -----------
Other Assets:
Goodwill, net....................................................................... -- 12,469,422
Restricted cash and cash equivalents................................................ 2,314,408 --
Note receivable from affiliates..................................................... 4,772,974 510,000
Investments......................................................................... 229,000 229,000
Marketable securities............................................................... 4,139,697 7,027,937
Deferred lease expense.............................................................. 488,212 334,115
Transportation contract rights, net................................................. 3,444,772 3,807,743
Deferred financing and organization costs, net...................................... 6,295,318 8,310,723
Due from affiliates................................................................. -- 672,589
Notes receivable.................................................................... 120,992 25,000
Deposit and other noncurrent assets................................................. 1,343,661 1,394,301
Deferred tax assets................................................................. -- 2,087,000
Covenant not to compete, net........................................................ -- 160,000
----------- -----------
Total other assets................................................................ 23,149,034 37,027,830
----------- -----------
$154,350,976 $206,485,301
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current:
Current portion of long-term debt................................................... $ 140,008 $ 641,574
Accounts payable.................................................................... 764,293 2,250,615
Accrued compensation................................................................ 4,053,567 4,703,334
Current portion of insurance reserve................................................ 2,336,738 3,657,442
Accrued interest.................................................................... 4,927,085 6,776,630
Other accrued expenses and current liabilities...................................... 629,855 4,158,333
----------- -----------
Total current liabilities......................................................... 12,851,546 22,187,928
----------- -----------
Long-term debt, net of current portion................................................ 110,488,215 157,284,116
----------- -----------
Premium on bond issuance.............................................................. -- 1,202,550
----------- -----------
Other long-term liabilities........................................................... 2,997,018 5,641,135
----------- -----------
Deferred income taxes................................................................. 400,000 --
----------- -----------
Stockholder's equity:
Common stock, authorized 200 shares, no par value, issued and outstanding 100
shares............................................................................ 250,000 250,000
Additional paid-in capital.......................................................... 13,188,926 13,188,926
Unrealized gain on marketable securities.............................................. 142,032 376,293
Retained earnings..................................................................... 14,033,239 6,354,353
----------- -----------
Total stockholder's equity........................................................ 27,614,197 20,169,572
----------- -----------
$154,350,976 $206,485,301
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
-------------- -------------- --------------
Revenues........................................................ $ 142,551,559 $ 166,078,034 $ 261,918,194
Costs and expenses:
Cost of operations............................................ 115,108,380 136,068,428 217,388,527
General and administrative.................................... 10,448,420 12,199,150 21,337,867
Depreciation and amortization................................. 9,735,982 10,417,187 11,378,390
-------------- -------------- --------------
135,292,782 158,684,765 250,104,784
-------------- -------------- --------------
Income from operations...................................... 7,258,777 7,393,269 11,813,410
Interest........................................................ (5,098,443) (8,739,065) (17,751,883)
Other income.................................................... -- 133,977 207,686
-------------- -------------- --------------
Income (loss) before nonrecurring item, (provision for)
benefit from income taxes and extraordinary items........... 2,160,334 (1,211,819) (5,730,787)
Nonrecurring item:
Write-down of note receivable from affiliates................. -- -- 4,614,597
-------------- -------------- --------------
Income (loss) before (provision for) benefit from income taxes
and extraordinary items..................................... 2,160,334 (1,211,819) (10,345,384)
(Provision for) benefit from income taxes....................... (758,897) 600,936 3,224,453
-------------- -------------- --------------
Income (loss) before extraordinary items...................... 1,401,437 (610,883) (7,120,931)
Extraordinary items:
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)............................................... $ 1,401,437 $ (1,663,800) $ (7,120,931)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED JUNE 30, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL GAIN ON
COMMON STOCK PAID-IN RETAINED MARKETABLE
NO PAR VALUE CAPITAL EARNINGS SECURITIES TOTAL
-------------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 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........................... -- -- (7,120,931) -- (7,120,931)
Dividends.......................... -- -- (557,955) -- (557,955)
Unrealized gain on marketable
securities....................... -- -- -- 234,261 234,261
-------------- ------------- -------------- ----------- --------------
BALANCE, JUNE 30, 1998............... $ 250,000 $13,188,926 $ 6,354,353 $ 376,293 $ 20,169,572
-------------- ------------- -------------- ----------- --------------
-------------- ------------- -------------- ----------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................. $ 1,401,437 $ (1,663,800) $ (7,120,931)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Gain on sale of marketable securities.............................. -- -- (675,398)
Deferred income taxes.............................................. (104,000) (1,490,000) (2,487,000)
Depreciation....................................................... 8,876,163 9,555,463 10,040,403
Amortization....................................................... 859,819 1,311,212 2,808,394
Write-off of doubtful accounts receivable.......................... 569,000 500,000 973,810
Reserve for doubtful accounts receivable........................... -- 250,000 1,270,000
Interest accrued on note receivable................................ -- -- (326,287)
Write down of note receivable from affiliates...................... -- -- 4,614,597
Transfer from (to) restricted cash................................. (1,120,000) (1,194,408) 2,314,408
Extraordinary items................................................ -- 1,836,312 --
Other.............................................................. (236,012) -- --
Decrease (increase) in:
Accounts receivable and retainage................................ (5,639,761) (5,786,498) (3,572,192)
Inventories...................................................... (309,169) (974,816) (132,564)
Prepaid expenses and other current assets........................ (1,669,625) 133,708 (339,873)
Deferred lease expense........................................... (515,176) 166,796 154,097
Deposits and other noncurrent assets............................. (43,640) (485,179) (5,882)
Increase (decrease) in:
Accounts payable................................................... (357,467) (996,133) (237,588)
Accrued expenses and other current liabilities..................... 3,256,025 2,092,428 6,635,557
Other long-term liabilities........................................ 735,619 1,601,137 2,644,117
------------- ------------- -------------
Net cash provided by operating activities.......................... $ 5,703,213 $ 4,856,222 $ 16,557,668
------------- ------------- -------------
------------- ------------- -------------
</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>
YEAR ENDED JUNE 30,
----------------------------------------------
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from investing activities:
Acquisition of subsidiaries(net of cash acquired of
$207,441).................................................... $ -- $ -- $ (21,278,334)
Proceeds from sale of fixed assets............................. -- -- 842,751
Additions to property, plant and equipment..................... (3,195,750) (14,441,800) (21,318,994)
Purchase of transportation contract rights..................... (688,833) (873,192) (1,660)
Due from affiliates............................................ (100,596) (303,999) (697,925)
Notes receivable............................................... 808,983 161,832 (314,515)
Marketable securities.......................................... -- (5,027,665) (1,789,879)
-------------- -------------- --------------
Net cash used in investing activities........................ (3,176,196) (20,484,824) (44,558,556)
-------------- -------------- --------------
Cash flows from financing activities:
Proceeds of additional borrowings.............................. 8,143,521 118,473,894 42,864,754
Principal payments on borrowings............................... (10,919,409) (79,580,780) (13,532,291)
Deferred financing and organization costs...................... (328,384) (6,975,554) (3,819,973)
Transfer to restricted cash.................................... (750,000) -- --
Other.......................................................... (1,161,615) (681,327) (557,954)
-------------- -------------- --------------
Net cash provided by (used in) financing activities.......... (5,015,887) 31,236,233 24,954,536
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents............. (2,488,870) 15,607,631 (3,046,352)
Cash and cash equivalents, beginning of year..................... 3,700,128 1,211,258 16,818,889
-------------- -------------- --------------
Cash and cash equivalents, end of year........................... $ 1,211,258 $ 16,818,889 $ 13,772,537
-------------- -------------- --------------
-------------- -------------- --------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest..................................................... $ 5,436,240 $ 3,181,000 $ 15,485,695
Income taxes................................................. 305,000 222,000 408,542
Supplemental schedule of noncash investing and financing
activities:
Loans incurred for purchase of property, plant and equipment... $ 17,416,258 $ 11,887,542 $ 6,368,900
Use of restricted cash to pay down debt........................ -- 750,000 --
Transfer of bus from inventory to fixed assets................. -- -- 47,558
Loans incurred for purchase of contract rights................. 2,670,000 -- --
Deferral of payment for contract rights........................ 250,000 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY STRUCTURE
Prior to January 30, 1997, Atlantic Express Transportation Group Inc.
("AETG") (the parent company) operated in two industries, transportation and
entertainment. 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, 1995 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, California 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, transportation for pre-kindergarten children and Medicaid recipients
and, effective July 1, 1997, sales of school buses and commercial vehicles in
New Jersey and various counties in New York (see Note 18).
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of AETC and its
subsidiaries. All material intercompany transactions and balances have been
eliminated.
REVENUES
Revenues are recognized when services are performed and when vehicles are
delivered to customers.
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............................................................. 5
</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
F-8
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, reported as a separate component of
stockholder's equity. 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.
INVENTORIES
Inventories primarily consist of new and used buses held for resale, fuel,
parts and supplies which are valued at the lower of cost or market value. Cost
is determined by specific identification for new and used buses and on a
first-in, first-out ("FIFO") basis on the balance.
TRANSPORTATION CONTRACT RIGHTS
AETC has acquired certain transportation contract rights with respect to
revenue contracts and travel routes. Such costs are amortized over the lesser of
the expected life of the contracts or 12 years. Accumulated amortization at June
30, 1997 and 1998 was $1,301,917 and $1,957,836.
DEFERRED FINANCING, GOODWILL AND OTHER COSTS
Deferred financing costs are amortized over the life of the related debt.
Goodwill is amortized over 40 years and all other costs are amortized on a
straight-line basis over five years. Accumulated amortization at June 30, 1997
and 1998 was $560,040 and $2,173,254, respectively.
INCOME TAXES
AETC follows the liability method under Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." The primary
objectives of accounting for taxes under SFAS 109 are to (a) recognized the
amount of tax payable for the current year and (b) recognized 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 or benefits allocated to AETC is
based upon the proportion of AETC's income or loss to that of the consolidated
group, which approximates the charge or benefit 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.
F-9
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, and long-term debt approximated fair value as of
June 30, 1997 and 1998 due to either short maturity or terms similar to those
available to similar companies in the open market. Marketable securities,
classified as available-for-sale, are valued at quoted market value.
LONG-LIVED ASSETS
Long-lived assets, such as intangible assets and 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 June 30, 1998.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
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 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" ("SFAS No. 131") 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. Management does not expect implementation of
these two standards will have a material impact on its financial statement
disclosure.
RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been reclassified to
conform with 1998 presentation.
F-10
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACCOUNTS RECEIVABLE AND RETAINAGE
In the quarter ended December 31, 1997 AETC recorded a $1.8 million
provision for doubtful accounts in relation to a portion of its accounts
receivable. The majority of the accounts subject to the provision arose between
August 1993 and August 1996 from non-routine services furnished to certain
municipal customers. Following the conclusion of discussions with the relevant
customers during the quarter ended December 31, 1997, management determined that
the provision for doubtful accounts should be recorded. An additional $0.5
million was provided in the quarter ended June 30, 1998 (See Note 13). At July
1, 1997, the balance of the allowance for Doubtful Accounts was $0.2 million,
and $1.0 million was written off as Bad Debts during the year, resulting in a
remaining allowance for Doubtful Accounts of $1.5 million at June 30, 1998.
Amounts relating to prior periods were immaterial.
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, 1997 and 1998 retainage of $4,458,436 and $5,311,258,
respectively, is classified as current and is included in accounts receivable in
the accompanying consolidated balance sheets.
5. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
<S> <C> <C>
1997 1998
------------ -------------
Parts and fuel................................................... $ 1,969,228 $ 3,921,237
Buses held for sale.............................................. -- 6,841,602
------------ -------------
$ 1,969,228 $ 10,762,839
------------ -------------
------------ -------------
</TABLE>
6. RESTRICTED CASH AND CASH EQUIVALENTS
At June 30, 1997, restricted cash and cash equivalents consisted of a
$1,120,000 U.S. Treasury Note and $1,200,000 of commercial paper used as
collateral for letters of credit issued in connection with AETC's workers'
compensation and vehicle insurance deductible reimbursement plans, respectively.
Included in cash and cash equivalents is $1,307,842 and $2,825,043 at June
30, 1997 and 1998 respectively, which represents cash equivalents of a captive
insurance company subsidiary which are only available for use by that
subsidiary.
F-11
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------------
<S> <C> <C>
1997 1998
-------------- --------------
Land......................................................... $ 8,484,373 $ 9,379,373
Building and improvements.................................... 15,516,059 21,121,690
Construction-in-progress..................................... -- 1,179,969
Transportation equipment..................................... 112,863,875 140,009,989
Machinery and equipment...................................... 9,138,859 12,907,155
Furniture and fixtures....................................... 1,801,002 2,780,433
-------------- --------------
147,804,168 187,378,609
Less: Accumulated depreciation............................... 72,836,574 87,491,555
-------------- --------------
$ 74,967,594 $ 99,887,054
-------------- --------------
-------------- --------------
</TABLE>
Effective January 1, 1998, AETC reassessed the useful lives of certain fixed
assets (primarily vehicles) and as a result adjusted the remaining lives of
these assets and the corresponding depreciation charges. This resulted in a
decrease of $1.8 million in depreciation expense for the year ended June 30,
1998.
8. MARKETABLE SECURITIES
The amortized cost and estimated fair value of the marketable securities are
as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------------------
GROSS
UNREALIZED
COST GAIN FAIR VALUE
------------ ---------- ------------
<S> <C> <C> <C>
Available-for-sale: Equity securities................. $ 4,895,268 $ 291,991 $ 5,187,259
U.S. Treasury and other U.S.
government debt securities........................ 2,606,376 84,302 2,690,678
------------ ---------- ------------
Total marketable securities....................... $ 7,501,644 $ 376,293 $ 7,877,937
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------
GROSS
UNREALIZED
COST GAIN FAIR VALUE
------------ ---------- ------------
<S> <C> <C> <C>
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>
F-12
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. MARKETABLE SECURITIES (CONTINUED)
The above marketable securities are held by a captive insurance subsidiary
and are available for use only by that company. At June 30, 1998 marketable
securities of approximately $4.5 million are pledged as collateral for $3.4
million of letters of credit issued by the captive insurance company.
Of the marketable securities, while all are available for use in the
ordinary course of business of the captive insurance company subsidiary,
$850,000 has been classified as current in accordance with that subsidiary's
cash on hand and expected payments of claims in the next fiscal year.
Contractual maturity dates of the above securities are as follows:
<TABLE>
<CAPTION>
COST FAIR VALUE
------------ ------------
<S> <C> <C>
January 1998...................................................... $ 247,070 $ 249,334
August 2005....................................................... 29,906 31,659
2013-2027......................................................... 2,329,400 2,409,685
No maturity date (equity securities).............................. 4,895,268 5,187,259
------------ ------------
$ 7,501,644 $ 7,877,937
------------ ------------
------------ ------------
</TABLE>
Net realized gains on marketable securities for the year ended June 30, 1998
amounted to $675,000 and are included in revenues of the captive insurance
company.
9. DEBT
The following represents the debt outstanding at June 30, 1997 and 1998.
<TABLE>
<CAPTION>
JUNE 30,
------------------------------
<S> <C> <C>
1997 1998
-------------- --------------
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
8% mortgage on real estate located in Chittenango, New York,
due July 1, 2002 (B)....................................... -- 709,874
8% mortgage on real estate located in Bordentown, New Jersey,
due July 1, 2002 (B)....................................... -- 1,434,255
Revolving line of credit (C)................................. -- 1,464,754
Various notes payable secured by transportation equipment,
with interest from 8%-9.1%................................. 628,223 4,316,807
-------------- --------------
110,628,223 157,925,690
Less: Current portion........................................ 140,008 641,574
-------------- --------------
$ 110,488,215 $ 157,284,116
-------------- --------------
-------------- --------------
</TABLE>
- ------------------------
(A) On February 4, 1997, AETC issued $110,000,000 of 10 3/4% Senior Secured
Notes due 2004 (the "Original Notes"). The net proceeds from the sale of the
Original Notes were used to repay its existing indebtedness, buy-out certain
leases and for certain other corporate purposes. Such notes contain various
covenants, including limitations on payments of dividends.
F-13
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. DEBT (CONTINUED)
In August 1997, AETC issued $40,000,000 aggregate principal amount of 10 3/4%
Senior Secured Notes due 2004 (the "Additional Notes"). The Additional Notes
were issued at a premium of $1.4 million, which is being amortized over the
term of the Additional Notes. The Original Notes were required to be
registered with the Securities and Exchange Commission by July 3, 1997. Such
registration along with the registration of the Additional Notes did not
occur until January 21, 1998 and AETC was required to pay $308,572 of
liquidated damages, which was charged to interest expense.
(B) In connection with the acquisition of Central (see Note 18), AETC purchased
from Mr. Denney, a former shareholder of Central, the real property of
Central which serves as the primary operating facilities of Central in New
York and New Jersey. The mortgage notes are amortized over 15 years with a
five-year balloon payment due July 2002. Mr. Denney remains employed as
President of Central.
(C) On February 4, 1997, concurrent with the refinancing referred to in (a) AETC
entered into a $30 million revolving credit facility with Congress Financial
Corporation. 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 AETC and all of its subsidiaries with the
exception of the captive insurance subsidiary.
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 AETC's
option, the adjusted Eurodollar rate (as defined) plus 2.75%, and provides for a
one-time 0.25% reduction in rates upon AETC reaching certain profitability
levels. AETC 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 similar to those
contained in the senior notes referred to in (a) and customary events of
default.
Aggregate yearly maturities of long-term debt as of June 30, 1998, are as
follows:
<TABLE>
<CAPTION>
TOTAL
--------------
<S> <C>
1999.......................................................................... $ 641,574
2000.......................................................................... 2,165,931
2001.......................................................................... 744,159
2002.......................................................................... 632,104
2003.......................................................................... 689,307
Thereafter.................................................................... 153,052,615
--------------
Total....................................................................... $ 157,925,690
--------------
--------------
</TABLE>
F-14
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
The provisions (benefits) for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
<S> <C> <C> <C>
1996 1997 1998
---------- ------------- -------------
Current:
Federal............................................................... $ 687,000 $ -- $ (900,000)
State and local....................................................... 176,000 131,000 163,000
---------- ------------- -------------
863,000 131,000 (737,000)
Deferred taxes.......................................................... (104,000) (1,490,000) (2,487,000)
---------- ------------- -------------
$ 759,000 $ (1,359,000) $ (3,224,000)
---------- ------------- -------------
---------- ------------- -------------
</TABLE>
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------
<S> <C> <C>
1997 1998
------------- --------------
Deferred tax liabilities:
Depreciation................................................. $ 9,808,000 $ 12,795,000
Goodwill amortization........................................ -- 238,000
------------- --------------
$ 9,808,000 $ 13,033,000
------------- --------------
Deferred tax assets:
Allowance for doubtful receivables........................... (105,000) (678,000)
Loss and tax credit carryforwards............................ (9,303,000) (13,724,000)
Contract rights and other.................................... -- (718,000)
------------- --------------
(9,408,000) (15,120,000)
------------- --------------
Deferred tax (asset)/liabilities (net)......................... $ 400,000 $ (2,087,000)
------------- --------------
------------- --------------
</TABLE>
The actual tax expense (benefit) differs from the tax expense computed by
applying the U.S. corporate rate of 34% as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
<S> <C> <C> <C>
1996 1997 1998
---------- ------------- -------------
Tax expense (benefit) at statutory rate................................. $ 734,000 $ (1,028,000) $ (3,517,000)
Adjustments to tax contingency reserve related to bankruptcy issues..... (136,000) -- --
Write-down of notes receivable from affiliate........................... -- -- 1,569,000
State and local tax expense (benefit)................................... 176,000 (331,000) (1,293,000)
Other................................................................... (15,000) -- 17,000
---------- ------------- -------------
Actual tax expense (benefit)............................................ $ 759,000 $ (1,359,000) $ (3,224,000)
---------- ------------- -------------
---------- ------------- -------------
</TABLE>
F-15
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
At June 30, 1998, 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.............................. 25,309,000 2018
Alternative minimum tax credits available to offset certain
future taxes................................................ 1,367,000 None
------------- -----
------------- -----
</TABLE>
11. COST OF SALES
In December 1997, in connection with a five-year extension of its labor
agreement with the Amalgamated Transit Union (which represents approximately
1,500 drivers, escorts and mechanics rendering services on behalf of the New
York City Board of Education), AETC negotiated and paid a $1.7 million
non-recurring lump sum bonus to all employees continuously and actively employed
from December 1, 1996 to December 1, 1997. The agreement also provided that
there would be no further pay increases until November 1, 1998.
12. NON-RECURRING CHARGE
Certain of the subsidiaries of AETG which comprise its entertainment
business were collectively indebted to AETC in the amount of $4,772,974 at June
30, 1997. Such indebtedness, which was evidenced by a note accruing interest,
payable at maturity (July 1, 2004) at 6.8%, resulted from numerous intercompany
loans among the various subsidiaries of AETG prior to the formation of AETC as a
separate entity. During the last quarter of AETC's fiscal year, certain
affiliates of AETC engaged in the entertainment business suffered significant
declines in financial condition and AETC recorded a $4.6 million non-recurring
charge and wrote the note down to $510,000.
13. FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of the fiscal year, AETC recorded the following
significant adjustments:
1. Increase in allowance for doubtful accounts of $0.5 million.
2. Increase in self-insurance reserves of $1.2 million.
3. Write-down of note receivables from affiliate of $4.6 million (see
Note 12).
F-16
<PAGE>
14. RELATED PARTY TRANSACTIONS
AETC had amounts due from or (due to) the parent company of $(17,405) and
$672,589 at June 30, 1997 and 1998, respectively. AETC had a note receivable
from affiliated companies of $4,790,379 and $510,000 (see Note 12) at June 30,
1997 and 1998, respectively. During the year ended June 30, 1996 AETC received
management fee income from affiliated companies of $255,000. No management fees
were charged or received from related parties during the other periods
presented. AETC incurred rent expense of $224,550 and $228,000 for the years
ended in June 1997 and 1998 in connection with leases of real property from
affiliate companies.
15. COMMITMENTS AND CONTINGENCIES
LEASES
Minimum rental commitments as of June 30, 1998 for noncancellable equipment
and real property operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1998
--------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION
AND OTHER
REAL PROPERTY EQUIPMENT TOTAL
------------- -------------- -------------
1999............................................................... $ 2,069,080 $ 3,260,840 $ 5,329,920
2000............................................................... 1,816,285 2,731,350 4,547,635
2001............................................................... 1,654,577 1,809,886 3,464,463
2002............................................................... 1,129,690 1,335,059 2,464,749
2003 and thereafter................................................ 5,449,557 2,421,070 7,870,627
------------- -------------- -------------
$ 12,119,189 $ 11,558,205 $ 23,677,394
</TABLE>
During the year ended June 30, 1998, 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 operations were $4,539,202, $5,301,131
and $4,932,881 for the years ended June 30, 1996, 1997 and 1998, 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 which provide for base annual compensation aggregating
$1,227,181 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. 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.
OUTSTANDING LETTERS OF CREDIT
Letters of credit totaling approximately $2,591,000 and $3,890,000
(including $3.4 million issued by the captive insurance company (see note 8)
were outstanding as of June 30, 1997 and 1998, respectively. The letters of
credit serve primarily as security in connection with financial obligations.
F-17
<PAGE>
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
PERFORMANCE SECURITY
AETC's 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, AETC 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 AETC. In most instances, AETC has opted
to satisfy its security performance requirements by posting performance bonds.
At June 30, 1998, AETC has provided performance bonds aggregating approximately
$42.0 million.
UNION CONTRACTS.
At June 30, 1998 approximately 79% of AETC's employees were members of
various labor unions and AETC was party to 17 collective bargaining agreements,
seven of which covering 1,500 employees expire over the next three years, and
one of which covering 310 employees has already expired. In addition, AETC is
currently negotiating three additional collective bargaining agreements covering
approximately 300 newly unionized employees.
16. RETIREMENT PLANS
AETC sponsors a tax qualified 401(k) plan whereby eligible employees 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, $64,000 and $96,000 for the years ended June 30, 1996,
1997 and 1998 respectively.
AETC has a qualified Profit Sharing Plan for eligible employees (primarily
drivers, mechanics and escorts not covered by union deferred compensation
plans). AETC's contributions are based upon hours worked. Participants are not
allowed to make deferred contributions. AETC's contribution was approximately
$88,000 and $150,000 for the years ended June 30, 1997 and 1998 respectively.
In fiscal 1998, AETC instituted a Deferred Compensation Plan providing
deferred compensation to its highly compensated employees. AETC contributes 5%
of the participant's compensation to a maximum of $7,500 during a plan year.
Participants are not allowed to make deferred contributions. AETC's contribution
was approximately $14,000 for the year ended June 30, 1998.
17. MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK
For the years ended June 30, 1996, 1997 and 1998 revenues derived from the
Board of Education of the City of New York were approximately 50%, 47% and 33%,
respectively. As of June 30, 1997 and 1998, AETC had accounts receivable
including retainage from this customer of $11,057,558 and $13,072,141,
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, 1997 and 1998, substantially all cash and cash equivalents were
on deposit with one major financial institution.
18. ACQUISITIONS
During the year ended June 30, 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.
F-18
<PAGE>
18. ACQUISITIONS (CONTINUED)
Effective July 1, 1997, AETC acquired 100% of the common stock of Central
New York Coach Sales and Services 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 cash less Central's long-term
indebtedness as of July 1, 1997, which was $4.8 million, and AETC's agreement to
issue $2.2 million in mortgage notes relating to certain real property. In
connection with the acquisition, Central's net assets were recorded at fair
value, and the following intangible assets were recorded:
<TABLE>
<S> <C>
Covenant not to compete........................................ $ 200,000
Transportation contract rights................................. 1,200,000
Goodwill....................................................... 12,795,320
</TABLE>
The Consolidated Statement of Operations for the year ended June 30, 1998
includes the results of operations of Central from July 1, 1997 through June 30,
1998. 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
after elimination of intercompany transactions and after giving pro forma effect
to employment agreements, interest and taxes at 45% would be as follows:
<TABLE>
<S> <C>
Sales......................................................... $222,451,018
Net loss...................................................... 333,570
</TABLE>
In connection with the above acquisitions AETC issued the Additional Notes
(see Note 9).
19. SUBSEQUENT EVENTS
On September 29, 1998, GSCP II Holdings (AE), LLC ("Buyer"), an affiliate of
Greenwich Street Capital Partners, Inc., a New York based private equity fund,
signed a Recapitalization and Stock Purchase Agreement (the "Recapitalization
Agreement") with AETG, which owns all of the issued and outstanding shares of
capital stock of the Company, and the shareholders of AETG pursuant to which
Buyer is to acquire an approximately 88% equity interest in a recapitalized AETG
(the "Recapitalization"). The Recapitalization Agreement is subject to a variety
of conditions, including obtaining the consent of the holders of a majority of
the Company's 10 3/4% Senior Secured Notes due 2004 (the "Notes") to an
amendment to the Indenture relating to the Notes. Such amendment would in
substance exempt the Recapitalization from the definition of "Change of Control"
under the Indenture so that the Company would not be required as a result of the
Recapitalization to offer to purchase all of the Notes then outstanding at a
purchase price equal to 101% of the aggregate principal amount thereof plus
accrued interest to the date of repurchase.
No assurance can be given that the Recapitalization will be completed. If
the Recapitalization takes effect as currently contemplated, AETG's authorized
capital stock will be amended to consist of a single class of common stock,
Buyer will acquire approximately 88% of the common stock of the recapitalized
AETG, and AETG will repurchase all of the shares of AETG held by Michael and
Patrick Gatto and a portion of shares held by Domenic Gatto and Wafra
Acquisition Fund 4, L.P. ("Wafra"), which would leave them with approximately 8%
and 4% of the common stock, respectively.
F-19
<PAGE>
20. SEGMENT INFORMATION
AETC's business is comprised of Transportation Operations and, effective
July 1, 1997, Bus Sales Operations conducted in various states throughout the
U.S.. The summarized segment information, as of and for the year ended June 30,
1998 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1998
---------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION BUS SALES
OPERATIONS OPERATIONS TOTAL
-------------- ------------- --------------
Revenues......................................................... $ 203,073,256 $ 58,844,938 $ 261,918,194
Cost of operations/sales......................................... 166,120,186 51,268,341 217,388,527
Income from operations........................................... 8,546,455 3,266,955 11,813,410
Income (loss) before non-recurring items and (provision for)
benefit from income taxes...................................... (5,685,211) (45,576) (5,730,787)
Total Assets as at June 30, 1998................................. 174,223,642 32,261,659 206,485,301
Capital Expenditures............................................. 25,081,536 2,606,358 27,687,894
Depreciation and amortization.................................... 10,387,066 991,324 11,378,390
</TABLE>
21. SUPPLEMENTAL FINANCIAL INFORMATION
The following are condensed consolidating financial statements as of and for
the years ended June 30, 1997 and 1998 regarding AETC (on a stand-alone basis
and on a consolidated basis) and Guarantors and Non-Guarantors of the Senior
Secured Notes. (See Note 9a).
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
ATLANTIC
EXPRESS NON
TRANSPORTATION GUARANTOR GUARANTOR ELIMINATION
CORP. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- -------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Current assets................. $ 13,459,022 $ 47,736,795 $ 8,374,600 $ -- $ 69,570,417
Investment in affiliates....... 60,404,818 -- -- (60,404,818) --
Total assets................... 193,219,371 165,426,379 15,993,943 (168,154,392) 206,485,301
Current liabilities............ 7,688,435 6,743,371 7,756,122 -- 22,187,928
Total liabilities.............. 160,355,739 120,676,905 13,032,657 (107,749,572) 186,315,729
Stockholder's equity........... 32,863,632 44,749,474 2,961,286 (60,404,820) 20,169,572
</TABLE>
F-20
<PAGE>
21. SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
ATLANTIC
EXPRESS NON
TRANSPORTATION GUARANTOR GUARANTOR ELIMINATION
CORP. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- -------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Net revenues........................ $ -- $ 261,060,717 $ 6,865,533 $ (6,008,056) $ 261,918,194
Income (loss)
from operations................... -- 11,937,838 (124,428) -- 11,813,410
Income (loss) before non-recurring
items, (provision for) benefit
from income taxes................. -- (5,606,359) (124,428) -- (5,730,787)
Write down of notes receivable from
affiliates........................ (4,614,597) -- -- -- (4,614,597)
Net loss of subsidiaries............ (3,786,052) -- -- 3,786,052 --
Net income (loss)................... (7,120,931) (3,700,197) (85,855) 3,786,052 (7,120,931)
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
ATLANTIC
EXPRESS NON
TRANSPORTATION GUARANTOR GUARANTOR ELIMINATION
CORP. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- -------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities............... $ (24,725,157) $ 37,752,699 $ 3,530,126 $ -- $ 16,557,668
Net cash used in investing
activities......................... (21,857,874) (20,685,757) (2,014,925) -- (44,558,556)
Net cash provided by (used in)
financing activities............... 38,486,827 (13,532,291) -- -- 24,954,536
Increase (decease) in cash and cash
equivalents........................ (8,096,204) 3,534,651 1,515,201 -- (3,046,352)
Cash and cash equivalents,
beginning of period................ 15,029,114 479,933 1,309,842 -- 16,818,889
Cash and cash equivalents,
end of period...................... $ 6,932,910 $ 4,014,584 $ 2,825,043 $ -- $ 13,772,537
</TABLE>
F-21
<PAGE>
21. SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
ATLANTIC
EXPRESS NON
TRANSPORTATION GUARANTOR GUARANTOR ELIMINATION
CORP. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- -------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Current assets................. $ 15,201,813 $ 36,683,710 $ 6,897,269 $ (2,548,444) $ 56,234,348
Investment in affiliates....... 41,425,377 -- -- (41,425,377) --
Total assets................... 125,185,876 157,487,252 11,536,966 (139,859,118) 154,350,976
Current liabilities............ 3,645,196 5,674,175 6,203,093 (2,670,918) 12,851,546
Total liabilities.............. 85,201,313 116,328,026 8,724,086 (83,516,646) 126,736,779
Stockholder's equity........... 39,984,563 41,159,226 2,812,880 (56,342,472) 27,614,197
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
ATLANTIC
EXPRESS NON
TRANSPORTATION GUARANTOR GUARANTOR ELIMINATION
CORP. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- -------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Net revenues........................ $ -- $ 166,078,034 $ 3,779,932 $ (3,779,932) $ 166,078,034
Income (loss) from operations....... -- 6,950,410 442,859 -- 7,393,269
Income (loss) before income taxes... -- (1,654,678) 442,859 -- (1,211,819)
Net loss of subsidiaries............ (1,663,800) -- -- 1,663,800 --
Net income (loss)................... (1,663,800) (1,969,373) 305,573 1,663,800 (1,663,800)
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
ATLANTIC
EXPRESS NON
TRANSPORTATION GUARANTOR GUARANTOR ELIMINATION
CORP. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- -------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities............... $ (79,122,235) $ 78,455,161 $ 5,523,296 -- $ 4,856,222
Net cash used in investing
activities......................... (411,968) (15,045,191) (5,027,665) -- (20,484,824)
Net cash provided by (used in)
financing activities............... 94,189,879 (62,953,646) -- -- 31,236,233
Increase (decease) in cash and cash
equivalents........................ 14,655,676 456,324 495,631 -- 15,607,631
Cash and cash equivalents,
beginning of period................ 373,438 23,609 814,211 -- 1,211,258
Cash and cash equivalents,
end of period...................... $ 15,029,114 $ 479,933 $ 1,309,842 -- $ 16,818,889
</TABLE>
Condensed information for 1996 is not provided as Non-Guarantor financial
information is not material.
F-22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
ATLANTIC EXPRESS TRANSPORTATION CORP.
By: /s/ DOMENIC GATTO
-----------------------------------------
Domenic Gatto
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: October 19, 1998
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board, October 19, 1998
/s/ DOMENIC GATTO President and Chief
- ------------------------------ Executive Officer
Domenic Gatto (Principal Executive
Officer)
Chief Financial Officer October 19, 1998
/s/ NATHAN SCHLENKER (Principal Financial
- ------------------------------ Officer and Principal
Nathan Schlenker Accounting Officer)
/s/ MICHAEL GATTO Executive Vice President, October 19, 1998
- ------------------------------ Secretary, Treasurer and
Michael Gatto Director
/s/ PATRICK GATTO Executive Vice President October 19, 1998
- ------------------------------ and Director
Patrick Gatto
/s/ JOHN SHEA Director October 19, 1998
- ------------------------------
John Shea
/s/ PETER PETRILLO Director October 19, 1998
- ------------------------------
Peter Petrillo
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Company (filed as exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein by reference)
3.2 By-laws of the Company (filed as exhibit 3.2 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1997 and incorporated herein by reference)
10.1 Registration Rights Agreement dated February 4, 1997 between the Company, the Guarantors (as
defined therein) and the Initial Purchaser (as defined therein) (filed as exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein by
reference)
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 (filed as exhibit
10.2 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and
incorporated herein by reference)
10.2.1 Amendment dated as of May 18, 1998 to Loan and Security Agreement by and among Congress Financial
Corporation, certain subsidiaries of the Company as borrowers and the Company as guarantor
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 (filed as exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein by
reference)
10.4 Collateral Assignment of Trademarks (Security Agreement) dated as of February 4, 1997 between the
Company and Congress Financial Corporation (filed as exhibit 10.4 to the Company's Annual Report
on Form 10-K for the year ended June 30, 1997 and incorporated herein by reference)
10.5 Employment Agreement dated as of January 21, 1997 between the Company and Domenic Gatto (filed as
exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and
incorporated herein by reference)
10.6 Employment Agreement dated as of January 21, 1997 between the Company and Michael Gatto (filed as
exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and
incorporated herein by reference)
10.7 Employment Agreement dated as of January 21, 1997 between the Company and Patrick Gatto (filed as
exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and
incorporated herein by reference)
10.8 Employment Agreement dated as of January 21, 1997 between the Company and Nathan Schlenker (filed
as exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and
incorporated herein by reference)
10.9 Lease dated August 5, 1986 between Bonnie Heights Realty Corp. and Amboy Bus Co., Inc. and
Notices of Opinion 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 (filed as exhibit 10.9 to
the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein
by reference)
10.10 Lease dated June 30, 1993 by and between Rockhill Limited Partnership and Mayflower Contract
Services, Inc. and Atlantic Express of Missouri Inc. for the facility at 6810 Prescott Street,
St. Louis, Missouri (filed as exhibit 10.10 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1997 and incorporated herein by reference)
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 (filed as exhibit 10.11 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1997 and incorporated herein by reference)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
10.12 The Board of Education of the City of New York, serial no. 0070, dated July 19, 1978 (filed as
exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and
incorporated herein by reference)
10.13 The Board of Education of the City of New York, serial no. 8108 (filed as exhibit 10.13 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein by
reference)
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. (filed as exhibit 10.14 to the Company's Annual Report on Form
10-K for the year ended June 30, 1997 and incorporated herein by reference)
10.15 The Board of Education of the city of New York, serial no. 9888 (filed as exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein by
reference)
10.16 Extension and Sixth Amendment of the 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. (filed as exhibit 10.16 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1997 and incorporated herein by reference)
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 (filed as exhibit 10.17 to
the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein
by reference)
10.18 Indenture dated as of February 4, 1997, including Note, between the Company, the Guarantors (as
defined therein) and The Bank of New York, as trustee (filed as exhibit 10.18 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein by reference)
10.19 First Amendment to the Security Agreement, dated as of August 14, 1997 among the Company, the
Guarantors (as defined therein) and in favor of Congress Financial Corporation (filed as exhibit
10.19 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and
incorporated herein by reference)
10.20 First Supplemental Indenture, dated as of August 14, 1997, between the Company, the Guarantors
(as defined therein) and The Bank of New York, as trustee) (filed as exhibit 10.20 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein by
reference)
10.21 Second Supplemental Indenture, dated as of December 12, 1997, among the Company, the Guarantors
(as defined therein) and The Bank of New York, as trustee
21 Subsidiaries of the Company
27 Financial Data Schedule
</TABLE>
<PAGE>
Exbihit 10.2.1
AMENDMENT
THIS AMENDMENT is entered into as of May 18, 1998, by and
among CONGRESS FINANCIAL CORPORATION, a California corporation ("Lender"), AMBOY
BUS CO., INC., a New York corporation, ATLANTIC-CONN. TRANSIT, INC., a
Connecticut corporation, ATLANTIC-HUDSON, INC., a New York corporation, ATLANTIC
PARATRANS, INC., a New York corporation, ATLANTIC PARATRANS OF KENTUCKY INC., a
Kentucky corporation, ATLANTIC EXPRESS COACHWAYS, INC., a New Jersey
corporation, ATLANTIC EXPRESS OF MISSOURI INC., a Missouri corporation, ATLANTIC
EXPRESS OF PENNSYLVANIA, INC., a Delaware corporation, BROOKFIELD TRANSIT INC.,
a New York corporation, COURTESY BUS CO., INC., a New York corporation, K. CORR,
INC., a New York corporation, MERIT TRANSPORTATION CORP., a New York
corporation, METROPOLITAN ESCORT SERVICE, INC., a New York corporation, RAYBERN
BUS SERVICE, INC., a New York corporation, RAYBERN CAPITAL CORP., a New York
corporation, RAYBERN EQUITY CORP., a New York corporation, and STATEN ISLAND
BUS, INC., a New York corporation (each individually, an "Existing Borrower" and
any two or more collectively, "Existing Borrowers"), ATLANTIC EXPRESS
TRANSPORTATION CORP., a New York corporation ("Parent"), BLOCK 7932, INC., a New
York corporation, G.V.D. LEASING CO., INC., a New York corporation, 180 JAMAICA
CORP., a New York corporation, METRO AFFILIATES, INC., a New York corporation,
MIDWAY LEASING, INC., a New York corporation, and TEMPORARY TRANSIT SERVICE,
INC., a New York corporation (each individually, including Parent, an "Existing
Guarantor" and any two or more collectively, "Existing Guarantors"), ATLANTIC
EXPRESS OF L.A. INC., a California corporation ("AELA"), CENTRAL NEW YORK COACH
SALES & SERVICE INC., a New York corporation ("Central"), JERSEY BUS SALES,
INC., a New Jersey corporation ("Jersey", and together with Central, AELA and
Existing Borrowers, hereinafter collectively referred to as "Borrowers")
ATLANTIC-CHITTENANGO REAL PROPERTY CORP., a New York corporation
("Chittenango"), 201 WEST SOTELLO REALTY, INC., a California Corporation
("201"), JERSEY BUSINESS LAND CO. INC., a New Jersey corporation ("Jersey Land"
and, together with Chittenago and Existing Guarantors, hereinafter collectively
referred to as "Guarantors").
R E C I T A L S:
WHEREAS, (i) Existing Borrowers, Parent, and Lender entered
into that certain Loan and Security Agreement, dated February 4, 1997, (the
"Loan Agreement"), pursuant to which Lender has made and may continue to make
loans and other financial accommodations to Borrowers, and (ii) each Existing
Borrower entered into a Guarantee dated February 4, 1997 (the "Borrower
Guarantee"), to guarantee to Lender the payment and performance of each other
Borrower's obligations to Lender;
WHEREAS, Existing Guarantors entered into (i) a Guarantee
dated February 4, 1997 (the "Guarantee"), to guarantee to Lender the payment and
performance of Borrowers' obligations to Lender, and (ii) a General Security
Agreement dated February 4, 1997 (the "Guarantor Security Agreement"), to secure
their obligations under the Guarantee;
1
<PAGE>
WHEREAS, Central, Jersey, Chittenango, AELA, 201 and Jersey
Land are wholly owned subsidiaries of Parent acquired by Parent since the date
of the Loan Agreement with the consent of Lender;
WHEREAS, under the Loan Agreement, Parent is permitted to
acquire a new subsidiary only if such subsidiary becomes a "Borrower" or a
"Guarantor" under the Loan Agreement and grants to Lender a first priority
security interest in certain of its property;
WHEREAS, Borrowers and Existing Guarantor have requested
Lender, and Lender is willing to agree, on the terms and conditions hereof, to
amend the Loan Agreement and the other Financing Agreements to include Central,
Jersey and AELA as "Borrowers" thereunder and to provide for additional
borrowing availability based upon certain eligible assets of Central, Jersey and
AELA; and
WHEREAS, Chittenango, Jersey Land and 201 have agreed to
become Guarantors under the Guarantee.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound, the parties hereto do hereby agree as follows:
1. Incorporation of Definitions. All capitalized terms used in
this Amendment and not otherwise defined herein shall have the meanings ascribed
to them in the Loan Agreement or the Intercreditor Agreement (as such term is
defined in the Loan Agreement).
2. Amendments to Loan Agreement. Effective upon the
satisfaction of the conditions set forth in Section 5 of this Amendment:
(a) Section 1 of the Loan Agreement is amended by adding the
following defined terms in the appropriate alphabetical order:
"Central" shall mean Central New York Coach Sales &
Service Inc., a New York corporation.
"Eligible Inventory" shall mean Inventory consisting
of new and used buses held by Central or Jersey for
sale or lease in the ordinary course of the business
of Central or Jersey and which are acceptable to
Lender based on the criteria set forth below. In
general, Eligible Inventory shall not include (a)
components and spare parts held for sale as
replacement parts or held for use in vehicle
maintenance or repair; (b) supplies used or consumed
in Borrowers' business; (c) Inventory at premises
other than those owned and controlled by Borrowers,
except if Lender shall have received an agreement in
writing from the person in possession of such
2
<PAGE>
Inventory and/or the owner or operator of such
premises in form and substance satisfactory to Lender
acknowledging Lender's first priority security
interest in the Inventory, waiving security interests
and claims by such person against the Inventory and
permitting Lender access to, and the right to remain
on, the premises so as to exercise Lender's rights
and remedies and otherwise deal with the Collateral;
(d) Inventory subject to a security interest or lien
in favor of any person other than Lender except those
permitted in this Agreement; (e) bill and hold goods;
(f) unserviceable, obsolete or slow moving Inventory;
(g) Inventory which is not subject to the first
priority, valid and perfected security interest of
Lender; (h) returned, damaged and/or defective
Inventory including, without limitation, buses which
are not in good operating condition or which do not
meet all necessary safety standards for the use for
which they are intended; (i) Inventory as to which a
certificate of title (other than a dealer's or
comparable certificate or title) has been issued,
unless (i) Lender's security interest in such
Inventory has been reflected in accordance with
applicable law on such certificate of title or (ii)
Lender's security interest is not required to be
reflected thereon under applicable law in order to be
perfected; (j) Inventory on lease or rental to any
Person; (k) Inventory purchased or sold on
consignment; and (l) Inventory acquired or held for
sale, lease, or other disposition to, or for use in
the operations of, any other Borrower, any Guarantor,
or any Affiliate of any thereof. General criteria for
Eligible Inventory may be established and revised
from time to time by Lender in good faith. Any
Inventory which is not Eligible Inventory shall
nevertheless be part of the Collateral.
"Jersey" shall mean Jersey Bus Sales, Inc., a New
Jersey corporation.
"Value" shall mean, as determined by Lender in good
faith, with respect to Inventory, the lesser of (a)
the actual cost determined on a specific
identification basis in accordance with GAAP or, in
the case of used buses, computed in accordance with
such other method as is acceptable to Lender in its
sole discretion, and (b) the net realizable value of
such Inventory determined in accordance with GAAP.
(b) Section 1.20 of the Loan Agreement is amended by: (i)
amending subsection (c) of such Section to refer to "Section 7.2(b)" instead of
"Section 7.2(c)"; (ii) redesignating subsection (p) of such Section as
subsection (q); and (iii) deleting "and" at the end of subsection (o) and adding
the following additional subsection following subsection (o) of such Section:
"(p) such Accounts do not represent payments
due in respect of the lease or rental of goods; and"
(c) Section 1.40 of the Loan Agreement is amended in its
entirety to read as follows:
3
<PAGE>
"Inventory" of a Borrower shall mean (i) for all
Borrowers other than Central and Jersey, all of such
Borrower's now owned and hereafter existing or
acquired inventory consisting of fuel and oil and
other supplies used or useful in such Borrower's
business and spare parts for vehicles, wherever
located, and (ii) for Central and Jersey, all of such
Borrower's now owned or hereafter existing or
acquired raw materials, work in process, finished
goods, and all other inventory of whatsoever kind or
nature, wherever located.
(d) Section 2.1(a) of the Loan Agreement is amended in its
entirety to read as follows:
2.1 Revolving Loans.
(a) Subject to, and upon the terms and conditions
contained herein, Lender agrees to make Revolving
Loans to each Borrower from time to time in amounts
requested by such Borrower or the Borrowers'
Representative up to an amount, which, when taken
together with all other Revolving Loans which are
outstanding to Borrowers, does not exceed the sum of:
(i) eighty-five (85%) percent of the aggregate Net
Amount of Eligible Accounts of all Borrowers, plus
(ii) the lesser of: (A) the sum of (1) eighty (80%)
percent of the aggregate Value of Eligible Inventory
of Central and Jersey consisting of new buses plus
(2) the lesser of: (x) $1,000,000 and (y) fifty (50%)
percent of the aggregate Value of Eligible Inventory
of Central and Jersey consisting of used buses; or
(B) $10,000,000, less
(iii) any Availability Reserves.
(e) Section 2.1(b) of the Loan Agreement is amended in its
entirety to read as follows:
(b) Lender may, in its discretion, from time to time,
upon not less than five (5) Business Days prior
telephonic notice to Borrowers' Representative (which
may, in Lender's sole discretion, be confirmed by
Lender in writing at any time thereafter without
limiting the effectiveness of the original telephonic
notice), (i) reduce the lending formula with respect
to Eligible Accounts to the extent that Lender
determines in good faith that: (A) the dilution with
respect to the Accounts for any period (based on the
ratio of (1) the aggregate amount of reductions in
Accounts other than as a result of payments in cash
to (2) the aggregate amount of total revenues) has
increased in any material respect or may be
reasonably
4
<PAGE>
anticipated to increase in any material respect above
historical levels, or (B) the general
creditworthiness of account debtors has declined or
(ii) reduce any of the lending formulas with respect
to Eligible Inventory to the extent that Lender
determines that: (A) the number of days of the
turnover of the Inventory for any period has changed
in any material respect or (B) the liquidation value
of the Eligible Inventory, or any category thereof,
has decreased, or (C) the nature and quality of the
Inventory has deteriorated. In determining whether to
reduce any of the lending formulas, Lender may
consider events, conditions, contingencies or risks
which are also considered in determining Eligible
Accounts, Eligible Inventory or in establishing
Availability Reserves.
(f) Section 2.1 of the Loan Agreement is amended by adding the
following subsection (d) at the end thereof:
(d) For purposes only of applying the sublimit on
Revolving Loans based on Eligible Inventory pursuant
to Section 2.1(a)(ii)(B), Lender may treat the then
undrawn amounts of outstanding Letter of Credit
Accommodations for the purpose of purchasing Eligible
Inventory as Revolving Loans to the extent Lender is
in effect basing the issuance of the Letter of Credit
Accommodations on the Value of the Eligible Inventory
being purchased with such Letter of Credit
Accommodations. In determining the actual amounts of
such Letter of Credit Accommodations to be so treated
for purposes of the sublimit, the outstanding
Revolving Loans and Availability Reserves shall be
attributed first to any components of the lending
formulas in Section 2.1(a) that are not subject to
such sublimit, before being attributed to the
components of the lending formulas subject to such
sublimit.
(g) Section 2.2(c) of the Loan Agreement is amended in its
entirety to read as follows:
(c) No Letter of Credit Accommodations shall be
available unless on the date of the proposed issuance
of any Letter of Credit Accommodations, the Revolving
Loans available to the Borrowers (subject to the
Maximum Credit and any Availability Reserves) are
equal to or greater than: (i) if the proposed Letter
of Credit Accommodation is for the purpose of
purchasing Eligible Inventory, the sum of (A) the
percentage equal to one hundred (100%) percent minus
the then applicable percentage set forth in Section
2.1(a)(ii)(A) above the Value of such Eligible
Inventory, plus (B) freight, taxes, duty and other
amounts which Lender estimates must be paid in
connection with such Inventory upon arrival and for
delivery to one of Borrowers' locations for Eligible
Inventory within the United States of America and
(ii) if the proposed Letter of Credit Accommodation
is for any other purpose, an amount equal to one
hundred (100%) percent of the
5
<PAGE>
face amount of such proposed Letter of Credit
Accommodations and all other commitments and
obligations made or incurred by Lender with respect
thereto. Effective on the issuance of each Letter of
Credit Accommodation, an Availability Reserve shall
be established in the applicable amount set forth in
Section 2.2(c)(i) or Section 2.2(c)(ii).
(h) Section 7.1 of the Loan Agreement is amended in its
entirety to read as follows:
7.1 Collateral Reporting. Each Borrower shall provide
Lender with the following documents in a form
satisfactory to Lender: (a) on a weekly basis or
other regular basis as required by Lender, a
borrowing base report, which shall be in form,
substance and detail satisfactory to Lender, (b) on a
monthly basis or more frequently as Lender may
request, (i) perpetual inventory reports, (ii)
inventory reports by category and (iii) agings of
accounts payable and accounts receivable, (c) upon
Lender's request, (i) copies of customer statements
and credit memos, remittance advices and reports, and
copies of deposit slips and bank statements, (ii)
copies of shipping and delivery documents, and (iii)
copies of purchase orders, invoices and delivery
documents for Inventory acquired by Central or
Jersey; and (d) such other reports as to the
Collateral as Lender shall request from time to time.
At any time that Excess Availability is less than
$5,000,000, Lender shall have the right to require
the foregoing documents and reports to be provided to
it on a more frequent basis determined by Lender. If
any of a Borrower's records or reports of the
Collateral are prepared or maintained by an
accounting service, contractor, shipper or other
agent, such Borrower hereby irrevocably authorizes
such service, contractor, shipper or agent to deliver
such records, reports, and related documents to
Lender and to follow Lender's instructions with
respect to further services at any time that an Event
of Default exists or has occurred and is continuing.
(i) Section 7 of the Loan Agreement is amended by adding the
following as Section 7.3 and renumbering existing Sections 7.3, 7.4 and 7.5 as
Sections 7.4, 7.5 and 7.6, respectively:
7.3 Inventory Covenants. With respect to the
Inventory: (a) Central and Jersey shall at all times
maintain inventory records reasonably satisfactory to
Lender, keeping correct and accurate records
itemizing and describing the kind, type, quality and
quantity of Inventory, such Borrowers' cost therefor
and daily withdrawals therefrom and additions
thereto; (b) Central and Jersey shall conduct a
physical count of the Inventory at least once each
year, but at any time or times as Lender may request
on or after an Event of Default, and promptly
following such physical inventory shall supply Lender
with a report in the form and with such specificity
as may
6
<PAGE>
be reasonably satisfactory to Lender concerning such
physical count; (c) Central and Jersey shall not
remove any Inventory from the locations set forth or
permitted herein, without the prior written consent
of Lender, except for sales of Inventory in the
ordinary course of such Borrowers' business and
except to move Inventory directly from one location
set forth or permitted herein to another such
location; (d) upon Lender's request, each of Central
and Jersey shall, at its expense, no more than once
in any calendar year, but at any time or times as
Lender may request on or after an Event of Default,
deliver or cause to be delivered to Lender written
reports or appraisals as to its Inventory in form,
scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender
or upon which Lender is expressly permitted to rely;
(e) Central and Jersey shall give Lender not less
than two (2) days prior written notice of any sale,
lease, or other disposition of Inventory to, or use
of any Inventory in the operations of, any other
Borrower, any Guarantor, or any Affiliate of any
thereof, and shall give Lender written notice of the
acquisition or identification of any Inventory for or
to the foregoing purposes, not less than two (2) days
after such acquisition or identification; (f) Central
and Jersey shall produce, use, store and maintain the
Inventory with all reasonable care and caution and in
accordance with applicable standards of any insurance
and in conformity with applicable laws (including the
requirements of the Federal Fair Labor Standards Act
of 1938, as amended, and all rules, regulations and
orders related thereto); (g) Central and Jersey
assume all responsibility and liability arising from
or relating to the production, use, sale or other
disposition of their Inventory; (h) Central and
Jersey shall not sell Inventory to any customer on
approval, or any other basis which entitles the
customer to return or may obligate such Borrower to
repurchase such Inventory; (i) Central and Jersey
shall keep the Inventory in good and marketable
condition; and (j) Central and Jersey shall not,
without prior written notice to Lender, acquire or
accept any Inventory on consignment or approval.
3. (a) Each of Central, Jersey and AELA hereby join in and
become a party to the Loan Agreement as a Borrower and, as a Borrower, hereby
join in and become a party to each other Financing Agreement to which the
Borrowers are parties (including, without limitation, the Borrower Guarantee),
and each of Central and Jersey hereby assume and agree to be bound by and to
perform and discharge each of the Obligations and each other duty, covenant,
agreement, liability, and obligation of the Borrowers under the Loan Agreement
and the Financing Agreements, in each case with the same effect as if Central
and Jersey had been named as Borrowers in and had executed and delivered the
Loan Agreement and such other Financing Agreements. All references in any of the
Financing Agreements to the terms "Borrowers", "Debtors", "us", "we", "our" or
any other term referring to the same shall be deemed and each such reference is
hereby amended to mean and include Central and Jersey.
7
<PAGE>
(b) Each of Chittenango, Jersey and 201 Land hereby
join in and become a party to the Guarantee as a Guarantor and, as a Guarantor,
hereby join in and become a party to each other Financing Agreement to which the
Guarantors are parties (including, without limitation, the Guarantor Security
Agreement), and each of Chittenango and Jersey Land hereby assume and agree to
be bound by and to perform and discharge each of the Obligations and each other
duty, covenant, agreement, liability, and obligation of the Guarantors under the
Guarantee and the Financing Agreements, in each case with the same effect as if
Chittenango and Jersey Land has been named as Guarantors in and had executed and
delivered the Guarantee and such other Financing Agreements. All references in
any of the Financing Agreements to the terms "Guarantors", "Debtors", "us",
"we", "our" or any other term referring to the same shall be deemed and each
such reference is hereby amended to mean and include Chittenango and Jersey
Land.
4. Acknowledgment. Each of the Borrowers (including, without
limitation, Central and Jersey) and each of the Guarantors (including, without
limitation, Chittenango and Jersey Land) hereby acknowledge, confirm and agree
that Existing Borrowers are indebted to Lender for Obligations as of the close
of business on February 9, 1998, in respect of the loans and other credit
accommodations made pursuant to the Financing Agreements in the aggregate
principal amount of approximately $3,852,200.98 together with interest accrued
and accruing thereon, and together with costs, expenses, fees (including
attorneys' fees and legal expenses) and other charges now or hereafter owed by
Existing Borrowers to Lender, all of which are unconditionally owing by Existing
Borrowers to Lender, without offset, defense or counterclaim of any kind, nature
and description whatsoever.
5. Conditions Precedent. The amendments to the Loan Agreement
set forth in Section 2 shall not be effective unless and until each of the
following conditions precedent is satisfied as determined by Lender:
(a) each of Borrowers and Guarantors shall
have executed and delivered to Lender this Amendment;
(b) each of the Guarantors shall have
executed and delivered the acknowledgement attached
hereto to Lender;
(c) the Collateral Agent shall have executed
and delivered to Lender an amendment to the
Intercreditor Agreement, in form and substance
satisfactory to Lender;
(d) Lender shall have received evidence,
including, without limitation, lien and title
searches in form and substance satisfactory to
Lender, that after giving effect to the amendments
affected hereby, and the consummation of the other
transactions contemplated hereby, Lender has a valid
and perfected first priority security interest in and
lien on the Collateral and any other property which
is intended to be security for the Obligations;
8
<PAGE>
(e) Borrowers and Guarantors shall have
delivered to Lender copies of requisite corporate
action and proceedings in connection with this
Amendment, in form and substance satisfactory to
Lender and, where requested by Lender or Lender's
counsel, certified by appropriate corporate officers
or governmental authorities;
(f) Lender shall have received from each of
Central, Jersey, AELA, Chittenango, 201 and Jersey
Land evidence of insurance and loss payee
endorsements required under the Financing Agreements,
in form and substance acceptable to Lender, and
certificates of insurance policies and/or
endorsements naming Lender as loss payee;
(g) Lender shall have received, in form and
substance satisfactory to Lender, all such consents,
acknowledgments, amendments and other agreements from
third parties which Lender may deem necessary or
desirable in order to permit, protect and perfect,
and/or to assure the continuing full force and
effectiveness of, after giving effect to amendment
and agreements contained in this Amendment, (i)
Lender's security interests in and liens on the
Collateral or any other property which is intended to
be security for the Obligations, and (ii) any
consents or agreements with which Lender has been
provided, or which have been made in Lender's favor
or for Lender's benefit, at any time in connection
with the financing provided by Lender pursuant to the
Financing Agreements;
(h) Lender shall have received an opinion or
opinions of counsel, in form and substance and from
counsel satisfactory to Lender, covering such matters
relating to this Amendment, the transactions
contemplated hereby, and the other Financing
Agreements and such other matters as Lender shall
request;
(i) each of the representations and
warranties of Borrowers and Guarantors set forth in
the Loan Agreement and each of the other Financing
Agreements is true and correct in all material
respects as of such date; and
(j) immediately prior to, and immediately
after giving effect to, the amendments and agreements
set forth herein, there shall exist no Event of
Default or event or condition which, with the giving
of notice or the passage of time or both, would
constitute an Event of Default.
6. Expenses. Each of Borrowers and Guarantors confirms that,
under the Loan Agreement, it shall pay Lender's attorneys' fees and reasonable
expenses incurred in connection with this Amendment and the transactions
contemplated hereby.
9
<PAGE>
7. Ratification. Each of Borrowers and Guarantors hereby
ratify, assume, adopt and agree to be bound by the Financing Agreements and
agree to pay all of the Obligations arising thereunder in accordance with the
terms of the Financing Agreements. Except as expressly set forth herein, the
Loan Agreement and the other Financing Agreements are not modified hereby and
each shall remain in full force and effect in accordance with the respective
provisions thereof on the date hereof, and the Loan Agreement and the other
Financing Agreements are each in all respects ratified and affirmed. Lender's
agreements herein shall not be construed to require Lender to make any amendment
to the Loan Agreement or any other Financing Agreements, on any other occasion,
regardless of the similarity of circumstances. The amendments contained herein
shall not be construed to limit or waive any of Lender's rights and remedies
under the Financing Agreements with respect to any Event of Default occurring
hereafter or any currently existing Event of Default not expressly waived
herein.
8. Representations and Warranties. Without limiting any other
provision of this Amendment, and as an inducement to Lender to enter into this
Amendment, (a) each of Borrower and Guarantor hereby: (i) represents, warrants
and agrees that the Loan Agreement, this Amendment and the other Financing
Agreements to which it is a party, after giving effect to all amendments and
agreements contained herein, constitute its valid and binding obligations,
enforceable against it in accordance with their respective terms, without
defenses, offsets or counterclaims; and (ii) represents and warrants that (A)
each of the representations and warranties of such Borrower or Guarantor set
forth in the Loan Agreement and the other Financing Agreements is true and
correct in all material respects, as of the date hereof; and (B) after giving
effect to this Amendment, there exists no Event of Default or event or condition
which, with the giving of notice or the passage of time or both, would
constitute an Event of Default, and (b) each of Jersey, Central, Chittenango,
and Jersey Land represents, warrants and agrees that: (i) it is a corporation
duly organized and in existence and good standing under the laws of the state of
its incorporation, and is duly qualified or registered as a foreign corporation
and in good standing in all other jurisdictions where the nature and extent of
the business transacted by it or its ownership of property makes such
qualification or registration necessary; and (ii) the execution, delivery and
performance of this Amendment and the other Financing Agreements to which it is
a party, and all borrowings or guarantees contemplated hereby and thereby, after
giving effect to all amendments and agreements contained herein, are within its
power, have been duly authorized by all necessary corporate or other action and
are not in contravention of the terms of any of its articles of incorporation,
by-laws or other organizational documentation or any law, regulation, decree,
order, judgement, indenture, agreement or undertaking to which it is a party or
by which it or any of its property is bound.
9. Governing Law. This Amendment shall be construed in
accordance with and governed by the laws of the State of New York, without
giving effect to any conflicts of laws provisions of such State.
10. Headings. The headings indicated herein are inserted for
convenience only and shall not be considered a part of this Amendment, nor in
any way limit the construction or interpretation of this Amendment.
10
<PAGE>
11. Amendments and Waivers. Neither this Amendment 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 be 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.
12. Counterparts. This Amendment may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
11
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed
and delivered by each of the parties hereto by a duly authorized officer of each
such party on the date first set forth above.
LENDER BORROWERS
- ------ ---------
CONGRESS FINANCIAL CORPORATION AMBOY BUS CO., INC.
By: Lawrence S. Forte By:/s/ Domenic Gatto
-------------------------- ---------------------------
Title: President
Title: First Vice President
--------------------------
Address: Chief Executive Office:
- -------- ---------------------------
1133 Avenue of the Americas 7 North Street
New York, New York 10036 Staten Island, New York 10302
ATLANTIC-CONN. TRANSIT, INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
Chief Executive Office:
-----------------------------
7 North Street
Staten Island, New York 10302
ATLANTIC-HUDSON, INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
Chief Executive Office:
-------------------------
7 North Street
Staten Island, New York 10302
12
<PAGE>
ATLANTIC PARATRANS, INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
Chief Executive Office:
----------------------------
7 North Street
Staten Island, New York 10302
ATLANTIC PARATRANS OF KENTUCKY
INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
Chief Executive Office:
----------------------------
7 North Street
Staten Island, New York 10302
ATLANTIC COACHWAYS, INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
Chief Executive Office:
----------------------------
7 North Street
Staten Island, New York 10302
ATLANTIC EXPRESS OF MISSOURI, INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
13
<PAGE>
Chief Executive Office:
----------------------------
7 North Street
Staten Island, New York 10302
ATLANTIC EXPRESS OF
PENNSYLVANIA, INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
Chief Executive Office:
7 North Street
Staten Island, New York 10302
BROOKFIELD TRANSIT INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
Chief Executive Office:
----------------------------
7 North Street
Staten Island, New York 10302
COURTESY BUS CO., INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
Chief Executive Office:
----------------------------
7 North Street
Staten Island, New York 10302
14
<PAGE>
K. CORR, INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
Chief Executive Office:
----------------------------
7 North Street
Staten Island, New York 10302
MERIT TRANSPORTATION CORP.
By:/s/ Domenic Gatto
-------------------------
Title: President
Chief Executive Office:
----------------------------
7 North Street
Staten Island, New York 10302
METROPOLITAN ESCORT SERVICE,
INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
Chief Executive Office:
-----------------------------
7 North Street
Staten Island, New York 10302
RAYBERN BUS SERVICE, INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
15
<PAGE>
Chief Executive Office:
-------------------------
7 North Street
Staten Island, New York 10302
RAYBERN CAPITAL CORP.
By:/s/ Domenic Gatto
-------------------------
Title: President
Chief Executive Office:
-------------------------
7 North Street
Staten Island, New York 10302
RAYBERN EQUITY CORP.
By:/s/ Domenic Gatto
-------------------------
Title: President
Chief Executive Office:
-------------------------
7 North Street
Staten Island, New York 10302
STATEN ISLAND BUS, INC.
Chief Executive Office:
-------------------------
By:/s/ Domenic Gatto
-------------------------
Title: President
7 North Street
Staten Island, New York 10302
CENTRAL NEW YORK COACH SALES &
SERVICE, INC.
16
<PAGE>
By:/s/ Domenic Gatto
-------------------------
Title: President
Chief Executive Office:
-------------------------
JERSEY BUS SALES, INC.
Chief Executive Office:
-------------------------
______________________________
______________________________
ATLANTIC EXPRESS OF L.A. INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
Chief Executive Office:
-------------------------
______________________________
______________________________
PARENT
ATLANTIC EXPRESS TRANSPORTATION
CORP.
By:/s/ Domenic Gatto
-------------------------
Title: President
Chief Executive Office:
-------------------------
7 North Street
Staten Island, New York 10302
GUARANTORS
----------
ATLANTIC EXPRESS
TRANSPORTATION CORP.
17
<PAGE>
By:/s/ Domenic Gatto
-------------------------
Title: President
CHIEF EXECUTIVE OFFICE:
-------------------------
7 North Street
Staten Island, New York 10302
BLOCK 7932, INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
CHIEF EXECUTIVE OFFICE:
-------------------------
7 North Street
Staten Island, New York 10302
G.V.D. LEASING CO., INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
CHIEF EXECUTIVE OFFICE:
-------------------------
7 North Street
Staten Island, New York 10302
180 JAMAICA CORP.
By:/s/ Domenic Gatto
-------------------------
Title: President
CHIEF EXECUTIVE OFFICE:
-------------------------
7 North Street
Staten Island, New York 10302
18
<PAGE>
METRO AFFILIATES, INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
CHIEF EXECUTIVE OFFICE:
-------------------------
7 North Street
Staten Island, New York 10302
MIDWAY LEASING INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
CHIEF EXECUTIVE OFFICE:
-------------------------
7 North Street
Staten Island, New York 10302
TEMPORARY TRANSIT SERVICE,
INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
CHIEF EXECUTIVE OFFICE:
-------------------------
7 North Street
Staten Island, New York 10302
ATLANTIC-CHITTENANGO REAL
PROPERTY CORP.
By:/s/ Domenic Gatto
-------------------------
Title: President
19
<PAGE>
CHIEF EXECUTIVE OFFICE:
-------------------------
7 North Street
Staten Island, New York 10302
JERSEY BUSINESS LAND CO. INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
CHIEF EXECUTIVE OFFICE:
-------------------------
7 North Street
Staten Island, New York 10302
201 WEST SOTELLO REALTY, INC.
By:/s/ Domenic Gatto
-------------------------
Title: President
CHIEF EXECUTIVE OFFICE:
-------------------------
______________________________
______________________________
20
<PAGE>
Each of the undersigned, in its capacity as the guarantor under a
Guarantee dated February 4, 1997 made in favor of Lender (the "Guarantee") with
respect to the obligations of one or all of the Existing Borrowers (as such term
is defined in the foregoing Amendment) hereby (i) confirms that it has reviewed
the foregoing Amendment and is familiar with its contents, and (ii) represents,
warrants and agrees that after giving effect to the Amendment and the
transactions contemplated thereby, (a) the Guarantee continues to be in full
force and effect, is their valid and binding obligation enforceable in
accordance with its terms, and is not subject to any defense, setoff or
counterclaim, and (b) the terms "Obligor" and "Borrower" as defined in the
Guarantee include each of Central and Jersey (as defined in the foregoing
Amendment), and (c) the Guaranteed Obligations (as defined in the Guarantee)
include, without limitation, all indebtedness, liabilities, obligations, and
agreements of any kind, now existing or hereafter arising, which arise under, in
connection with, or as a result of the Amendment or any transaction thereunder,
including, without limitation, any and all indebtedness, liabilities and
obligations of Central and Jersey to Lender. Each of such Guaranteed Obligations
is secured by any property in which it has granted or may hereafter grant Lender
a security interest or lien as security for the Guarantee.
Dated: May 18, 1998
GUARANTORS
- ----------
ATLANTIC EXPRESS
TRANSPORTATION CORP.
By:/s/ Domenic Gatto
-----------------
Title: President
CHIEF EXECUTIVE OFFICE:
- -----------------------
7 North Street
Staten Island, New York 10302
BLOCK 7932, INC.
By:/s/ Domenic Gatto
-----------------
Title: President
21
<PAGE>
CHIEF EXECUTIVE OFFICE:
- -----------------------
7 North Street
Staten Island, New York 10302
G.V.D. LEASING CO., INC.
By:/s/ Domenic Gatto
-----------------
Title: President
CHIEF EXECUTIVE OFFICE:
- -----------------------
7 North Street
Staten Island, New York 10302
180 JAMAICA CORP.
By:/s/ Domenic Gatto
-----------------
Title: President
CHIEF EXECUTIVE OFFICE:
- -----------------------
7 North Street
Staten Island, New York 10302
METRO AFFILIATES, INC.
By:/s/ Domenic Gatto
-----------------
Title: President
22
<PAGE>
CHIEF EXECUTIVE OFFICE:
- -----------------------
7 North Street
Staten Island, New York 10302
MIDWAY LEASING INC.
By:/s/ Domenic Gatto
-----------------
Title: President
CHIEF EXECUTIVE OFFICE:
- -----------------------
7 North Street
Staten Island, New York 10302
TEMPORARY TRANSIT SERVICE,
INC.
By:/s/ Domenic Gatto
-----------------
Title: President
CHIEF EXECUTIVE OFFICE:
- -----------------------
7 North Street
Staten Island, New York 10302
ATLANTIC-CHITTENANGO REAL
PROPERTY CORP.
By:/s/ Domenic Gatto
-----------------
Title: President
23
<PAGE>
CHIEF EXECUTIVE OFFICE:
- -----------------------
7 North Street
Staten Island, New York 10302
JERSEY BUSINESS LAND CO. INC.
By:/s/ Domenic Gatto
-----------------
Title: President
CHIEF EXECUTIVE OFFICE:
- -----------------------
______________________________
______________________________
201 WEST SOTELLO REALTY, INC.
By:/s/ Domenic Gatto
-------------------
Title: President
CHIEF EXECUTIVE OFFICE:
- -----------------------
______________________________
______________________________
24
<PAGE>
Exhibit 10.21
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.
<PAGE>
SECTION 2 GUARANTEE BY RESTRICTED SUBSIDIARIES.
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.
2
<PAGE>
Section 3.2 Continuing Agreement.
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
GUARANTORS
<TABLE>
<S> <C>
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.
</TABLE>
By: /s/ Domenic Gatto
---------------------------
Name: Domenic Gatto
Title: President
4
<PAGE>
THE BANK OF NEW YORK, as Trustee
By: /s/ Van K. Brown
-------------------------
Name: Van K. Brown
Title: Assistant Vice President
5
<PAGE>
SCHEDULE 21
Subsidiaries of Atlantic Express Transportation Corp.
Amboy Bus Co., Inc.
Atlantic-Conn. Transit, Inc.
Atlantic-Chittenango Real Property Corp.
Atlantic Express Coachways, Inc.
Atlantic Express of L.A. Inc.
Atlantic Express of Missouri Inc.
Atlantic Express of Pennsylvania, Inc.
Atlantic-Hudson, Inc.
Atlantic Paratrans, Inc.
Atlantic Paratrans of Kentucky Inc.
Block 7932, Inc.
Brookfield Transit Inc.
Central New York Coach Sales & Service, Inc.
Courtesy Bus Co., Inc.
Jersey Bus Sales, Inc.
Jersey Business Land Co. Inc.
K. Corr, Inc.
Metro Affiliates, Inc.
Metropolitan Escort Service, Inc.
Merit Transportation Corp.
Midway Leasing Inc.
Raybern Bus Service, Inc.
G.V.D. Leasing Co., Inc.
Raybern Capital Corp.
Raybern Equity Corp.
Staten Island Bus, Inc.
Temporary Transit Service, Inc.
180 Jamaica Corp.
201 West Sotello Realty, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10K at
June 30, 1998 and is Qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 13,772,537
<SECURITIES> 7,877,937
<RECEIVABLES> 41,220,020
<ALLOWANCES> 1,520,000
<INVENTORY> 10,762,839
<CURRENT-ASSETS> 69,570,417
<PP&E> 187,378,609
<DEPRECIATION> 87,491,555
<TOTAL-ASSETS> 206,485,301
<CURRENT-LIABILITIES> 22,187,928
<BONDS> 157,925,690
0
0
<COMMON> 250,000
<OTHER-SE> 19,919,572
<TOTAL-LIABILITY-AND-EQUITY> 206,485,301
<SALES> 58,844,938
<TOTAL-REVENUES> 261,918,194
<CGS> 51,268,341
<TOTAL-COSTS> 238,726,394
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,243,810
<INTEREST-EXPENSE> 17,751,883
<INCOME-PRETAX> (5,730,787)
<INCOME-TAX> (4,614,597)
<INCOME-CONTINUING> (3,224,453)
<DISCONTINUED> (10,345,384)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,120,931)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
