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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, 1999 or
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)
New York 13-392-3467
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
7 North Street, Staten Island, New
York 10302-1205
(Address of principal executive (Zip Code)
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
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 filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |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's
classes of common stock, as of the latest practicable date.
As of September 28, 1999, 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, a wholly owned subsidiary of AETG, is one of the largest
providers of school bus transportation in the United States. The Company has
contracts with 69 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 4,600 vehicles operating from 34 facilities and provides bus sales
from four facilities.
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 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.
Recent Transactions
Certain of the Recent Transactions discussed below occurred after June 30,
1999, 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 October 27, 1998, the holders of a majority in
principal amount of the Company's 10 3/4% Senior Secured Notes due 2004 (the
"Notes") consented to an amendment to the Indenture (the "Consent") relating to
the Notes which in substance exempted the transactions contemplated by a
Recapitalization and Stock Purchase Agreement (the "Recapitalization") from the
definition of "Change of Control" under the Indenture. On November 4, 1998 the
Recapitalization was consummated. As a result, GSCP II Holdings (AE), LLC,
("Buyer") an affiliate of Greenwich Street Capital Partners, Inc. a New York
based private equity fund, acquired an approximately 88% equity interest in a
recapitalized Atlantic Express Transportation Group, Inc. ("AETG") which owns
all of the issued and outstanding shares of capital stock of the Company.
New School Bus Contracts. In May 1999, the Company was awarded an
additional contract for up to 65 buses by the Voluntary Interdistrict
Coordinating Council. This contract requires capital expenditures of
approximately $3 million for purchase of vehicles.
New Paratransit Contracts. In September 1998, the Company was awarded a
five-year contract to provide paratransit services to Denver, Colorado by the
Regional Transit District of Denver ("RTD"). Pursuant to the contract, RTD
provided the Company with all of the required vehicles and, as a result, the
Company was not required to make significant capital expenditures to fulfill its
obligations thereunder. In June 1999, the Company signed a contract modification
with the New York City Transit Authority ("T.A."), to provide additional service
hours which will increase its expected revenues by approximately
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$34 million dollars over the last two years of the contract (June 1999 to May
2001). The T.A. is required to provide all of the vehicles to perform this
modification.
Sale of Entertainment Note. On November 4, 1998, the Company sold a
promissory note, which had an original principal amount of $4.6 million, made by
three subsidiaries of AETG's entertainment division (the "Entertainment Note")
to Domenic Gatto, a shareholder and executive officer of the Company and Michael
and Patrick Gatto, former shareholders and executive officers of the Company.
The sales price was $510,000 (the book value of the note), plus an amount equal
to one-half of the net proceeds received from any sale of assets of two of the
subsidiaries within a 12 month period from the date of closing. As of September
21, 1999 there has been no sale of assets and the Company will have no interest
in any proceeds from a sale of assets after November 4, 1999 (see Item 13 -
Certain Relationships and Related Transactions).
Sale of Subsidiaries. Effective April 1, 1999, the Company sold five
subsidiaries, acquired during the second quarter of fiscal 1999, to an affiliate
for a price equal to its original investment in these subsidiaries plus their
net earnings since the dates of acquisition. In addition to the sales price of
$7.5 million, the Company was repaid $2.8 million of inter-company advances made
to these subsidiaries. The gross proceeds ($10.3 million) were received on April
28, 1999 and used to reduce borrowings under the Company's revolving line of
credit.
Accounts Purchase and Sale Agreement. In July 1999 the Company entered
into an agreement (the "Receivable Agreement") with Congress Financial
Corporation ("Congress"), its revolving credit lender, to sell Congress, without
recourse, up to $15.0 million of accounts receivable of the Company. Under the
Receivable Agreement, Congress purchases receivables at the gross amount of such
accounts (less three and one-quarter percent purchase commission) and
immediately credits 85% of this amount to the Company, with the balance paid to
the Company upon Congress receiving cumulative collections on all receivables
purchased in excess of the purchase price previously credited. This agreement
will terminate on November 1, 1999.
Transportation Operations
School Bus Division. The School Bus Division is Atlantic's largest division. The
Company has contracts to provide school bus transportation in 69 school
districts in New York, Missouri, California, Pennsylvania, Connecticut and New
Jersey. The Company's revenues from school bus operations have increased at a
compound annual growth rate of 18.6%, from $96.2 million in fiscal 1995 to
$190.2 million in fiscal 1999.
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. Daily vehicle rates earned
under contract renewals are generally increased from previous rates by
application of the Consumer Price Index ("CPI"). The Company's costs could
outpace such revenue increases. 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.
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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 contracts with the Board of Education of the City
of New York ("New York Board of Education") 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, which aggregated approximately $38 million at June 30, 1999.
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 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 New York Board of Education accounted for 39.5%, 42.9% and 46.1% of
the Company's revenues from Transportation Operations in fiscal 1999, 1998 and
1997, respectively. The Company's 17 contracts with the New York Board of
Education will expire on June 30, 2000. These contracts have been successively
extended for terms of up to five years since 1982. Although the Company has
engaged in preliminary discussions concerning further extensions, there can be
no assurance that the current contracts will be extended beyond June 30, 2000.
No other customer contributed greater than 7% of the Company's revenues from
Transportation Operations 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 $36.6 million in
fiscal 1999. 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 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 as contracts previously awarded to other operators expire.
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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 detailed information about the
disabilities of the passengers which the Company transports. The Company has
also developed and implemented complex and comprehensive routing and schedule
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, 1999, the Company had
approximately 800 vehicles consisting of full-size four-door sedan automobiles
and lift-equipped vans to service its paratransit 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.
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 service;
(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; Denver, Colorado and
Philadelphia County, Pennsylvania. Management believes that its T. A. 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
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 are determined
pursuant to public bidding. 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 and receives compensation based upon a daily rate per
person transported, which rates of compensation vary based upon ambulatory and
non-ambulatory passengers. At June 30, 1999, the Company utilized approximately
100 vehicles in the performance of these contracts.
The Company generated approximately 2.4% of its Transportation Operations
revenues in fiscal 1999 from its Pre-K/Medicaid Division.
Coach Division. The Company provides express commuter, charter and tour bus
transportation services with a fleet of 35 luxury motor coaches and 15 mini
coaches.
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For the year ended June 30, 1999, daily express commuter services were
provided to approximately 625 passengers from a "Park and Ride" facility in
Staten Island, New York to and from Manhattan.
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 2.4%
of the Company's Transportation Operations revenues in fiscal 1999.
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 driver's
performances 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, 1999, the Company had a fleet of
4,640 vehicles and the average age of the Company's fleet, exclusive of vehicles
provided by various transportation authorities, was 6.4 years (7.0 years for
school buses, which account for 56.9% of the Company's fleet). School buses have
an average useful life of approximately 16 years.
At June 30, 1999, the fleet was maintained by the Company's trained
mechanics at its 34 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 owned vehicles at
June 30, 1999 by age:
<TABLE>
<CAPTION>
Lift/ Service
Minivans Ramp and
School And Equipped Support
Buses Cars Vehicles Coaches Vehicles Total
------ -------- --------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Less than 2 yrs. old ............ 337 56 100 2 3 498
2-5 yrs. old .................... 827 438 195 5 22 1,487
5-10 yrs old .................... 469 237 103 29 24 862
10-15 yrs. old .................. 897 92 70 9 1,068
Greater than 15 years ........... 15 2 6 23
------ -------- --------- ------- ------ -----
Total ........................... 2,545 825 468 36 64 3,938
====== ======== ========= ======= ====== =====
</TABLE>
The following is a breakdown of the Company's fleet of leased vehicles at
June 30, 1999 by age:
<TABLE>
<CAPTION>
Lift/ Service
Minivans Ramp and
School And Equipped Support
Buses Cars Vehicles Coaches Vehicles Total
------ -------- --------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Less than 2 yrs. old ........... 21 21
2-5 yrs. old ................... 92 44 43 14 17 210
5-10 yrs old ................... 1 5 1 7
10-15 yrs. old ................. 0
Greater than 15 years .......... 0
------ -------- --------- ------- ------ -----
Total .......................... 93 44 69 14 18 238
====== ======== ========= ======= ====== =====
</TABLE>
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In addition to the vehicles in the tables above, at June 30, 1999 the
Company operated 464 vehicles provided by various transportation authorities
pursuant to their respective contracts.
Employees. At June 30, 1999, the Company had over 6,850 employees to provide
transportation services, consisting of approximately 4,800 drivers, 1,100
escorts, 450 mechanics and 50 other employees. In addition, there were
approximately 450 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, 1999, approximately 76% of the Company's Transportation
Operation employees were members of various labor unions and the Company was a
party to 22 collective bargaining agreements, seven of which, covering
approximately 1,700 employees, expire over the next two years including four
which expired between August and September 1999. The Company is currently
negotiating to renew the four expired agreements plus is negotiating one
additional collective bargaining agreement covering approximately 100 unionized
employees of the School Bus Division. Management does not believe that the
results of the current negotiations will result in a material increase in its
labor costs, although no assurance can be given as to the outcome of these
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, 1999, approximately 37% 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 Guaranty 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.
Competition. The school bus transportation industry and paratransit operations
are 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 and paratransit 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 and
Ryder ATE, divisions of Ryder System, Inc., the second largest company, and
Durham Transportation Inc., in addition to other regional and local companies.
Bus Sales Operations
The Company entered the bus sales business in 1997 through the acquisition
of Central. Central, which has non-exclusive distribution contracts, is the
leading authorized distributor of school buses
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manufactured by Blue Bird Body Company ("Blue Bird"), which is the leading
manufacturer of school buses in North America. While there are various other
distributors of buses in Central's distribution area, the Company believes that
Central has a greater than 45% market share for sales of school buses in its
distribution territory.
The Company's Bus Sales Operations sells school buses and commercial
vehicles within New Jersey and various counties in New York. The majority of
buses purchased by the Company are for pre-existing orders. The Company
generated approximately 25.4% and 22.5% of its total revenues from this
operation in fiscal 1999 and 1998, respectively.
The Bus Sales Operations are seasonal in nature. Approximately 43% and 47%
of the annual sales of Bus Sales Operations occurred in the quarters ended
September 30, 1999 and 1998, respectively. In addition, the working capital
needs of the operation have tended to increase during this quarter in response
to the higher seasonal sales volume and because inventory is at its highest
during July and August prior to seasonal school bus deliveries.
At June 30, 1999, the Company employed approximately 160 people in its Bus
Sales Operations, none of which were members of collective bargaining groups.
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 and automobile liability
insurance of $100 million per occurrence with no deductible; and (ii) statutory
workers' compensation and employers' liability insurance, subject to no
deductible. Beyond the occurrence limits mentioned herein, the automobile
liability coverage provides indemnity for an unlimited number of occurrences and
general liability coverage provides $100 million aggregate coverage per
location. The Company's insurance policies provide coverage for a one year term
and are, therefore, subject to annual renewal.
Prior to January 1, 1999, the Company self-insured its annual automobile
and workers' compensation insurance deductibles through Atlantic North Casualty
Company ("Atlantic North"), a wholly owned captive insurance company chartered
in Vermont. Atlantic North's total claims were partially funded by premiums
charged to operating companies, which, in turn, were limited to the amount of
the combined deductibles on the Company's automobile and workers' compensation
insurance policies ($7.5 million in the last fiscal year).
In addition, the Company maintains catastrophic coverage of $25 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.
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 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. As with most transportation companies,
the Company could incur significant costs related to environmental compliance or
remediation; these costs however, most likely would be incurred over a period of
years. Compliance with Environmental Laws or more vigorous enforcement policies
of regulatory agencies, or stricter or different interpretations of such laws
and future regulatory action regarding soil or groundwater, may require material
expenditures by the Company.
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Under various Environmental Laws a current or previous owner of real
estate or operations 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 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, regulation 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 inquires, 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 became 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
approximately $400,000. 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 (i) vehicle standards and equipment maintenance;
(ii) qualification, training and testing of employees; and (iii) qualification
and maintenance of operating facilities. The Company's vehicles are subject to
federal motor vehicle safety standards established by the National Highway
Traffic Safety Administration ("NHTSA"). Specific standards are promulgated by
the NHTSA with regard to school buses pursuant to the School Bus Safety Act of
1974. The Company's vehicles are also subject to the laws and regulations of
each state in which it operates, which are often more stringent than applicable
federal requirements. For example, in New York State, in addition to federal
standards, regulations promulgated by the New York State Department of Motor
Vehicles and the New York State Department of Transportation ("NYSDOT") require
that school buses be equipped with high back seats, left-handed 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.
8
<PAGE>
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 Transportation Operations
and Bus Sales Operations are also required to be maintained in accordance with
regulations promulgated by various federal and state agencies including
departments including departments of education, departments of motor vehicles,
and state departments of transportation.
Item 2. PROPERTIES
Subsidiaries of the Company provide transportation operation services from
34 facilities (of which four are owned, 28 are leased and two which are
partially owned and partially leased) in eight states. The facilities are
utilized for bus storage, repair and maintenance and/or administrative purposes.
The Company believes that its facilities are adequate to service its present
business and the currently anticipated expansion of existing operations.
Bus Sales Operations are provided from four facilities (of which two are
owned and two are leased) in two states.
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. In the action
the Company claimed that the New York Board of Education (i) improperly changed
the comparison years pursuant to which contractors established their increased
costs for purposes of qualifying for annual rate increases; and (ii) incorrectly
calculated costs associated with transportation contracts which resulted in an
erroneous determination of applicable daily rates of compensation. The first of
the two claims has been dismissed. The second claim is still pending. 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 one million dollars 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 financial position or results of operations of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
<PAGE>
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 made distributions to AETG of $229,049, $557,955 and
$349,512 in fiscal 1999, 1998 and 1997, respectively.
Item 6. SELECTED FINANCIAL DATA
The selected financial data for each of the years in the three-year period
ended June 30, 1999 were derived from the audited historical Consolidated
Financial Statements of the Company included elsewhere in this Form 10-K. The
information contained in this table should be read in conjunction with Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the historical Consolidated Financial Statements of the Company,
including the notes thereto, included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
($ in millions)
---------------
1995 1996 1997 1998 1999
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating Data:
Revenues ............................... $114.0 $142.6 $166.1 $261.9 $321.5
Income from operations ................. 5.8 7.3 7.4 11.8 17.7
Income (loss) before extraordinary items 1.5 1.4 (0.6) (7.1) (2.3)
Net Income (loss) ...................... 2.6 1.4 (1.7) (7.1) (2.3)
Balance Sheet Data:
Total assets ........................... 83.0 104.4 154.4 206.5 231.5
Long-term debt ......................... 42.3 59.7 110.5 157.9 181.3
Total stockholder's equity ............. 28.1 29.5 27.6 20.2 20.9
</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 69 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
"Transportation Operations") and sells school buses and commercial vehicles (the
"Bus Sales Operations"). At June 30, 1999, Atlantic had a fleet of approximately
4,600 vehicles operating from 34 facilities and provided bus sales from four
facilities.
10
<PAGE>
For each of the years in the three year period ended June 30, 1999, the
percentage of revenues from the Company's business segments were as follows:
1999 1998 1997
---- ---- ----
Transportation Operations ................ 74.6% 77.5% 100%
Bus Sales Operations ..................... 25.4% 22.5% 0%
The School Bus Division accounted for 79.3%, 79.1% and 81.3% of the
Company's Transportation Operation revenues for each of fiscal 1999, 1998 and
1997, 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 Paratransit Division, which accounted for 15.3%, 14.9% and 11.5% of
the Company's Transportation Operation revenues in fiscal 1999, 1998 and 1997,
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 contacts 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 4% of the
Company's Transportation Operation 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 2.4%, 2.6% and 3.4% of the
Company's Transportation Operation revenues in fiscal 1999, 1998 and 1997,
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 25.4% and 22.5% of the
Company's total revenues in fiscal 1999 and 1998 respectively, sells school
buses and commercial vehicles primarily in
11
<PAGE>
New Jersey and various counties in New York. The Bus Sales Operations were
acquired effective July 1, 1997.
The principal elements of the Company's Transportation Operations cost of
sales are labor, fuel, parts, vehicle insurance, equipment lease expense and
rent. Historically, cost of sales have varied directly in proportion to
revenues, and approximately 89% of fiscal 1999 cost of sales were variable costs
consisting of direct labor (primarily driver wages and related employment
expenses), fuel costs and maintenance costs. At June 30, 1999, approximately 75%
of the Company's employees were members of various labor unions and the Company
was party to 22 collective bargaining agreements, seven of which, covering
approximately 1,700 employees, expire over the next two years, including four
which expired between August and September 1999. The Company is currently
negotiating to renew the four expired agreements plus is negotiating one
additional collective bargaining agreement covering approximately 100 unionized
employees of the School Bus Division. Management does not believe that the
current negotiations will result in 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.
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.
Results of Operations
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------
($ in millions)
----------------------------------------------------------
1997 1998 1999
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues .......................... $166.1 100.0% $261.9 100.0% $321.5 100.0%
Gross profit ...................... 30.0 18.1 44.5 17.0 51.9 16.1
General and administrative expenses 12.2 7.3 21.3 8.1 21.9 6.8
Depreciation and amortization ..... 10.4 6.3 11.4 4.3 12.4 3.8
Income from operations ............ 7.4 4.5 11.8 4.5 17.7 5.5
Net interest expense .............. 8.7 5.3 17.8 6.8 20.3 6.3
Non-recurring item ................ -- -- 4.6 1.8 1.2 0.4
Loss before extraordinary items ... (0.6) (0.4) (7.1) (2.7) (2.3) (0.7)
Net loss .......................... (1.7) (1.0) (7.1) (2.7) (2.3) (0.7)
</TABLE>
12
<PAGE>
Twelve Months Ended June 30, 1999 Compared to Twelve Months Ended June 30,
1998
Revenues. Revenues from Transportation Operations were $239.8 million for
the twelve months ended June 30, 1999 compared to $203.1 million for the twelve
months ended June 30, 1998, an increase of $36.7 million or 18.1%. This increase
was due primarily to (i) $18.4 million as a result of new contracts awarded;
(ii) $12.6 million due to contract rate increases and increases in service
requirements of existing contracts; and (iii) $5.7 million from operations of
five newly acquired subsidiaries. These subsidiaries were sold to an affiliate
effective April 1, 1999 (see Note 19 to Consolidated Financial Statements).
Revenues from Bus Sales Operations were $81.7 million for the twelve months
ended June 30, 1999 compared to $58.8 million for the twelve months ended June
30, 1998, an increase of $22.9 million or 38.9%. This increase was primarily due
to (i) $15.2 million increase in sales of school buses; and (ii) $7.7 million
increase in sales of commercial vehicles.
Gross profit. Gross profit from Transportation Operations was $44.0
million for the twelve months ended June 30, 1999 compared to $37.0 million for
the twelve months ended June 30, 1998, an increase of $7.1 million or 19.1%.
This increase was due primarily to the increase in revenues described above. As
a percentage of revenues, gross profit increased to 18.4% for the twelve months
ended June 30, 1999 from 18.2% for the twelve months ended June 30, 1998. This
increase was primarily due to the acquired subsidiaries which had gross profit
margins higher than the Company's. Gross profit from the Bus Sales Operations
was $7.9 million for the twelve months ended June 30, 1999 compared to $7.6
million for the twelve months ended June 30, 1998, an increase of $0.3 million
or 4.2%. As a percentage of revenues, gross profit decreased to 9.7% for the
twelve months ended June 30, 1999 from 12.9% for the twelve months ended June
30, 1998. This decrease was due primarily to an increase in the current year of
the proportion of sales in the New Jersey market which has had historically
lower gross margins than the New York market and lower margins generated by the
sale of commercial vehicles.
General and administrative expenses. General and administrative expenses
for the Transportation Operations were $18.2 million for the twelve months ended
June 30, 1999 compared to $18.0 million for the twelve months ended June 30,
1998, an increase of $0.1 million or 0.8%. This increase was due primarily to
increases in professional fees of $1.6 million and advertising and promotion
expenses of $0.5 million partially offset by a reduction of $2.1 million
provision for doubtful accounts ($2.2 million provision in fiscal 1998 compared
to $0.1 million in fiscal 1999). As a percentage of revenues, general and
administrative expenses for the Transportation Operations decreased to 7.6% for
the twelve months ended June 30, 1999 from 8.9% for the twelve months ended June
30, 1998. General and administrative expenses for the Bus Sales Operations were
$3.7 million for the twelve months ended June 30, 1999 compared to $3.3 million
for the twelve months ended June 30, 1998 an increase of $0.4 million or 12.7%.
This increase was due primarily to $0.2 million increases in administrative
payroll and benefits and $0.2 million increases in promotion and telephone
expenses due to expansion of business. As a percentage of revenues, general and
administrative expenses of the Bus Sales Operations decreased to 4.6% for the
twelve months ended June 30, 1999 from 5.6% for the twelve months ended June 30,
1998.
Depreciation and amortization. Depreciation and amortization expense of
Transportation Operations was $11.5 million for the twelve months ended June 30,
1999 compared to $10.4 million for the twelve months ended June 30, 1998, an
increase of $1.1 million or 10.9%. This increase was primarily due to increases
in depreciation in connection with the purchase of new vehicles partially offset
due to the Company reassessing (on January 1, 1998) and extending the useful
life of certain fixed assets which reduced depreciation by approximately $1.8
million for the year ended June 30, 1999. Depreciation and amortization expense
of the Bus Sales Operations was $0.8 million for the twelve months ended June
30, 1999 compared to $1.0 million for the twelve months ended June 30, 1998, a
decrease of $0.2 million.
Income from operations. Transportation Operations income from operations
was $14.3 million in fiscal 1999 compared to $8.5 million in fiscal 1998, an
increase of $5.8 million or 67.8%. This increase was due to the net effect of
the items discussed above. Bus Sales Operations income from operations was $3.3
million in fiscal 1999 and 1998.
Net interest expense. Net interest expense was $20.3 million for the year
ended June 30, 1999 compared to $17.8 million for the year ended June 30, 1998,
an increase of $2.6 million or 14.5%. This
13
<PAGE>
increase was due primarily to an increase in the amount of borrowings in
connection with the Company's revolving line of credit.
Non-recurring item. Non-recurring item was $1.2 million in fiscal 1999
which represented fees and expenses (other than bondholder consent fees), paid
by the stockholders of AETG in connection with the Consent. Non-recurring item
was $4.6 million in fiscal 1998 due to the write down of a note receivable from
affiliates. For additional information regarding these non-recurring items, see
Item 1 - Business - Recent Transactions.
Net income (loss). The Company generated a net loss of $2.3 million for
the fiscal year ended June 30, 1999 compared to a net loss of $7.1 million for
the fiscal year ended June 30, 1998, a decrease of $4.9 million.
Twelve Months Ended June 30, 1998 Compared to Twelve Months Ended June 30,
1997
Revenues. Revenues from Transportation Operations were $203.1 million for
the twelve months ended June 30, 1998 compared to $166.1 million for the twelve
months ended June 30, 1997, an increase of $37.0 million or 22.3%. This increase
was due primarily to (i) $16.8 million as a result of new contracts awarded;
(ii) $7.8 million due to contract rate increases and increases in service
requirements of existing contracts; and (iii) $12.5 million attributable to
acquisitions. Revenues from Bus Sales Operations were $58.8 million for the
twelve months ended June 30, 1998 due to the acquisition of Central, 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. Gross profit
from the Bus Sales Operations was $7.6 million for the twelve months ended June
30, 1998.
General and administrative expenses. 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 in 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 expenses 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. The majority of
the accounts subject to the provision arose between August 1993 and August 1996
from billing issues with the Company's largest customer in relation to non-core
business. In prior years, the Company had received correspondence indicating the
customer's willingness to discuss these billing issues but during the last
quarter of 1997, after prolonged discussions, the Company determined that it
would have to litigate with its largest customer to collect these amounts and
decided to establish a provision for doubtful accounts relating to this matter.
The Company's policy is to review all receivables on a quarterly basis to
determine collectability and provide currently for any allowances or reserves.
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. 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).
14
<PAGE>
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 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 in fiscal 1998.
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 10 3/4% 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. The entertainment subsidiaries of AETG suffered a precipitous
business decline which took place entirely in the fourth quarter of fiscal 1998,
necessitating a write-down of the note at the end of the quarter. 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 increase was due
to the following factors: non-recurring item and increases in interest expense,
general and administrative expenses and depreciation and amortization, 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 $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.
Liquidity and Capital Resources
Effective April 1, 1999 the Company sold five subsidiaries acquired during
the second quarter of fiscal 1999, to an affiliate, Atlantic Transit, Corp.
("ATC") for its original investment in these subsidiaries plus their net
earnings since dates of acquisition. The gross proceeds of $10.3 million (which
included repayment of $2.8 million of inter-company advances made to these
subsidiaries) were used to reduce borrowings under the Company's revolving line
of credit. In addition, the Company has signed a management agreement with ATC
to provide administrative services to ATC and any subsidiaries acquired by ATC
engaged in the transportation business.
The Company's $30.0 million revolving credit facility (the "Facility")
with Congress expires on February 3, 2000. The Company is currently negotiating
with Congress and expects to renew the Facility and the Receivable Agreement
(see Item 1 - Recent Transactions - Accounts Purchase and Sale Agreement) at
current levels, although no assurance can be given that this will be the case.
Capital expenditures for the fiscal years ended June 30, 1999 and June 30,
1998 totaled $29.9 million and $27.7 million, respectively. Management
anticipates total capital expenditures of approximately $16 million in fiscal
2000 in connection with new contracts, normal replacement of vehicles and
maintenance capital expenditures. Included in the capital expenditures above is
approximately $600,000 for replacement and upgrading of equipment which is not
Year 2000 compliant, and approximately $400,000 to assure existing facilities
comply with current environmental regulations.
The majority of these capital expenditures will be incurred in the
Company's first quarter which is its seasonal low period. The Company believes
that the Receivable Agreement, along with its $30.0 million Facility (of which
$9.7 million was undrawn at June 30, 1999) will provide it with sufficient
liquidity to conduct its operations for the coming fiscal year.
15
<PAGE>
The Company intends to seek to continue to acquire additional businesses
and contracts to the extent that it is able to finance these from operating cash
flows and/or additional equity contributions from AETG.
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 used in
operating activities was $7.8 million for fiscal 1999 primarily due to a $2.3
million net loss, $12.5 million of funds used for working capital; $2.6 million
decrease in other long-term liabilities, a $1.8 million increase in deferred
income taxes, $1.9 million increase in deposits and other non-current assets and
$1.0 million other net uses of funds partially offset by non-cash items of $14.3
million ($13.1 million depreciation and amortization and $1.2 million
non-recurring charge). Net cash provided by operating activities was $16.6
million for fiscal 1998, primarily due to 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
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 (Used in) Investing Activities. For the fiscal year
ended June 30, 1999, the Company made $29.9 million of capital expenditures to
acquire additional vehicles, property and equipment. Of these capital
expenditures $6.1 million were directly financed and the balance were financed
from operating cash flows. Effective April 1, 1999 the Company sold five
subsidiaries, acquired during the second quarter of fiscal 1999, to an affiliate
for a price equal to its original investment in these subsidiaries plus their
net earnings since date of acquisitions (see Note 19 to Consolidated Financial
Statements). Effective July 1, 1997, the Company acquired Central for $21.3
million (net of $0.2 million cash acquired) which was funded from the proceeds
of $40.0 million of the Company's Notes (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 September 1998, the Company was awarded a five-year contract to provide
paratransit services to Denver, Colorado by the Regional Transit District of
Denver ("RTD"). Pursuant to the contract, RTD provided the Company with all of
the required vehicles and, as a result, the Company was not required to make
significant capital expenditures to fulfill its obligations thereunder. In May
1999, the Company was awarded an additional contract for up to 65 buses by the
Voluntary Interdistrict Coordinating Council. This contract requires capital
expenditures of approximately $3 million for purchase of vehicles. In June 1999,
the Company signed a contract modification with the T.A., which will increase
its expected revenues by approximately $34 million dollars over the last two
years of the contract (June 1999- May 2001). The T.A. is required to provide all
of the vehicles to perform this modification.
Net Cash Provided by (Used in) Financing Activities. Net cash provided by
financing activities totaled $17.1 million for the year ended June 30, 1999, due
primarily from $18.6 million increase in net borrowings under the Company's
revolving line of credit, partially offset by $1.2 million principal and debt
amortization requirements. In addition, the Company incurred $6.1 million of
indebtedness to directly finance capital expenditures for the year ended June
30, 1999. In fiscal 1998 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 a $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.
16
<PAGE>
At June 30, 1999, the Company's total debt and stockholder's equity were
$181.3 million and $20.9 million, respectively. The Company's ability to meet
its debt service obligations and to reduce its total indebtedness will depend
upon its future performance, which will be subject to general economic
conditions, its ability to achieve cost savings and other financial, business
and other factors affecting the operations of the Company, many of which are
beyond its control. If the Company cannot generate sufficient cash flow from
operations in the future to service its debt, it may be required to refinance
all or a portion of such debt (including the Notes), sell assets or obtain
additional financing. There can be no assurance that any such refinancing or
asset sales would be possible or that any additional financing could be
obtained.
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.
The Bus Sales Operations are also seasonal in nature. Approximately 43%
and 47% of the annual sales of Bus Sales Operations occurred in the quarters
ended September 30, 1999 and 1998, respectively. 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 because inventory is at its
highest during July and August prior to heavy seasonal school bus deliveries.
<TABLE>
<CAPTION>
($ in millions)
- -----------------------------------------------------------------------------------------------------------------------------
Fiscal 1997 Fiscal 1998 Fiscal 1999
-------------------------------- -------------------------------- --------------------------------
Sept. Dec. Mar. June Sept. Dec. Mar. June Sept. Dec. Mar. June
30, 31, 31, 30, 30, 31, 31, 30, 30, 31, 31, 30,
1996 1996 1997 1997 1997 1997 1998 1998 1998 1998 1999 1999
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue .......... $25.2 $45.0 $45.5 $50.4 $59.2 $68.1 $67.5 $67.1 $71.0 $85.0 $77.3 $88.2
Income (loss) from
operations .... (2.8) 2.4 2.0 5.8 0.8 (0.2) 5.1 6.1 (1.1) 7.8 5.7 5.3
Net income (loss)
before extra-
ordinary item . (2.5) 0.5 (0.5) 1.9 (1.9) (2.6) 0.6 (3.2) (3.2) 0.6 0.3 0.0
EBITDA(1) ........ (0.2) 5.2 4.7 8.1 4.1 3.2 7.4 8.5 1.8 11.0 8.8 8.4
Cash flows from:
Operating
activities ... (4.9) 10.3 (2.7) 2.2 (2.9) 8.7 4.2 6.6 (10.3) 9.5 5.2 (12.2)
Investing
activities ... (0.8) (0.8) (12.2) (6.7) (34.6) (5.6) (2.1) (2.3) (16.2) (8.3) (1.3) 3.6
Financing
activities ... 6.0 (9.5) 36.0 (15.5) 26.9 1.6 (3.6) 0.1 18.5 (4.4) (2.0) 5.0
</TABLE>
- ----------
(1) EBITDA represents income from operations before depreciation and
amortization. EBITDA is used in certain financial covenants in the
indenture relating to the 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
17
<PAGE>
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.
Impact of Year 2000 on the Company's System
The Company has completed its assessment at its 34 locations that have
computerized systems and has determined what changes, if any, need to be made so
that such systems, which include information and non-information technology
systems, will function properly with respect to dates in the year 2000 and
thereafter to ensure that the Company's financial, information and operational
systems are year 2000 compliant. The Company has developed a program to
implement these changes, which consists of the following phases: (i) developing
solutions for affected technology and systems; (ii) modifying or replacing
affected technology and systems; (iii) testing and verifying solutions; (iv)
implementing solutions; and (v) developing contingency plans. The Company has
completed its year 2000 compliance at 21 of these locations, including its
corporate office, which is its most important and most computer-reliant
location. The Company intends to complete its compliance of its remaining 13
locations in November 1999. Total costs of approximately $800,000 are expected
to be incurred for the year 2000 issues of which $200,000 had been incurred
through June 30, 1999.
The Company has communicated with those vendors and customers with whom
the Company does significant business. The Company has received assurances from
its five largest customers, which represented approximately 58% of the Company's
transportation sales for fiscal 1999, its two major fuel suppliers, which
provided approximately 69% of the Company's fuel requirements in fiscal 1999,
and its three largest suppliers of parts and tires, which provided approximately
20% of the Company's requirements for parts and tires in fiscal 1999, that they
are or will be year 2000 compliant by the end of 1999. A third party's failure
to become year 2000 compliant or the Company's inability to become compatible
with third parties with which the Company has a material relationship may have
an adverse effect on the Company. Although initial responses from the Company's
major customers and suppliers of fuel, parts and tires have assured the Company
that they will be year 2000 compliant before the end of 1999, there can be no
assurance that the Company's operations will not be materially adversely
impacted by any potential systems problems incurred by such vendors or
customers.
The Company has developed its contingency plan for its facilities to
provide for the most likely worst case scenarios regarding year 2000 compliance.
Effect of New Accounting Pronouncements
In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up Activities." SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. The Company will
adopt SOP 98-5 as of July 1, 1999 and anticipates reporting, as of the beginning
of fiscal year 2000, a cost of $0.5 million described as the cumulative effect
of a change in accounting principle. Such cost represents unamortized start-up
costs as of June 30, 1999.
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
On June 14, 1999, the Company dismissed its former independent accountants
BDO Seidman LLP ("BDO") and engaged Arthur Andersen LLP to audit the Company's
consolidated financial statements.
18
<PAGE>
The decision to change the independent accountants was recommended and approved
by the Company's board of directors.
BDO served as the Company's independent public accountants for the years
ended June 30, 1998 and 1997. The report of BDO on the Company's consolidated
financial statements for those years contained no adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle. In connection with its audits for the years ended June 30,
1998 and 1997, and during the fiscal year 1999 prior to BDO's dismissal, the
Company had no disagreements with BDO on matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of BDO would have caused them
to make reference thereto in their report on the consolidated financial
statements for such years.
19
<PAGE>
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
28, 1999. Directors serve for a term of one year or until their successors are
elected and qualified.
Name Age Position
- ---- --- --------
Domenic Gatto .............. 50 Director, President and Chief
Executive Officer
Nathan Schlenker ........... 61 Chief Financial Officer, Executive
Vice President, Secretary and
Treasurer
Jerome Dente ............... 53 Chief Operating Officer
Noel Cabrera ............... 39 Executive Vice President
David Kessler .............. 59 Vice President and Director of the
Paratransit Division
Douglas Danforth ........... 77 Director
Sanjay Patel ............... 38 Chairman of the Board
Thomas Inglesby ............ 42 Director
Domenic Gatto, Director, President and Chief Executive Officer. Mr. Gatto
has been President, Chief Executive Officer and a Director 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.
Nathan Schlenker, Chief Financial Officer, Executive Vice President,
Secretary and Treasurer. Mr. Schlenker has been Chief Financial Officer of the
Company since its formation, and has held such position at AETG since 1991. In
November 1998, Mr. Schlenker was elected to serve as an Executive Vice
President, Secretary and Treasurer of the Company and AETG. 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 Director of New York School Bus Operations
for the Company from 1994 through 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.
Douglas Danforth, Director. Mr. Danforth has been a Director of the
Company and AETG since November 1998. He was Chairman of the Board and Chief
Executive Officer of Westinghouse Electric Corporation from December 1983 until
December 1987. From January 1988 to May 1998 he served as
20
<PAGE>
Chairman and Chief Executive Officer of the Pittsburgh Pirates Baseball Club. He
is a Director of Sola International, Inc. Dal-Tile Corporation and Greenwich
Street Capital Partners.
Sanjay Patel, Chairman of the Board. Mr. Patel has been Chairman of the
Board since November 1998. He has been Senior Managing Director of GSCP, Inc., a
merchant banking firm, since April 1998. Prior thereto he was a Managing
Director of Goldman, Sachs & Co. from November 1996 to January 1998. He is a
Director of Recovery Engineering, Inc.
Thomas Inglesby, Director. Mr. Inglesby has been a Director of AETG and
the Company since November 1998. Since 1997, Mr. Inglesby has been a Director of
GSPC, Inc. He is Chairman of the Board of Teknekron Infoswitch Corporation as
well as Check Printers, Inc. From 1994-1997, Mr. Inglesby was a Managing
Director with Harbour Group in St. Louis, Missouri, an investment firm
specializing in the acquisition of manufacturing companies in fragmented
industries. Prior thereto he was an officer with The South Street Funds for
three years.
There are no family relationships between any of the aforementioned
persons.
Item 11. EXECUTIVE COMPENSATION
Directors who are employees of the Company or one of its subsidiaries or
employees of the majority stockholder or its affiliates do not receive
additional compensation for serving as directors. For his services as a
Director, Mr. Danforth receives attendance fees (which shall not be less than
$10,000 in the aggregate for any given fiscal year) of $2,500 for each meeting
of the Board of Directors he attends in person or for telephone meetings of the
Board of Directors for which substantial time is required and $500 for each
other telephone meeting of the Board of Directors.
The Company and AETG have entered into an employment agreement with
Domenic Gatto which provides for his continued employment with the Company and
AETG as President and Chief Executive Officer and to serve upon the Board of
Directors of the Company and AETG until November 3, 2002, unless earlier
terminated, subject to extension by the Board of Directors for up to three
years. The employment term may be terminated with or without cause. The
agreement provides for an annual base salary of $350,000 commencing November 4,
1998 ("Effective Date") subject to annual increases by a percentage equal to the
percentage increase in the Regional CPI, provided that such increase shall in no
event be more than 5% or less than 3% of the base salary. In addition the
agreement provides for bonuses of $260,000 each on the six month and 12 month
anniversary of the Effective Date. Upon the sale of 66% of the stock of AETG
owned by the majority shareholder, an initial public offering of AETG or a
merger, recapitalization or other similar event, Mr. Gatto is entitled to a
bonus of up to $1,500,000. The agreement also contains covenants for
non-competition, non-solicitation and confidentiality upon the termination of
the employment.
The Company and AETG have entered into an employment agreement with Nathan
Schlenker which provides for his continued employment with the Company as Chief
Financial Officer, commencing on the Effective Date and expiring on November 3,
1999, unless earlier terminated, subject to extension by the Board of Directors
for one year. The employment term may be terminated with or without cause. The
agreement provides for a base salary of $205,000 per annum. The agreement also
contains covenants for non-competition, non-solicitation and confidentiality
upon the termination of the employment. This agreement was extended for one year
on September 3, 1999.
21
<PAGE>
Summary Compensation Table
Annual Compensation (1)
<TABLE>
<CAPTION>
Fiscal Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation
---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Domenic Gatto ......................... 1997 $489,948 $ -- $ 94,292(2) $ --
President and Chief Executive Officer 1998 $519,884 $ 7,500 $105,774(2) $ --
1999 $433,122 $ -- $106,353(2) $ 260,000(3)
Michael Gatto ......................... 1997 $327,200 $ -- $ 42,224(4) $ --
Former Executive Vice President 1998 $346,213 $ 7,500 $ 42,224(4) $ --
and Secretary 1999 $134,792(5) $ -- $ 6,408(4) $ --
Patrick Gatto ......................... 1997 $327,000 $ -- 42,224(4) $ --
Former Executive Vice President and 1998 $346,213 $ 7,500 $ 42,224(4) $ --
Treasurer 1999 $134,792(5) -- 6,408(4) $ --
Nathan Schlenker ...................... 1997 $200,403 $ 17,000 $ -- $ --
Chief Financial Officer, Executive Vice 1998 $205,393 $ 16,000 $ -- $ --
President, Secretary and Treasurer 1999 $208,487 $ 3,500 $ -- $ --
Jerry Dente(6) ........................
Chief Operating Officer 1999 $116,154 $ 8,000 $ -- $ --
Noel Cabrera(6) .......................
Executive Vice President 1999 $103,731 $ 3,000 $ -- $ --
</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 under which benefits are determined other than 401(k) and
deferred compensation contributions made.
(2) Includes (i) $25,800 for automobile allowance; (ii) $35,000 for life
insurance allowance; (iii) $7,095 for disability insurance allowance in
1999 and $6,516 for disability insurance allowance in 1998 and 1997,
respectively; and (iv) $38,458 for vacation time not taken in 1998 and
1999, respectively and $26,976 for vacation time not taken in 1997.
(3) Bonus in relation to change of control (see Note 4 to Consolidated
Financial Statements).
(4) Includes (i) $6,408 for automobile allowance in 1999 and $19,224 for
automobile allowance in 1998 and 1997, respectively; and (ii) $23,000 for
life insurance allowance in 1998 and 1997, respectively.
(5) Representing compensation from July 1998 through November 1998 for fiscal
year 1999.
(6) For 1997 and 1998, this executive's compensation has been omitted in
accordance with Securities and Exchange Commission rules.
22
<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 of AETG as of September 28, 1999 by (i) each
person who is known by the Company to beneficially own more than 5% of the
outstanding shares of Common 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.
Percentage of
Number all Outstanding
Name(1) of Shares Shares Owned(9)
------- --------- ---------------
Domenic Gatto .................. 61,491.17(5) 6.78%
Michael Gatto .................. -- --
Patrick Gatto .................. -- --
Nathan Schlenker ............... 504.98(6) 0.06%
Jerry Dente .................... -- --
Noel Cabrera ................... 504.98(7) 0.06%
Douglas Danforth(2) ............ 625.00(8) 0.07%
Sanjay Patel(3) ................ -- --
Thomas Inglesby(3) ............. -- --
GSCP II Holdings (AE), LLC(4) .. 807,173.60 89.43%
All directors and executive
officers of AETG as a group 63,126.13
(4 persons) ............... (5)(6)(7)(8) 6.95%
(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) The business address of Mr. Danforth is c/o Executive Associates, One PPG
Place, Suite 2210, Pittsburgh, Pennsylvania 15222.
(3) The business address of Messrs. Patel and Inglesby is c/o Greenwich Street
Capital Partners, Inc. 388 Greenwich Street, 36th Floor, New York, New
York 10013.
(4) The business address of GSCP II Holdings (AE), LLC is 388 Greenwich
Street, 36th Floor, New York, New York 10013.
(5) Includes 4,039.8 shares of Common Stock of AETG issuable upon exercise of
options exercisable on November 4, 1998 at a price of $100.00 per share.
(6) Shares of Common Stock of AETG issuable upon exercise of options
exercisable on November 4, 1998 at a price of $100.00 per share.
(7) Shares of Common Stock of AETG issuable upon exercise of options
exercisable on November 4, 1998 at a price of $100.00 per share.
(8) Shares of Common Stock of AETG issuable upon exercise of currently
exercisable warrants at a price of $100.00 per share.
(9) Each beneficial owner's percentage ownership is determined by assuming
that convertible securities, options and warrants that are held by such
person (but not those held by any other person) and which are exercisable
within 60 days of the date hereof have been exercised.
23
<PAGE>
Acquisition of AETG. On October 27, 1998, the holders of a majority in
principal amount of the Company's Notes consented to an amendment to the
Indenture relating to the Notes which in substance exempted the transactions
contemplated by a Recapitalization and Stock Purchase Agreement (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. On November 4, 1998 the
Recapitalization was consummated. As a result, Buyer acquired an approximately
88% equity interest in a recaptalized AETG.
The Recapitalization, including the related transaction costs and
expenses, incurred by the Buyer, Wafra Acquisition Fund 4, LP. ("Wafra"),
Domenic, Michael and Patrick Gatto (the "Gatto's") (except for costs relating to
the Consent) were funded by equity capital provided to AETG by the Buyer. 50% of
the costs associated with the Consent were funded by equity capital provided to
AETG by the Buyer and the balance of such costs were funded by equity capital
provided to AETG by Domenic Gatto and Wafra.
In connection with the Recapitalization, AETG's authorized stock was
amended to consist of a single class of common stock. Previously, AETG was
authorized to issue 228 shares of Common Stock with no par value of which 88
shares with no par value were issued and outstanding and 72 shares of Preferred
Stock with a per share $.01 par value of which 72 shares were issued and
outstanding. On November 4, 1998, AETG amended its Certificate of Incorporation
to authorize the issuance of 1,650,000 shares of Common Stock with a per share
$.001 par value and to eliminate all authorized Preferred Shares. Each share of
Common Stock and Preferred Stock were exchanged for 7954.545 shares of Common
Stock. Buyer acquired approximately 88% of the Common Stock of the recapitalized
AETG, and AETG repurchased all of the shares of AETG held by Michael and Patrick
Gatto and a portion of shares held by Domenic Gatto and Wafra, which left them
approximately 8% and 4% of the Common Stock, respectively.
At the closing of the Recapitalization Agreement, Domenic Gatto, the
founder, a Director, President and Chief Executive Officer of the Company, and
Nathan Schlenker, Chief Financial Officer, Executive Vice President, Secretary
and Treasurer of the Company, entered into new employment agreements with the
Company and AETG and option agreements with AETG. Domenic Gatto's brother,
Michael Gatto resigned as a Director, Executive Vice President and Secretary of
the Company, and his brother, Patrick Gatto, resigned as a Director, Executive
Vice President and Treasurer of the Company.
As part of the Recapitalization, the Stockholders' Agreement dated as of
February 28, 1994 among AETG, the Gatto's and Wafra was terminated. The Buyer
and the other stockholders of AETG, including Domenic Gatto and Wafra, entered
into a new Stockholders' Agreement (the New Stockholders Agreement") dated as of
November 4, 1998.
The Stockholders Agreement provides for, among other things (i) 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) removal
of any director, with or without cause, upon notification by the Buyer of its
desire for such removal; and (iii) replacement of any director designated by the
Buyer who ceases to serve on the board of directors with another designee of the
Buyer.
The Stockholders Agreement also contains 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 Stockholders Agreement) is no longer employed by the Company;
(ii) provide for put rights for Wafra upon the sixth anniversary of the
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 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
24
<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.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to and in contemplation of the Recapitalization, AETG sold its
wholly owned subsidiary G. Entertainment, Inc. along with its wholly owned
subsidiaries (collectively "G. Entertainment"), which made up AETG's
entertainment business, to the Gatto's. Three subsidiaries of G. Entertainment
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 fiscal 1998, two of
these subsidiaries suffered a precipitous decline and the Company took a $4.6
million non-recurring charge and wrote the Entertainment Note down to $510,000.
On November 4, 1998, after receiving a fairness opinion issued by an investment
bank of national standing, the Company sold the Entertainment Note to the
Gatto's. The sale price was $510,000 (the book value of the note), plus an
amount equal to one-half of the net proceeds received from any sale of assets of
two of these subsidiaries within a 12 month period from the date of closing. As
of September 21, 1999 there has been no sale of assets and the Company will have
no interest in any proceeds from a sale of assets after November 4, 1999.
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 G. Entertainment. 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 G.
Entertainment. The lease, which is for a term of five years, with two five-year
renewal options, commenced January 1, 1997 for an annual base rental of $48,000.
The Company believes that the rental reflects the reasonable market value for
the lease.
GSCP, Inc. ("GSCP"), an affiliate of Buyer, AETG and the Company entered
into a Financial Services Agreement (the "FSA") dated as of November 4, 1998.
Under the FSA, AETG and the Company engaged 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 expires
in 2008, subject to early termination by GSCP upon 15 days notice to AETG and
the Company or termination upon certain events after which the Buyer no longer
retains voting control of AETG and the Company. AETG and the Company pay GSCP an
annual advisory fee of $500,000 throughout the term of the FSA.
On February 23, 1999, the Company entered into an agreement with Atlantic
Transit, Corp. ("ATC"), a wholly owned subsidiary of AETG, whereby the Company
agreed to provide general administrative services such as payroll, accounts
payable, bookkeeping and accounting services in exchange for a monthly fee equal
to the product of $30.00 times the total number of revenue vehicles maintained
by ATC and its wholly owned subsidiaries. In fiscal 1999, the Company generated
$44,010 in fees for these services.
On March 1, 1999 the Company entered into a tax sharing agreement with ATC
and AETG whereby each of the parties agreed to file consolidated tax returns and
contribute their portion of income tax liability based upon each of their
respective taxable income.
Effective April 1, 1999, the Company sold five subsidiaries, acquired
during the second quarter of fiscal 1999, to an affiliate for a price equal to
its original investment in these subsidiaries plus their net earnings since the
dates of acquisition. In addition to the sales price of $7.5 million, the
Company was repaid $2.8 million of inter-company advances made to these
subsidiaries.
25
<PAGE>
At June 30, 1999, the Company had a non-interest bearing receivable from
AETG of $831,117. Such amount arose as a result of advances to AETG.
Commencing August 1999, after receiving a fairness opinion issued by an
investment bank of national standing, Central entered into an agreement with
Atlantic Bus Distributors, Inc. ("ABD"), a wholly owned subsidiary of AETG, to
order certain buses through ABD. Central is required to deposit fifteen percent
of the cost of these vehicles simultaneously with ABD's receipt of these
vehicles from the manufacturers and pay the balance to ABD upon Central's
delivery of these vehicles to its customers or within one hundred and twenty
days, whichever comes first. The purchase price of each bus equals the price at
which ABD purchased such bus together with any costs incurred by ABD in
connection with the purchases of any such vehicles.
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.
26
<PAGE>
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.
(b) Reports on Form 8-K
The Company filed a report of Form 8-K on November 10, 1998 regarding the
consummation of the Recapitalization and the change of control of the Company
and AETG.
The Company filed a report of Form 8-K on June 18, 1999 regarding the
selection of a new firm to serve as the Company's independent accounts.
(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.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
behalf by the undersigned, thereunto duly authorized.
ATLANTIC EXPRESS TRANSPORTATION CORP.
By: /s/ DOMENIC GATTO
------------------------------------
Domenic Gatto
Director, President and Chief
Executive Officer
Date: September 29, 1999
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
- ---- ----- ----
/s/ DOMENIC GATTO Director, President and Chief September 29, 1999
- ------------------------ Executive Officer
Domenic Gatto
/s/ NATHAN SCHLENKER Chief Financial Officer, September 29, 1999
- ------------------------ Executive Vice President,
Nathan Schlenker Secretary and Treasurer
/s/ DOUGLAS DANFORTH Director September 29, 1999
- ------------------------
Douglas Danforth
/s/ SANJAY PATEL Chairman of the Board September 29, 1999
- ------------------------
Sanjay Patel
/s/ THOMAS INGLESBY Director September 29, 1999
- ------------------------
Thomas Inglesby
28
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Index to Consolidated Financial Statements
PAGE
----
Report of Independent Public Accountants ........................... F-2
Report of Independent Certified Public Accountants ................. F-3
Consolidated Balance Sheets as of June 30, 1998 and 1999 ........... F-4
Consolidated Statements of Operations for the Years Ended
June 30, 1997, 1998 and 1999 ....................................... F-5
Consolidated Statements of Stockholder's Equity for the
Years Ended June 30, 1997, 1998 and 1999 ........................... F-6
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1997, 1998 and 1999 ................................. F-7-F-8
Notes to Consolidated Financial Statements ......................... F-9-F-22
Schedule II - Valuation and Qualifying Accounts for the
Years Ended June 30, 1997, 1998 and 1999 ........................... F-23
F-1
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Stockholder of
Atlantic Express Transportation Corp.
We have audited the accompanying consolidated balance sheet of Atlantic
Express Transportation Corp. and subsidiaries as of June 30, 1999, and the
related consolidated statements of operations, stockholder's equity, and cash
flows for the year then ended. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with 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 also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Atlantic
Express Transportation Corp. and subsidiaries as of June 30, 1999, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Consolidated Financial Statements for the year ended June 30, 1999, is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. The schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Arthur Andersen LLP
New York, New York
September 10, 1999
F-2
<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 sheet of Atlantic
Express Transportation Corp. and subsidiaries as of June 30, 1998, and the
related consolidated statements of operations, stockholder's equity, and cash
flows for each of the two years in the period then ended. These financial
statements and the schedule referred to below 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 also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
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 provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Atlantic
Express Transportation Corp. and subsidiaries as of June 30, 1998, and the
consolidated results of their operations and their cash flows for each of the
two years in the period then ended in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Consolidated Financial Statements for the years ended June 30, 1997 and 1998 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
BDO Seidman, LLP
New York, New York
September 18, 1998
F-3
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
Assets
Current:
Cash and cash equivalents ...................................... $ 13,772,537 $ 855,983
Current portion of marketable securities ....................... 850,000 3,842,000
Accounts receivable, net of allowance for doubtful accounts of
$1,520,000 and $1,640,000 in 1998 and 1999, respectively ..... 37,310,006 48,468,255
Inventories .................................................... 10,762,839 15,215,018
Notes receivable ............................................... 1,182,425 31,964
Prepaid expenses and other current assets ...................... 5,692,610 6,190,766
------------ ------------
Total current assets ................................. 69,570,417 74,603,986
------------ ------------
Property, plant and equipment, at cost, less accumulated depreciation 99,887,054 119,138,827
------------ ------------
Other assets:
Goodwill, net .................................................. 12,469,422 12,143,514
Note receivable from affiliates ................................ 510,000 --
Investments .................................................... 229,000 35,000
Marketable securities .......................................... 7,027,937 5,869,380
Deferred lease expense ......................................... 334,115 148,155
Transportation contract rights, net ............................ 3,807,743 3,408,096
Deferred financing and organization costs, net ................. 8,310,723 8,018,053
Due from parent company ........................................ 672,589 831,117
Notes receivable ............................................... 25,000 11,494
Deposits and other noncurrent assets ........................... 1,394,301 3,248,336
Deferred tax assets ............................................ 2,087,000 3,935,981
Covenant not to compete, net ................................... 160,000 120,000
------------ ------------
Total other assets ................................... 37,027,830 37,769,126
------------ ------------
$206,485,301 $231,511,939
============ ============
Liabilities and Stockholder's Equity
Current:
Current portion of long-term debt .............................. $ 641,574 $ 21,411,180
Accounts payable ............................................... 2,250,615 2,453,411
Accrued compensation ........................................... 4,703,334 7,392,071
Current portion of insurance reserve ........................... 3,657,442 4,500,000
Accrued interest ............................................... 6,776,630 6,890,810
Other accrued expenses and current liabilities ................. 4,158,333 3,992,443
------------ ------------
Total current liabilities ............................ 22,187,928 46,639,915
------------ ------------
Long-term debt, net of current portion .............................. 157,284,116 159,921,440
------------ ------------
Premium on bond issuance ............................................ 1,202,550 987,150
------------ ------------
Other long-term liabilities ......................................... 5,641,135 3,023,529
------------ ------------
Commitments and contingencies
Stockholder's equity:
Common stock, no par value, authorized shares 200; issued and
outstanding 100 ........................................... 250,000 250,000
Additional paid-in capital ..................................... 13,188,926 15,898,517
Accumulated other comprehensive income ......................... 376,293 925,950
Retained earnings .............................................. 6,354,353 3,865,438
------------ ------------
Total stockholder's equity ........................... 20,169,572 20,939,905
------------ ------------
$206,485,301 $231,511,939
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Transportation Operations ............................ $ 166,078,034 $ 203,073,256 $ 239,784,127
Bus Sales Operations ................................. -- 58,844,938 81,739,086
------------- ------------- -------------
Total revenues ............................................ 166,078,034 261,918,194 321,523,213
------------- ------------- -------------
Costs and expenses:
Cost of Operations- Transportation Operations ........ 136,068,428 166,120,186 195,760,472
Cost of Operations- Bus Sales Operations ............. -- 51,268,341 73,845,585
General and administrative ........................... 12,199,150 21,337,867 21,901,559
Depreciation and amortization ........................ 10,417,187 11,378,390 12,354,728
------------- ------------- -------------
Total operating costs and expenses ........................ 158,684,765 250,104,784 303,862,344
------------- ------------- -------------
Income from operations .......................... 7,393,269 11,813,410 17,660,869
Interest expense, net ..................................... (8,739,065) (17,751,883) (20,322,279)
Other income (expense) .................................... 133,977 207,686 (224,276)
------------- ------------- -------------
Loss before nonrecurring items, benefit
from income taxes and extraordinary items .. (1,211,819) (5,730,787) (2,885,686)
Nonrecurring items:
Write-down of note receivable from affiliates ... -- 4,614,597 --
Recapitalization expense ........................ -- -- 1,223,161
------------- ------------- -------------
Loss before benefit from income taxes and
extraordinary items ........................ (1,211,819) (10,345,384) (4,108,847)
Benefit from income taxes ................................. 600,936 3,224,453 1,848,981
------------- ------------- -------------
Loss before extraordinary items ............ (610,883) (7,120,931) (2,259,866)
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 loss .................................................. $ (1,663,800) $ (7,120,931) $ (2,259,866)
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Consolidated Statements of Stockholder's Equity
Years ended June 30, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Accumulated
other
Common stock Additional Retained comprehensive
No par value paid-in capital earnings income Total
---------------- ----------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1996 ............. $ 250,000 $ 13,188,926 $ 16,046,551 $ -- $ 29,485,477
Net loss .......................... -- -- (1,663,800) -- (1,663,800)
Distributions to parent
company ........................ -- -- (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)
Distributions to parent
company ........................ -- -- (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
Contribution for
recapitalization expense ....... -- 2,709,591 -- -- 2,709,591
Net loss .......................... -- -- (2,259,866) -- (2,259,866)
Distributions to parent
company ........................ -- -- (229,049) -- (229,049)
Unrealized gain on
marketable securities .......... -- -- -- 549,657 549,657
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 ............ $ 250,000 $ 15,898,517 $ 3,865,438 $ 925,950 $ 20,939,905
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .......................................... $ (1,663,800) $ (7,120,931) $ (2,259,866)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Gain on sale of marketable securities and
investments .................................. -- (675,398) (1,274,138)
Deferred income taxes ............................. (1,490,000) (2,487,000) (1,848,981)
Depreciation ...................................... 9,555,463 10,040,403 10,611,931
Amortization ...................................... 1,311,212 2,808,394 2,431,548
Write-off of doubtful accounts receivable ......... 500,000 973,810 --
Reserve for doubtful accounts receivable .......... 250,000 1,270,000 120,000
Interest accrued on note receivable ............... -- (326,287) --
Write down of note receivable from affiliates ..... -- 4,614,597 --
Recapitalization expense .......................... -- -- 1,223,161
Transfer (to) from restricted cash ................ (1,194,408) 2,314,408 --
Extraordinary items ............................... 1,836,312 -- --
Decrease (increase) in:
Accounts receivable .......................... (5,786,498) (3,572,192) (11,278,249)
Inventories .................................. (974,816) (132,564) (4,452,179)
Prepaid expenses and other current assets .... 133,708 (339,873) (498,156)
Deferred lease expense ....................... 166,796 154,097 185,960
Deposits and other noncurrent assets ......... (485,179) (5,882) (1,854,035)
Increase (decrease) in:
Accounts payable ............................. (996,133) (237,588) 202,796
Accrued expenses and other current liabilities 2,092,428 6,635,557 3,479,585
Other long-term liabilities .................. 1,601,137 2,644,117 (2,617,606)
------------ ------------ ------------
Net cash provided by (used in) operating
activities .............................. 4,856,222 16,557,668 (7,828,229)
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------
1997 1998 1999
------------- ------------- -------------
<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 ....... (14,441,800) (21,318,994) (23,808,346)
Purchase of transportation contract rights ....... (873,192) (1,660) (80,532)
Due from affiliates .............................. (303,999) (697,925) (158,528)
Notes receivable ................................. 161,832 (314,515) 1,673,967
Marketable securities and investments ............ (5,027,665) (1,789,879) 184,352
------------- ------------- -------------
Net cash used in investing activities ....... (20,484,824) (44,558,556) (22,189,087)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds of additional borrowings ................ 118,473,894 42,864,754 18,564,608
Principal payments on borrowings ................. (79,580,780) (13,532,291) (1,213,037)
Deferred financing and organization costs ........ (6,975,554) (3,819,973) (21,760)
Other ............................................ (681,327) (557,954) (229,049)
------------- ------------- -------------
Net cash provided by financing activities ... 31,236,233 24,954,536 17,100,762
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents ....... 15,607,631 (3,046,352) (12,916,554)
Cash and cash equivalents, beginning of year ............... 1,211,258 16,818,889 13,772,537
------------- ------------- -------------
Cash and cash equivalents, end of year ..................... $ 16,818,889 $ 13,772,537 $ 855,983
============= ============= =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest .................................... $ 3,181,000 $ 15,485,695 $ 18,936,487
Income taxes ................................ 222,000 408,542 187,292
Supplemental schedule of noncash investing and
financing activities:
Loans incurred for purchase of property, plant and
equipment ................................... $ 11,887,542 $ 6,368,900 $ 6,055,359
Use of restricted cash to pay down debt .......... 750,000 -- --
Transfer of bus from inventory to fixed assets ... -- 47,558 --
Additional paid-in capital contributed for
bondholder consent fees and expenses ........ -- -- 2,709,591
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<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, 1996 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.
Revenue Recognition
Transportation Operations- Revenues are recognized when services are
performed.
Bus Sales Operations- Revenues are recognized when vehicles are delivered
to customers.
Property, Plant and Equipment
Property, plant and equipment are 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:
Years
-----
Building and improvements ............................ 15-31.5
Transportation equipment. ............................ 5-15
Other ................................................ 3-7
Marketable Securities
In accordance with Financial Accounting Standards Board Statement No. 115,
AETC determines the classification of securities as held-to-maturity or
available-for-sale at the time of purchase, and reevaluates such designation as
of each balance sheet date. Securities are classified as held-to-maturity when
AETC has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at cost, adjusted for amortization of
premiums and discounts to maturity. Marketable securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities
F-9
<PAGE>
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
Transportation contract rights primarily represent the value the Company
assigns to the excess of cost of investments in school bus companies in excess
of the book value of these companies. In addition, AETC has purchased from
unrelated third parties certain transportation contract rights with respect to
revenue contracts and travel routes. These costs are amortized over the lesser
of the expected life of the contracts or 12 years. The Company reviews the value
assigned to transportation contract rights annually to determine if they have
been impaired in value. The amount of any impairment would be charged against
income. Accumulated amortization at June 30, 1998 and 1999 was $2,157,836 and
$2,589,848, respectively.
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. The Company reviews the value assigned to
the above mentioned assets annually to determine if they have been impaired in
value. The amount of any impairment would be charged against income. Accumulated
amortization at June 30, 1998 and 1999 was $2,497,732 and $4,703,403,
respectively.
Insurance Reserves
Insurance reserves of $9,198,577 and $7,523,529 as of June 30, 1998 and
1999, respectively, represents claim reserves liabilities for the Company's
self-insurance programs. Until December 31, 1998, the Company maintained
self-insurance programs for auto liability and workers compensation claims for
the first $250,000 of any one occurrence. In addition, the Company purchased
aggregate and specific stop loss insurance. The current portion of these
liabilities represents the payments expected to be made during the next fiscal
year.
Income Taxes
AETC follows the liability method under Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes". The primary
objectives of accounting for taxes under SFAS No. 109 are to (a) recognize the
amount of tax payable for the current year and (b) recognize the amount of
deferred tax liability or asset for the future tax consequences of events that
have been reflected in AETC's financial statements or tax returns.
AETC files consolidated federal and state income tax returns with its
parent, affiliates 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.
F-10
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures of certain assets
and liabilities. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying value of financial instruments including cash and cash
equivalents, accounts receivable including retainage, notes receivable, accounts
payable, and long-term debt approximated fair value as of June 30, 1998 and 1999
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, plant 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 SFAS 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, 1999.
New Accounting Pronouncement
In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up Activities". SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. The Company will
adopt SOP 98-5 as of July 1, 1999 and anticipates reporting as of the beginning
of fiscal year 2000 a cost described as the cumulative effect of a change in
accounting principle, of $0.5 million. Such cost represents unamortized start-up
costs as of June 30, 1999.
Reclassification
Certain amounts in the prior years financial statements have been
reclassified to conform with the 1999 presentation.
4. Acquisition of AETG
On October 27, 1998, the holders of a majority in principal amount of the
Company's 10 3/4% Senior Secured Notes due 2004 (the "Notes") consented to an
amendment to the Indenture (the "Consent") relating to the Notes which in
substance exempted the transactions contemplated by a Recapitalization and Stock
Purchase Agreement (the "Recapitalization") from the definition of "Change of
Control" under the Indenture. On November 4, 1998 the Recapitalization was
consummated. As a result, GSCP II Holdings (AE), LLC, ("Buyer") an affiliate of
Greenwich Street Capital Partners, Inc., a New York based private equity fund,
acquired an approximately 88% equity interest in a recapitalized Atlantic
Express Transportation Group, Inc. ("AETG") which owns all of the issued and
outstanding shares of capital stock of the Company
5. 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 billing issues in relation to non-core
business. The Company had received correspondences indicating the customer's
willingness to discuss these billing issues, but during the last quarter of
1997, after prolonged discussions, the Company determined that it
F-11
<PAGE>
would have to litigate with its largest customer to collect these amounts and
decided to establish a provision for doubtful accounts relating to this matter.
An additional $0.5 million was provided in the quarter ended June 30, 1998 (See
Note 13). The Company's policy is to review all receivables on a quarterly basis
to determine collectability and provide currently for any allowances or
reserves.
Pursuant to certain municipal school bus contracts and paratransit
contracts, certain contractual amounts (retainage) are withheld from billings as
a guarantee of performance by AETC. At June 30, 1998 and 1999 retainage of
$5,311,258 and $3,906,908, respectively, is classified as current and is
included in accounts receivable in the accompanying consolidated balance sheets.
In addition, $1,058,559 of retainage is classified as non-current for the fiscal
year ended June 30, 1999. At June 30, 1998 there was no retainage due in excess
of one year.
6. Inventories
Inventories are comprised of the following:
June 30,
1998 1999
-----------------------------
Parts and fuel ................. $ 3,921,237 $ 3,919,018
Buses held for sale ............ 6,841,602 11,296,000
----------- -----------
$10,762,839 $15,215,018
=========== ===========
7. Cash and Cash Equivalents
Included in cash and cash equivalents is $2,825,043 and $658,001 at June
30, 1998 and 1999 respectively, which represents cash equivalents of a captive
insurance company subsidiary which are only available for use by that
subsidiary.
8. Property, Plant and Equipment
Property, plant and equipment consists of the following:
June 30,
----------------------------
1998 1999
------------ ------------
Land ............................... $ 9,379,373 $ 9,824,758
Building and improvements .......... 21,121,690 23,332,818
Construction-in-progress ........... 1,179,969 --
Transportation equipment ........... 140,009,989 162,802,019
Machinery and equipment ............ 12,907,155 17,711,814
Furniture and fixtures ............. 2,780,433 3,468,240
------------ ------------
187,378,609 217,139,649
Less: Accumulated depreciation ..... 87,491,555 98,000,822
------------ ------------
$ 99,887,054 $119,138,827
============ ============
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 and $3.6 million in depreciation expense for the years
ended June 30, 1998 and 1999, respectively.
F-12
<PAGE>
9. Marketable Securities
The amortized cost and estimated fair value of the marketable securities
are as follows:
<TABLE>
<CAPTION>
June 30, 1999
-------------------------------------------
Gross
unrealized
Cost gain (loss) Fair value
---------- ---------- ----------
<S> <C> <C> <C>
Available-for-sale:
Equity securities ................. $5,711,536 $ 974,597 $6,686,133
U.S. Treasury and other
government debt
securities ................ 3,073,894 (48,647) 3,025,247
---------- ---------- ----------
Total marketable securities $8,785,430 $ 925,950 $9,711,380
========== ========== ==========
<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
government debt
securities ................ 2,606,376 84,302 2,690,678
---------- ---------- ----------
Total marketable securities $7,501,644 $ 376,293 $7,877,937
========== ========== ==========
</TABLE>
The above marketable securities are held by a captive insurance subsidiary
and are available for use only by that company. At June 30, 1999 marketable
securities of approximately $5.5 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,
$3,842,000 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:
Cost Fair Value
---------- ----------
2001 ............................... $ 102,118 $ 101,266
2002 ............................... 261,556 258,140
2004-2008 .......................... 658,136 633,353
2013-2027 .......................... 2,052,084 2,032,488
No maturity date (equity securities) 5,711,536 6,686,133
---------- ----------
$8,785,430 $9,711,380
========== ==========
Net realized gains on marketable securities for the year ended June 30,
1998 and June 30, 1999 amounted to $675,000 and $1,213,000 respectively, are
included in revenues of the captive insurance company.
F-13
<PAGE>
10. Debt
The following represents the debt outstanding at June 30, 1998 and 1999.
<TABLE>
<CAPTION>
June 30,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
10 3/4% Senior Secured Notes, due February 2004, with
interest payable on February 1 and August 1
annually (a) ........................................ $150,000,000 $150,000,000
8% mortgage on real estate located in Chittenango, New
York, due July 1, 2002 (b) ........................... 709,874 681,463
8% mortgage on real estate located in Bordentown, New
Jersey, due July 1, 2002 (b) ......................... 1,434,255 1,376,853
Revolving line of credit (c) ................................. 1,464,754 20,029,362
Various notes payable secured by transportation
equipment, with interest from 8%-9.3% ............... 4,316,807 9,244,942
------------ ------------
157,925,690 181,332,620
Less: Current portion ........................................ 641,574 21,411,180
------------ ------------
$157,284,116 $159,921,440
------------ ------------
</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.
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 in the year ended June 30, 1998.
(b) In connection with the acquisition of Central New York Coach Sales
and Services, Inc. and Jersey Bus Sales, Inc. and related real
property (collectively "Central") (see Note 18), AETC purchased from
Mr. Denney, a former shareholder of Central, the real property of
Central which served as their primary operating facilities 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 3, 2000, unless
extended. The interest rate per annum applicable to the revolving
credit facility is either the prime rate, as announced by CoreStates
Bank N.A., (8 1/2% and 8% at June 30, 1998 and 1999, respectively)
plus 0.75% or, at AETC's option, the adjusted Eurodollar rate (as
defined) plus 2.75%. AETC is required to
F-14
<PAGE>
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, 1999, are as
follows:
Total
------------
2000 ..................................... $ 21,411,180
2001 ..................................... 1,489,212
2002 ..................................... 2,265,124
2003 ..................................... 2,865,155
2004 ..................................... 151,595,864
Thereafter ............................... 1,706,085
------------
Total ............................. $181,332,620
============
11. Income Taxes
The provisions (benefits) for income taxes consist of the following:
Year ended June 30,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
Current:
Federal .......... $ -- $ (900,000) $ --
State and local .. 131,000 163,000 --
----------- ----------- -----------
131,000 (737,000) --
Deferred taxes ........ (1,490,000) (2,487,000) (1,848,981)
----------- ----------- -----------
$(1,359,000) $(3,224,000) $(1,848,981)
=========== =========== ===========
Deferred tax assets/(liabilities) are comprised of the following:
June 30,
----------------------------
1998 1999
------------ ------------
Deferred tax assets:
Allowance for doubtful receivables $ 678,000 $ 737,939
Loss and tax credit carryforwards 13,724,000 21,256,033
Contract rights and other ........ 718,000 770,755
------------ ------------
15,120,000 22,764,726
------------ ------------
Deferred tax liabilities:
Depreciation ..................... (12,795,000) (18,351,223)
Goodwill amortization ............ (238,000) (477,522)
------------ ------------
(13,033,000) (18,828,745)
------------ ------------
Deferred tax assets (net) ............. $ 2,087,000 $ 3,935,981
============ ============
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,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Tax benefit at statutory rate .... $(1,028,000) $(3,517,000) $(1,397,008)
Write-down of note receivable from
affiliate ................... -- 1,569,000 --
State and local tax benefit ...... (331,000) (1,293,000) (451,973)
Other ............................ -- 17,000 --
----------- ----------- -----------
Actual tax benefit ............... $(1,359,000) $(3,224,000) $(1,848,981)
=========== =========== ===========
</TABLE>
F-15
<PAGE>
For tax purposes, the Company had available, at June 30, 1999, net
operating loss ("NOL") carryforwards for regular federal and state income tax
purposes of approximately $42 million, which expire during the years 2011
through 2014. The Company also had investment tax credit carryforwards for tax
purposes of approximately $1.0 million, which expire through the year 2001.
Additionally, in conjunction with the Alternate Minimum Tax ("AMT") rules, the
Company had available AMT credit carryforwards for tax purposes of approximately
$1.3 million, which may be used indefinitely to reduce regular federal income
taxes.
At June 30, 1998 and 1999, net future tax deductions and NOL carryforwards
comprised the federal and state net deferred tax asset. The Company believes
that it is more likely than not that all of the NOL carryforwards will be
utilized prior to their expiration. This belief is based upon the Company's
estimate of future earnings and the expected timing of temporary difference
reversal.
12. Non-recurring Charges
In November 1998, the stockholders of AETG paid $2.7 million of fees and
expenses in connection with the Amendment to the Indenture (see Note 4) of which
approximately $1.5 million of bondholder consent fees have been recorded as
deferred financing expenses and approximately $1.2 million has been recorded as
a non-recurring charge with a corresponding $2.7 million contribution to
additional paid-in capital.
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 made to the various subsidiaries of AETG prior to the formation of AETC as
a separate entity. During the last quarter of fiscal 1998, certain affiliates of
AETG engaged in the entertainment business suffered a precipitous decline and
AETC recorded a $4.6 million non-recurring charge and wrote the note down to
$510,000 (which balance was collected in full in November 1998).
13. Fourth Quarter Adjustments
In the fourth quarter of the fiscal year 1998, 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 receivable from affiliate of $4.6 million (see Note
12).
There were no significant adjustments in the fourth quarter of fiscal
years ended June 30, 1997 and June 30, 1999.
14. Related Party Transactions
AETC had amounts due from AETG of $672,589 and $831,117 at June 30, 1998
and 1999, respectively. AETC had a note receivable from affiliated companies of
$510,000 (see Note 12) at June 30, 1998. During the year ended June 30, 1999
AETC received management fee income from affiliated companies of $44,010 and
paid advisory fees of $328,333 to an affiliate of the Buyer. No management fees
or advisory fees were charged or received from related parties during the other
periods presented. AETC incurred rent expense of $224,550 for the year ended
June 30, 1997 and $228,000 for each of the years ended June 1998 and 1999 in
connection with leases of real property from affiliate companies.
F-16
<PAGE>
15. Commitments and Contingencies
Leases
Minimum rental commitments as of June 30, 1999 for noncancellable
equipment and real property operating leases are as follows:
Year ended June 30, 1999
--------------------------------------------------
Transportation
and other
Real property equipment Total
------------- -------------- -----------
2000 ..... $ 2,484,526 $ 2,157,305 $ 4,641,831
2001 ..... 2,247,034 1,684,924 3,931,958
2002 ..... 1,497,454 1,500,843 2,998,297
2003 ..... 1,156,727 978,913 2,135,640
2004 ..... 1,002,268 308,539 1,310,807
Thereafter 3,751,534 223,408 3,974,942
----------- ----------- -----------
$12,139,543 $ 6,853,932 $18,993,475
=========== =========== ===========
During the year ended June 30, 1999, as part of its normal course of
business, AETC entered into various rental and purchase agreements for
replacement vehicles and additional vehicles to satisfy new transportation
contracts.
Total rental charges included in cost of operations were $5,301,131,
$4,932,881 and $5,034,230 for the years ended June 30, 1997, 1998 and 1999,
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 position and results of operations of AETC.
Outstanding Letters of Credit
Letters of credit totaling approximately $3,890,000 and $3,690,000
(including $3.4 million issued by the captive insurance company) (see Note 8)
were outstanding as of June 30, 1998 and 1999, respectively. The letters of
credit serve primarily as security in connection with financial obligations.
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, 1999, AETC has provided performance bonds aggregating approximately
$62 million.
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 $64,000, $96,000 and $164,000 for the years ended June 30, 1997,
1998 and 1999, respectively.
F-17
<PAGE>
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, $150,000 and $108,000 for the years ended June 30, 1997, 1998 and 1999,
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 and $100,000 for the years ended June 30, 1998 and
1999, respectively.
17. Major Customer and Concentration of Credit Risk
For the years ended June 30, 1997, 1998 and 1999 revenues derived from the
Board of Education of the City of New York were approximately 46.1%, 42.9% and
39.5% of total Transportation Operations revenues, respectively. As of June 30,
1998 and 1999, AETC had accounts receivable including retainage from this
customer of $13,072,141 and $12,173,087, respectively.
At June 30, 1998 and 1999, substantially all cash and cash equivalents
were on deposit with one major financial institution.
18. Acquisitions
Effective July 1, 1997, AETC acquired 100% of the common stock of Central.
The acquisition was treated as a purchase for accounting purposes. Central is
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:
Covenant not to compete ........................ $ 200,000
Transportation contract rights ................. 1,200,000
Goodwill ....................................... 12,795,320
Covenant not to compete, transportation contract rights and goodwill are
being amortized over five, twelve and forty years, respectively.
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:
Sales .......................................... $222,451,018
Net loss ....................................... 333,570
In connection with the above acquisitions AETC issued the Additional Notes
(see Note 10).
19. Sale of Subsidiaries
Effective April 1, 1999, the Company sold five subsidiaries, acquired
during the second quarter of fiscal 1999, to an affiliate for a price equal to
its original investment in these subsidiaries plus their net earnings since the
dates of acquisition. In addition to the sales price of $7.5 million, the
Company was repaid $2.8 million of inter-company advances made to these
subsidiaries. The gross proceeds ($10.3
F-18
<PAGE>
million) were received on April 28, 1999 and used to reduce borrowings under the
Company's Revolving Line of Credit.
20. Subsequent Event
Commencing August 1999, after receiving a fairness opinion issued by an
investment bank of national standing, Central entered into an agreement with
Atlantic Bus Distributors, Inc. ("ABD"), a wholly owned subsidiary of AETG, to
order certain buses through ABD. Central is required to deposit fifteen percent
of the cost of these vehicles simultaneously with ABD's receipt of these
vehicles from the manufacturers and pay the balance to ABD upon Central's
delivery of these vehicles to its customers or within one hundred and twenty
days, whichever comes first. The purchase price of each bus equals the price at
which ABD purchased such bus together with any costs incurred by ABD in
connection with the purchases of any such vehicles.
21. 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 years ended June 30,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Year ended June 30, 1999
-----------------------------------------------
Transportation Bus Sales
Operations Operations Total
--------------- ------------- -------------
<S> <C> <C> <C>
Revenues ............................. $ 239,784,127 $ 81,739,086 $ 321,523,213
Cost of operations/sales ............. 195,760,472 73,845,585 269,606,057
Income from operations ............... 14,344,445 3,316,424 17,660,869
Income (loss) before non-recurring
items and (provision for) benefit
from income taxes ............... (3,779,985) 894,299 (2,885,686)
Total Assets as at June 30, 1999 ..... 191,119,124 40,392,815 231,511,939
Capital Expenditures ................. 29,248,258 615,447 29,863,705
Depreciation and amortization ........ 11,517,323 837,405 12,354,728
<CAPTION>
Year ended June 30, 1998
-----------------------------------------------
Transportation Bus Sales
Operations Operations Total
--------------- ------------- -------------
<S> <C> <C> <C>
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>
F-19
<PAGE>
22. Supplemental Financial Information
The following are condensed consolidating financial statements as of June
30, 1999,1998 and 1997 regarding AETC (on a stand-alone basis and on a
consolidated basis) and Guarantors and Non-Guarantors of the Senior Secured
Notes (see Note 10(a)).
Condensed Consolidating Balance Sheet
June 30, 1999
<TABLE>
<CAPTION>
Atlantic
Express Non-
Transportation Guarantor Guarantor Elimination
Corp. Subsidiaries Subsidiaries Entries Consolidated
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Current assets ...................... $ 1,220,437 $ 68,829,160 $ 4,554,389 $ -- $ 74,603,986
Investment in affiliates ............ 60,330,394 -- -- (60,330,394) --
Total assets ........................ 208,820,247 204,637,409 12,596,989 (194,542,706) 231,511,939
Current liabilities ................. 22,655,804 18,583,172 5,400,939 -- 46,639,915
Total liabilities ................... 171,016,512 161,403,850 8,570,505 (130,418,833) 210,572,034
Stockholder's equity ................ 37,803,735 43,233,559 4,026,484 (64,123,873) 20,939,905
</TABLE>
Condensed Consolidating Statement of Operations
Year ended June 30, 1999
<TABLE>
<CAPTION>
Atlantic
Express Non-
Transportation Guarantor Guarantor Elimination
Corp. Subsidiaries Subsidiaries Entries Consolidated
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net revenues ........................ $ -- $ 319,991,879 $ 4,616,870 $ (3,085,536) $ 321,523,213
Income (loss) from operations ....... (1,010,769) 17,726,397 945,241 -- 17,660,869
Income (loss) before nonrecurring
items, (provision for) benefit
from income taxes .............. (1,367,762) (2,425,273) 937,349 -- (2,855,686)
Recapitalization expense ............ (1,223,161) -- -- -- (1,223,161)
Net loss of subsidiaries ............ (1,000,374) -- -- 1,000,374 --
Net income (loss) ................... (2,259,866) (1,515,916) 515,542 1,000,374 (2,259,866)
</TABLE>
Condensed Consolidating Statement of Cash Flows
Year ended June 30, 1999
<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 ........... $ (25,481,355) $ 19,749,641 $ (2,096,515) $ -- $ (7,828,229)
Net cash provided by (used in)
investing activities ........... (89,488) (22,029,071) (70,528) -- (22,189,087)
Net cash provided by (used in)
financing activities ........... 18,313,799 (1,213,037) -- -- 17,100,762
Decrease in cash and cash
equivalents .................... (7,257,044) (3,492,467) (2,167,043) -- (12,916,554)
Cash and cash equivalents,
beginning of period ............ 6,932,910 4,014,584 2,825,043 -- 13,772,537
-------------------------------------------------------------------------------------------
Cash and cash equivalents,
end of period .................. (324,134) 522,117 658,000 -- 855,983
</TABLE>
F-20
<PAGE>
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>
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 note 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 (decrease) 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>
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 (decrease) 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>
F-22
<PAGE>
Atlantic Express Transportation Corp.
Schedule II - - Valuation and Qualifying Accounts
For the Years ended June 30, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Net
Balance at Write-offs Balance at
Beginning Charges Charged to End of
of Period to Income Allowance Period
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended June 30, 1997:
allowance for doubtful accounts ............... $ -- $ 750,000 $ 500,000 $ 250,000
Year ended June 30, 1998:
allowance for doubtful accounts ............... 250,000 2,244,000 974,000 1,520,000
Year ended June 30, 1999:
allowance for doubtful accounts ............... 1,520,000 120,000 -- 1,640,000
</TABLE>
F-23
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
------ ----------- ----
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 (filed as exhibit 10.2.1 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1998 and incorporated herein by reference) ......
10.2.2 * Second Amendment dated as of May 28, 1999 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 then ended June 30, 1997 and
incorporated herein by reference) ........................
10.4 Collateral Assignment of Trademarks (Security Agreement)
dated as of February 7, 1997 between the Company and
Congress Financial (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 * Amended and Restated Employment Agreement dated as of
November 4, 1998 among the Company, AETG and Domenic
Gatto ....................................................
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 * Amended and Restated Employment Agreement dated as of
November 4, 1998 among the Company, AETG and Nathan
Schlenker ................................................
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) ........................
<PAGE>
Exhibit
Number Description Page
------ ----------- ----
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 .......
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 (filed as
exhibit 10.21 to the Company's Annual Report on Form
10-K for the year ended June 30, 1998 and incorporated
herein by reference) .....................................
10.22 * Second Amendment to the Security Agreement, dated as
of December 12, 1997 among the Company, the Guarantors
(as defined therein) and in favor of Congress Financial
Corporation ..............................................
10.23 Third Supplemental Indenture, dated as of October 28,
1998, among the Company, the Guarantors (as defined
therein) and The Bank of New York, as trustee (filed as
exhibit 1.1 to the Company's Current Report on Form 8-K
filed November 10, 1998 and incorporated herein by
reference) ...............................................
<PAGE>
Exhibit
Number Description Page
------ ----------- ----
10.24 * Fourth Supplemental Indenture, dated as of April 28,
1999, among the Company, the Guarantors (as defined
therein) and The Bank of New York, as trustee ............
10.25 * Third Amendment to the Security Agreement, dated as of
April 28, 1999 among the Company, the Guarantors (as
defined therein) and in favor of Congress Financial
Corporation ..............................................
10.26 * Note Purchase Agreement dated October 2, 1998 among the
Company, Domenic Gatto, Michael Gatto and Patrick Gatto ..
10.27 * Accounts Purchase and Sale Agreement dated June 8,
1999 among the Company, the Sellers (as defined therein)
and Congress Financial Corporation .......................
16 Letter from BDO Seidman LLP, the Company's former
independent accountants, dated as of June 17, 1999
(filed as exhibit 16 to the Company's Current Report of
Form 8-K filed June 28, 1999, and incorporated herein by
reference) ...............................................
21 * Subsidiaries of the Company ..............................
27 * Financial Data Schedule ..................................
* Filed with this Form 10K.
Exhibit 10.2.2
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT is entered into as of May 28th, 1999, 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, ATLANTIC
EXPRESS OF LA INC., a California corporation, CENTRAL NEW YORK COACH SALES &
SERVICE INC., a New York corporation, JERSEY BUS SALES, INC., a New Jersey
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, ATLANTIC-CHITTENANGO REAL PROPERTY CORP., a New York corporation,
201 WEST SOTELLO REALTY, INC., a California corporation, JERSEY BUSINESS LAND
CO. INC., a New Jersey corporation (each individually, including Parent, an
"Existing Guarantor" and any two or more collectively, " Existing Guarantors"),
ATLANTIC PARATRANS OF COLORADO, INC., a Colorado corporation ("Colorado"),
ATLANTIC PARATRANS OF PENNSYLVANIA, INC., a Pennsylvania corporation
("Pennsylvania"), and ATLANTIC EXPRESS OF NEW JERSEY, INC., a New Jersey
corporation ("New Jersey", and together with Colorado, Pennsylvania, and
Existing Borrowers, hereinafter collectively referred to as "Borrowers"),
ATLANTIC MEDFORD, INC., a New York corporation ("Medford", and together with
Existing Guarantors, hereinafter collectively referred to as "Guarantors").
RECITALS:
---------
WHEREAS, (i) Existing Borrowers, Parent, and Lender are parties to that
certain Loan and Security Agreement, dated February 4, 1997 as amended to date
(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 is a party to the 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 are party to (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;
WHEREAS, Colorado, Pennsylvania, New Jersey and Medford are wholly owned
subsidiaries of Parent acquired by Parent since the date of the Loan Agreement
with the consent of Lender;
-1-
<PAGE>
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, Existing Borrowers and Existing Guarantors 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 Colorado,
Pennsylvania and New Jersey as "Borrowers" thereunder and to provide for
additional borrowing availability based upon certain eligible assets of
Colorado, Pennsylvania and New Jersey; and
WHEREAS, Medford has agreed to become a Guarantor 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. Additional Borrowers and Guarantor.
-----------------------------------
(a) Each of Colorado, Pennsylvania and New Jersey 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 Colorado, Pennsylvania and New 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 Colorado, Pennsylvania and New 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 Colorado, Pennsylvania and New Jersey.
(b) Medford hereby joins in and becomes a party to the Guarantee as
a Guarantor and, as a Guarantor, hereby joins in and becomes a party to each
other Financing Agreement to which the Guarantors are parties (including,
without limitation, the Guarantor Security Agreement), and Medford hereby
assumes and agrees 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 Medford had been named as Guarantor 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 Medford.
2. Acknowledgment. Each of the Borrowers (including, without
limitation, Colorado, Pennsylvania, New Jersey and Arizona) and each of the
Guarantors (including, without limitation, Medford) hereby acknowledge, confirm
and agree that Existing Borrowers are indebted to Lender for Obligations as of
the close of business on May 28, 1999, in respect of the loans and other credit
accommodations made pursuant to the Financing Agreements in the aggregate
principal amount of approximately $16,083,621 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.
3. Conditions Precedent. The agreements set forth herein shall not
be effective unless and until each of the following conditions precedent is
satisfied as determined by Lender:
-2-
<PAGE>
(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) Lender shall have received evidence that the Collateral Agent
has a valid and perfected security interest in and lien on the assets of each of
Colorado, Pennsylvania, New Jersey and Medford;
(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;
(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 Colorado, Pennsylvania,
New Jersey and Medford 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.
4. 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.
-3-
<PAGE>
5. 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.
6. 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 Colorado, Pennsylvania, New
Jersey and Medford 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.
7. 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.
8. 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.
9. 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.
10. 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.
-4-
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and delivered
by each of parties hereto by a duly authorized officer of each such party on the
date first set forth above.
LENDER
- ------
CONGRESS FINANCIAL CORPORAT10N
By: /s/ Van K. Brown
----------------------------
Title: Assistant Vice President
------------------------
Address:
1133 Avenue of the Americas
New York, New York 10036
BORROWERS
- ---------
AMBOY BUS CO., INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
ATLANTIC-CONN. TRANSIT INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
ATLANTIC-HUDSON, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
ATLANTIC PARATRANS, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
-5-
<PAGE>
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
ATLANTIC PARATRANS OF
KENTUCKY, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
ATLANTIC PARATRANS, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
-----------------------
7 North Street
Staten Island, New York 10302
ATLANTIC COACHWAYS, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
ATLANTIC EXPRESS OF MISSOURI,
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
-6-
<PAGE>
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
ATLANTIC EXPRESS OF
PENNSYLVANIA, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
BROOKFIELD TRANSIT, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
COURTESY BUS CO, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
K. CORR, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
-7-
<PAGE>
Chief Executive Office:
-----------------------
7 North Street
Staten Island, New York 10302
MERIT TRANSPORTATION CORP.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
-----------------------
7 North Street
Staten Island, New York 10302
METROPOLITAN ESCORT SERVICE, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
-----------------------
7 North Street
Staten Island, New York 10302
RAYBERN BUS SERVICE, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
-----------------------
7 North Street
Staten Island, New York 10302
RAYBERN CAPITAL CORP.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
-8-
<PAGE>
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
RAYBERN EQUITY CORP.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
STATEN ISLAND BUS, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
CENTRAL NEW YORK COACH SALES
& SERVICE, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
JERSEY BUS SALES, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
-9-
<PAGE>
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
ATLANTIC EXPRESS OF L.A. INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
ATLANTIC PARATRANS OF
COLORADO, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
ATLANTIC PARATRANS OF
PENNSYLVANIA, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
-10-
<PAGE>
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
ATLANTIC EXPRESS OF
NEW JERSEY, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
PARENT
- ------
ATLANTIC EXPRESS
TRANSPORTATION CORP.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
-11-
<PAGE>
GUARANTORS
- ----------
ATLANTIC EXPRESS
TRANSPORTATION CORP.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
BLOCK 7932, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
G.V.D LEASING CO., INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
180 JAMAICA CORP.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
-12-
<PAGE>
Chief Executive Office:
-----------------------
7 North Street
Staten Island, New York 10302
METRO AFFILIATES INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
-----------------------
7 North Street
Staten Island, New York 10302
MIDWAY LEASING INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
-----------------------
7 North Street
Staten Island, New York 10302
TEMPORARY TRANSIT SERVICE, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
-----------------------
7 North Street
Staten Island, New York 10302
ATLANTIC-CHITTENANGO REAL
PROPERTY CORP.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
-13-
<PAGE>
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
JERSEY BUSINESS LAND CO., INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
201 WEST SOTELLO REALTY, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
ATLANTIC MEDFORD, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
-14-
<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 it terms, and is not subject to any defense, setoff or
counterclaim, and (b) the terms "obligator" and "Borrower" as defined in the
Guarantee include each of Colorado, Pennsylvania and New 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 Colorado, Pennsylvania and New Jersey to Lender.
Each of such Guaranteed Obligations is secured by any property in which it has
ranted or may hereafter grant Lender a security interest or lien as security for
the Guarantee.
Dated: May 28, 1999
GUARANTORS
- ----------
ATLANTIC EXPRESS
TRANSPORTATION CORP.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
BLOCK 7932, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
G.V.D. LEASING CO., INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
-15-
<PAGE>
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
180 JAMAICA CORP.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
METRO AFFILIATES, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
MIDWAY LEASING INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
- -----------------------
7 North Street
Staten Island, New York 10302
TEMPORARY TRANSIT SERVICE, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
-16-
<PAGE>
Chief Executive Office:
-----------------------
7 North Street
Staten Island, New York 10302
ATLANTIC-CHITTENANGO REAL PROPERTY CORP.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
-----------------------
7 North Street
Staten Island, New York 10302
JERSEY BUSINESS LAND CO., INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
-----------------------
7 North Street
Staten Island, New York 10302
201 WEST SOTELLO REALTY, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
Chief Executive Office:
-----------------------
7 North Street
Staten Island, New York 10302
ATLANTIC MEDFORD, INC.
By: /s/ Domenic Gatto
-------------------
Title: President & CEO
---------------
-17-
<PAGE>
Chief Executive Office:
-----------------------
7 North Street
Staten Island, New York 10302
-18-
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of November 4, 1998
(the "Agreement") among Atlantic Express Transportation Group Inc., a New York
corporation ("Group"), Atlantic Express Transportation Corp., a New York
corporation (the "Company"), and Domenic Gatto (the "Executive").
WHEREAS, the Executive is presently employed by the Company, a wholly
owned subsidiary of Group, under an employment agreement dated as of January
21,1997, and by Group, under an employment agreement dated as of February 28,
1994, as amended (such agreements, collectively the "Prior Agreements");
WHEREAS, pursuant to the Recapitalization and Stock Purchase Agreement,
dated as of September 29, 1998 (the "Purchase Agreement"), among GSCP II
Holdings (AE), LLC, a Delaware limited liability company ("Buyer"), Group, and
the Executive, Michael Gatto, Patrick Gatto and Wafra Acquisition Fund 4, L.P.,
the Company will recapitalize its capital structure and, following the
recapitalization, the Buyer will purchase from Group, certain shares of Group's
Common Stock, no par value (the "Transaction"),
WHEREAS, the Executive has had a prominent role in the development of the
business and goodwill of Group and the Company and has established relations and
contacts with principal customers and suppliers of Group and the Company;
WHEREAS, the Executive possesses valuable knowledge and skills that will
contribute to the successful operation of the Company's business following the
Transaction; and
WHEREAS, the Company desires to secure the continued services of the
Executive, and the Executive desires to continue in the employment of the
Company following the Transaction and, in connection therewith, the Company,
Group and the Executive desire to amend and restate the terms and provisions of
the Prior Agreements to, among other things, set forth the terms of such
continued employment.
NOW, THEREFORE, in consideration of the foregoing and the respective
covenants and agreements hereinafter set forth and for other good and valuable
consideration, the Company, Group and the Executive hereby agree to amend and
restate the Prior Agreements in their entirety as follows:
<PAGE>
1. EMPLOYMENT AND DUTIES
---------------------
1.1. General. The Company hereby employs the Executive, and the Executive
agrees to serve, as President and Chief Executive Officer of the Company and
upon the Board of Directors of the Company (the "Board") upon the terms and
conditions herein contained during the Employment Term, and in such capacities
the Executive agrees to serve the Company faithfully and to the best of his
ability under the direction of the Board. The Executive also shall serve as a
member of the Board of Directors of Group during the Employment Term. The
Executive also agrees to serve, if elected, at no compensation in addition to
that provided for in this Agreement, in the position of officer or director of
Group and of any subsidiary of Group or the Company during the Employment Term.
1.2. Exclusive Services. For so long as the Executive is employed by the
Company, he shall devote his full-time working hours to his duties hereunder.
The Executive shal1 not, directly or indirectly, render services to any other
person or organization for which he receives compensation without the unanimous
consent of the Board or otherwise engage in activities which would interfere
significantly with his faithful performance of his duties hereunder.
Notwithstanding the foregoing, the Executive may serve as a member of the board
of directors of G Entertainment, Inc., provided that such services shall not
interfere with the performance of Executive's duties hereunder.
1.3. Term of Employment. The Executive's employment under this Agreement
shall commence on November 4, 1998 (the "Effective Date") and shal1 terminate on
the earliest of (i) the fourth anniversary of the Effective Date, (ii) the death
of the Executive or (iii) the termination of the Executive's employment pursuant
to this Agreement; provided, however, that the term of the Executive's
employment under this Agreement may be extended for a period of up to three
years by notice of approval from the Board to the Executive at least 120 days
prior to the expiration of the then effective Employment Term, at the annual
base salary then in effect and otherwise subject to the terms and conditions set
forth herein (the period during which the Executive is employed pursuant to this
Agreement, including any extension thereof in accordance with this Section 1.3,
shall be referred to as the "Employment Term").
2. SALARY
2.1. Base Salary. From the Effective Date, the Executive shal1 be entitled
to receive a base salary ("Base Salary") at a rate of $350,000 per annum,
payable in arrears in equal installments in accordance with the Company's
payroll practices, with such increases as may be provided in accordance with the
terms hereof. Once increased, such higher amount shall constitute the
Executive's annual Base Salary.
2
<PAGE>
2.2. Annual Increases. Commencing one year from the Effective Date, and
annually on each anniversary thereafter, the Executive's base salary shall be
increased by the same percentage by which the regional consumer price index as
of the June immediately preceding such anniversary date shall have increased
over such consumer price index as of June of the prior year; provided, however,
that in no event shall such annual increase be more than five percent (5%) nor
less than three percent (3%) of such base salary. Regional consumer price index
shall mean the index as determined by the United States Department of Labor for
the New York, New York-Northeastern New Jersey area based upon the index for all
urban consumers.
2.3. Year 1 Bonus. On the six-month anniversary of the Effective Date, the
Executive shall be entitled to receive a bonus in the amount of $260,000, and on
the 12month anniversary of the Effective Date, the Executive shall be entitled
to receive a bonus in the amount of $260,000 (collectively, the "Year 1 Bonus"),
each installment of such Year 1 Bonus to be payable not later than 30 days
following the applicable anniversary date.
2.4. Special Bonus. Subject to (i) the Executive remaining in the
continuous employment of the Company from the Effective Date through the date of
the first Exit Event or (ii) the Executive's employment having been terminated
by the Company Without Cause and the first Exit Event occurring not more than 18
months after the executive date of such termination of employment, upon the
first Exit Event the Executive shall be entitled to receive a special bonus (the
"Special Bonus") in accordance with the table set forth below based upon the IRR
of GSCP after giving effect to the Special Bonus, if any, such Special Bonus to
be payable by the Company not later then 30 days following such Exit Event.
Amount of
IRR of GSCP Special Bonus
----------- -------------
IRR < 20% $0
20% <= IRR < 25% $500,000
25% <= IRR < 30% $625,000
30% <= IRR < 33% $750,000
IRR = 33% $1,500,000
For purposes of this Section 2.4, the terms "Exit Event", "GSCP" and "IRR"
shall have their respective meanings, and in the case of IRR shall be calculated
in accordance with,
3
<PAGE>
the Group Stock Option Plan adopted by the board of directors of Group as of
the Effective Date, as amended from time to time.
3. EMPLOYEE BENEFITS
-----------------
3.1. General Benefits. The Executive shall receive the following benefits
during the Employment Term:
(a) the Executive will be eligible to participate in benefit programs of
the Company consistent with those benefit programs provided to other senior
executives of the Company;
(b) a disability insurance policy providing $15,000 in monthly benefits
commencing six months after a disability which prevents the Executive from
performing the ordinary and necessary functions and duties of his employment;
provided that the premium therefor shall not exceed the usual and customary
rates charged by underwriters for such a policy for a person of the Executive's
age in good health. At the option of the Executive and in the place of the
disability policy, the Company shall pay the cash equivalent of the premium for
such policy to the Executive;
(c) an automobile allowance of $2,150 per month; and
(d) a life insurance premium allowance of $35,000 payable annually in
February of each year of the term hereof.
3.2. Vacation. The Executive shall be entitled to 25 days' paid vacation
each year in accordance with the applicable policies of the Company.
3.3. Reimbursement of Expenses. The Company will reimburse the Executive
for reasonable, ordinary and necessary business expenses incurred by him in the
fulfillment of his duties hereunder upon presentation by the Executive of an
itemized account of such expenditures, in accordance with Company practices
consistently applied.
3.4. Non-Renewal of Agreement. Subject to Section 4.1.1, in the event this
Agreement is not renewed by the Company following the expiration of the initial
term as provided in Section 1.3, the Executive shall be entitled to six months
of his Base Salary as severance, payable in equal installments on the same terms
as at the end of the Employment Term (such severance, "Non-Renewal Severance
Pay").
4
<PAGE>
4. TERMINATION OF EMPLOYMENT
-------------------------
4.1. Termination for Cause; Termination Without Cause; Termination for
Permanent Disability; Resignation.
4.1.1. General. (a) If, prior to the expiration of the Employment Term,
the Executive's employment is terminated by the Company for Cause, the Executive
shall be entitled only to (i) his accrued but unpaid Base Salary through and
including the date of termination ("Accrued Base Salary"), (ii) unpaid
installments of the Year 1 Bonus, if any, as severance, payable in a lump sum
not later than 30 days following the date of termination and (iii) Non-Renewal
Severance
Pay, payable in equal installments on the same terms as at the end of the
Employment Term; provided that, if such termination is for a Disloyalty
Termination Event, the Executive shall have no right to receive, and the Company
shal1 have no obligation to make, the payments described in clause (iii) above.
(b) If, prior to the expiration of the Employment Term, the Executive is
terminated by the Company Without Cause, the Executive shal1 be entitled only to
(i) his Accrued Base Salary, (ii) unpaid installments of the Year 1 Bonus, if
any, as severance, payable in a lump sum not later than 30 days following the
date of termination, (iii) (1) his Base Salary from the day after the
termination date through the normal expiration date of the Employment Term,
payable in equal installments on the same terms as at the end of the Employment
Term and the benefits set forth under Section 3.1 of this Agreement during such
period, as severance, and (2) in the event of a termination by the Company
Without Cause prior to the fourth anniversary of the Effective Date, the
Non-Renewal Severance Pay as severance, payable in equal installments on the
same terms as at the end of the Employment Term, any severance payable pursuant
to clause (iii) (2) to be paid, in installments, commencing immediately after
the payment of severance pursuant to clause (iii) (1) and (iv) the Special
Bonus, if any, as severance, payable in accordance with Section 2.4.
(c) If, prior to the expiration of the Employment Term, the Executive's
employment is terminated by the Company for Permanent Disability (as defined in
Section 5), the Executive shall be entitled only to the payments and benefits
provided for in Section 5 hereof.
(d) If the Executive resigns from his employment hereunder, the Executive
shall be entitled only to payment of his Accrued Base Salary and unpaid
installments of the Year 1 Bonus, if any, as severance, payable in a lump sum
not later than 30 days following the date of termination.
(e) Except as otherwise provided herein, the Executive shall have no
further right to receive any other compensation, or to participate in any other
plan, arrangement, or
5
<PAGE>
benefit, after any termination or resignation of employment, subject to the
terms of such plans or arrangements.
(f) Notwithstanding any thing to the contrary herein, (i) the Company may
elect, in its sole discretion, to pay any remaining installments of severance,
bonus or other payments hereunder in a lump sum rather than in installments over
time and (ii) in the event of the termination of the Executive's employment by
the Company for any reason, the Company or Group shall, within 60 days of such
termination of employment, (x) obtain releases that release the Executive,
Michael Gatto, Patrick Gatto and their respective spouses from the guarantees
made by such individuals in respect of obligations of Group, the Company or any
of their respective subsidiaries and identified on Schedule I hereto (the
"Guarantees"), if any such Guarantees are then in effect, or (y) provide letters
of credit to the Executive in respect thereof, if any such Guarantees are then
in effect.
4.1.2. Date of Termination/Resignation. The date of termination for a
termination by the Company for Cause shall be the date of the written notice of
termination provided for in Section 4.1.3. The date of termination for a
Termination Without Cause shal1 be as provided in Section 4.1.4. The date of
termination for a termination for Permanent Disability shal1 be as provided in
Section 5. The date of resignation shal1 be the date specified in the written
notice of resignation from the Executive to the Company, or if no date is
specified therein, 10 business days after receipt by the Company of written
notice of resignation from the Executive.
4.1.3. Notice of Termination for Cause. Termination of the Executive's
employment by the Company for Cause shal1 be effected by delivery of a written
notice of termination from the Company to the Executive, which notice shall
specify the event or events set forth in Section 4.2 giving rise to such
termination.
4.1.4. Notice of Termination Without Cause. Termination of the Executive's
employment for a Termination Without Cause shall be effected by written notice
of termination from the Company to the Executive, specifying a termination date
no earlier than 10 business days after the date on which such notice is given.
4.2. Termination for Cause. Termination for "Cause" shall mean termination
by the Company of the Executive's employment because the Executive (a) has
engaged in fraudulent or criminal conduct in connection with the performance of
his duties hereunder, which conduct materially and adversely affects Group, the
Company or any of their respective affiliates (a "Conduct Termination Event"),
(b) admits to, has been convicted of or has entered into a plea of nolo
contendere to a crime punishable by imprisonment for more than one year (a
"Felony Termination Event"), (c) has failed to perform in all material respects
(following a written warning specifying such deficiency) the normal and
customary duties
6
<PAGE>
required of his position of employment (a "Performance Termination Event"),
(d) has been disloyal to Group, the Company or any of their respective
affiliates by assisting competitors of Group, the Company or any of their
respective affiliates to the disadvantage of Group, the Company or any of their
respective affiliates by a breach of Section 6 or by otherwise actively
assisting competitors to the disadvantage of Group, the Company or any of their
respective affiliates (a "Disloyalty Termination Event"), or (e) has been
identified by the Board of Education of the City of New York in a notice to
Group, the Company or any of their respective affiliates (a "BOE notice") that
the Board of Education has elected either not to extend an existing
transportation contract or that it will not accept bids from Group, the Company
or any of their respective affiliates for a new transportation contract unless
the employment of the Executive is terminated together with divestiture of the
Executive's stock ownership in Group (a "BOE Termination Event").
4.3 Termination Without Cause. "Termination Without Cause" shall mean any
termination by the Company of the Executive's employment at any time during the
Employment Term for any reason other than Cause, death or Permanent Disability.
5. PERMANENT DISABILITY
--------------------
If, prior to the expiration of the Employment Term, the Executive shall
fai1 because of illness, physical or mental disability or other incapacity, for
a period of six consecutive months, or for shorter periods aggregating six
months during any twelve-month period, to render the services provided for by
this Agreement, then the Company may, by written notice to the Executive after
the last day of the six consecutive months of disability or the day on which the
shorter periods of disability equal an aggregate of six months, terminate the
Executive's employment for "Permanent Disability", specifying a termination date
no earlier than 10 business days after the date on which such notice is given.
The determination of the Executive's Permanent Disability shal1 be made by an
independent physician who is reasonably acceptable to the Executive and the
Company and shall be final and binding and shall be based on such competent
medical evidence as shal1 be presented to it by the Executive or by any
physician or group of physicians or other competent medical experts employed by
the Executive and/or the Company to advise such independent physician.
In the event of a termination of the Executive's employment by the Company
for Permanent Disability, the Executive shall be entitled only to (i) his
Accrued Base Salary, (ii) unpaid installments of the Year 1 Bonus, if any, as
severance payable in a lump sum not later than 30 days following the date of
termination, (iii) six months of his Base Salary as severance, payable in equal
installments on the same terms as at the end of the Employment Term, followed by
an additional six months of his Base Salary less $15,000 per month as severance,
payable in equa1 installments on the same terms as at the end of the Employment
Term, and (iv) receive the benefits set forth under Section 3.1 of this
Agreement during the
7
<PAGE>
twelve-month severance period. Any payments provided for in this Section 5
shall be reduced to the extent that such payments, together with any disability
payments received by the Executive under any plan, program or arrangements
including without limitation any payment to the employee under Section 3.1(b)
exceed the Executive's Base Salary; provided that if disability payments are
received which are free of federal income tax, the payments provided for in this
Section 5 shall be reduced by an amount equal to the pre-tax income which would
have been required to produce such payment free of tax based on the marginal tax
rate for the previous tax year of the Executive. Except as otherwise provided in
this Section 5, following the effective date of a termination for Permanent
Disability, the Company shall have no further obligation to the Executive under
this Agreement. Notwithstanding anything to the contrary herein, the Company may
elect, in its sole discretion, to pay any remaining installments of severance,
bonus or other payments hereunder in a single lump sum rather than in
installments over time.
6. NONCOMPETITION/NONSOLICITATION AND CONFIDENTIALITY
6.1. Noncompetition/Nonsolicitation. The Executive shall not, directly or
indirectly, as a sole proprietor, member of a partnership, stockholder or
investor, officer or director of a corporation, or as an employee, associate,
consultant or agent of any person, partnership, corporation or other business
organization or entity other than the Company: (a) engage in, or acquire an
interest in any entity or enterprise which engages in, any business that is in
competition with any business actively conducted by Group, the Company or any of
their respective subsidiaries within (i) the counties then served by Group, the
Company or their respective subsidiaries as well as adjacent counties, and (ii)
any other counties in which Group, the Company or their respective subsidiaries
has made a bid within 36 months prior to the Executive's termination and any
adjacent counties in which Group, the Company or their respective subsidiaries
conducts business, (b) solicit or endeavor to entice away from Group, the
Company or any of their respective subsidiaries any person who is, or was during
the then most recent 36-month period, employed by or associated with Group, the
Company or any of their respective subsidiaries; or (c) solicit or endeavor to
entice away from Group, the Company or any of their respective subsidiaries, or
otherwise interfere with the business relationship of Group, the Company or any
of their respective subsidiaries with, any person or entity who is, or was
within the then most recent 36-month period, a customer, client or prospect of
Group, the Company or any of their respective subsidiaries. The obligations of
is Section 6. shall apply for 36 months after termination of employment of the
Executive as well as during employment and shall be extended by a period of time
equal to any period during which the Executive shall be in breach of such
obligations.
6.2. Confidentiality. The Executive covenants and agrees with the Company
that he will not at any time, except in performance of his obligations to the
Company hereunder or with the prior written consent of the Company, directly or
indirectly, disclose any secret
8
<PAGE>
or confidential information that he may learn or has learned by reason of
his association with Group, the Company or any of their respective subsidiaries
and affiliates. The term "confidential information" includes information not
previously disclosed to the public or to the trade by the Company's or Group's
management, or otherwise in the public domain, with respect to the Company's or
Group's, or any of their respective affiliates' or subsidiaries', products,
services, facilities, applications and methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidentia1 reports,
product or service price lists, customer lists, technical information, financial
information (including the revenues, costs or profits associated with any of the
Company's or Group's Product), business plans,
prospects or opportunities.
6.3. Exclusive Property. The Executive confirms that all confidential
information is and shall remain the exclusive property of Group and the Company.
All business records, papers and documents kept or made by the Executive
relating to the business of Group, the Company or their respective subsidiaries
shall be and remain the property of Group and the Company.
6.4. Injunctive Relief. Without intending to limit the remedies available
to Group and the Company, the Executive acknowledges that a breach of any of the
covenants contained in this Section 6 may result in material and irreparable
injury to Group, the Company or their respective affiliates or subsidiaries for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of such a
breach or threat thereof, Group and the Company shall be entitled to obtain a
temporary restraining order and/or a preliminary or permanent injunction
restraining the Executive from engaging in activities prohibited by this Section
6 or such other relief as may be required specifically to enforce any of the
covenants in this Section 6. If for any reason a final decision of any court
determines that the restrictions under this Section 6 are not reasonable or that
consideration therefor is inadequate, such restrictions shal1 be interpreted,
modified or rewritten by such court to include as much of the duration and scope
identified in this Section 6 as will render such restrictions valid and
enforceable.
7. MISCELLANEOUS
7. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:
9
<PAGE>
To the Company or Group, to it at:
Atlantic Express Transportation Corp.
7 North Street
Staten Island, NY 10302
Attention: Corporate Secretary
with a copy to each of:
GSCP II Holdings (AE), LLC
c/o Greenwich Street Capital Partners, Inc.
388 Greenwich Street, 36th Floor
New York, NY 10013
Fax: (212)816-0166
Attention: Thomas V. Inglesby
and
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Fax: (212)909-6836
Attention: Andrew L. Sommer
To the Executive:
Domenic Gatto
136 Monmouth Road
Spotswood, NJ 08884
Fax: (732) 251-5519
with a copy to:
Silverman, Collura, Chernis & Balzano
381 Park Avenue South
Suite 1601
New York, NY 10016
Fax: (212) 779-8858
Attention: Peter R. Silverman
10
<PAGE>
Any such notice or communication shal1 be sent certified or registered
mail, return receipt requested, or by telefax, addressed as above (or to such
other address as such party may designate in writing from time to time), and the
actual date of receipt shal1 determine the time at which notice was given.
7.2. Severability. If a court of competent jurisdiction determines that
any term or provision hereof is invalid or unenforceable, (a) the remaining
terms and provisions hereof shall be unimpaired and (b) such court shal1 have
the authority to replace such invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
7.3. Assignment. This Agreement shall inure to the benefit of the heirs
and representatives of the Executive and the assigns and successors of the
Company, but neither this Agreement nor any rights hereunder shal1 be assignable
or otherwise subject to hypothecation by the Executive. Each of Group and the
Company may assign this Agreement without prior written approval of the
Executive upon the transfer of all or substantially all of its business and/or
assets (whether by purchase, merger, consolidation or otherwise), provided that
the successor to such business and/or assets shal1 expressly assume and agree to
perform this Agreement.
7.4. Entire Agreement; Amendment. This Agreement represents the entire
agreement of the parties with respect to the subject matter hereof and shall
supersede any and all previous contracts, arrangements or understandings between
or among Group, the Company and the Executive, including the Prior Agreements.
The Agreement may be amended at any time by mutual written agreement of the
parties hereto.
7.5. Withholding. The Company shal1 be entitled to withhold, or cause to
be withheld, from payment any amount of withholding taxes required by law with
respect to payments made to the Executive in connection with his employment
hereunder.
7.6. Governing Law. This Agreement shall be construed, interpreted, and
governed in accordance with the laws of the State of New York without reference
to principles of conflict of laws.
7.7 Survival. Sections 3.4 (relating to non-renewal), 4.1.1 (relating to
early termination), 5 (relating to Permanent Disability), 6 (relating to
noncompetition, nonsolicitation and confidentiality) and 7.6 (relating to
governing law) shall survive the termination hereof, whether such termination
shall be by expiration of the Employment Term or an early termination pursuant
to Sections 4 or 5 hereof.
11
<PAGE>
7.8 Headings. Headings to sections in this Agreement are for the
convenience of the parties only and are not intended to be a part of or to
affect the meaning or interpretation hereof.
7.9 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
12
<PAGE>
IN WITNESS WHEREOF, the Company and Group have caused this Agreement to be
duly executed by their authorized representatives and the Executive has hereunto
set his hand, in each case effective as of the day and year first above written.
ATLANTIC EXPRESS
TRANSPORTATION GROUP INC.
/s/ Domenic Gatto
By: ---------------------
Name: Domenic Gatto
Title: President
ATLANTIC EXPRESS
TRANSPORTATION CORP.
/s/ Domenic Gatto
By: ---------------------
Name: Domenic Gatto
Title: President
EXECUTIVE:
/s/ Domenic Gatto
- --------------------------
Domenic Gatto
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
PERSONAL GUARANTIES
Lendor/Lessor Debtor/Lessee Guarantor Date
- ------------- ------------- --------- ----
<S> <C> <C> <C>
Allegiant Bank Atlantic Express of Missouri Domenic Gatto 7/23/98
Joan Gatto
Debis Financial Atlantic Express Coachways Domenic Gatto 4/19/96
Debis Financial Atlantic Express Coachways Domenic Gatto 8/96
Debis Financial Atlantic Express Coachways Domenic Gatto 4/4/96
Debis Financial Courtesy Bus Domenic Gatto 1/30/96
Mellon US Leasing Amboy Bus Domenic Gatto 12/30/96
Navistar Amboy Bus Domenic Gatto 8/20/97
Navistar Atlantic-Conn Domenic Gatto 8/20/97
Summit Amboy Bus Domenic Gatto 7/15/96
Congress Financial Atlantic Express Transp. Group Domenic Gatto 9/22/98
Fireman's Fund Atlantic Express Transp. Group Domenic Gatto 9/25/96
Michael Gatto
Patrick Gatto
</TABLE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of November 4, 1998
(the "Agreement") among Atlantic Express Transportation Group Inc., a New York
corporation ("Group"), Atlantic Express Transportation Corp., a New York
corporation (the "Company"), and Nathan Schlenker (the "Executive").
WHEREAS, the Executive is presently employed by the Company, a wholly
owned subsidiary of Group, under an employment agreement dated as of January
21,1997, which amended and restated an employment agreement with Group dated as
of February 28, 1994, (such agreements, collectively the "Prior Agreements");
WHEREAS, pursuant to the Recapitalization and Stock Purchase Agreement,
dated as of September 29, 1998 (the "Purchase Agreement"), among GSCP II
Holdings (AE), LLC, a Delaware limited liability company ("Buyer"), Group, and
Domenic Gatto, Michael Gatto, Patrick Gatto and Wafra Acquisition Fund 4, L.P.,
the Company will recapitalize its capital structure and, following the
recapitalization, the Buyer will purchase from Group, certain shares of Group's
Common Stock, no par value (the "Transaction"),
WHEREAS, the Executive has had a prominent role in the development of the
business and goodwill of Group and the Company and has established relations and
contacts with principal customers and suppliers of Group and the Company;
WHEREAS, the Executive possesses valuable knowledge and skills that will
contribute to the successful operation of the Company's business following the
Transaction; and
WHEREAS, the Company desires to secure the continued services of the
Executive, and the Executive desires to continue in the employment of the
Company following the Transaction and, in connection therewith, the Company,
Group and the Executive desire to amend and restate the terms and provisions of
the Prior Agreements to, among other things, set forth the terms of such
continued employment.
NOW, THEREFORE, in consideration of the foregoing and the respective
covenants and agreements hereinafter set forth and for other good and valuable
consideration, the Company, Group and the Executive hereby agree to amend and
restate the Prior Agreements in their entirety, as follows:
<PAGE>
1. EMPLOYMENT AND DUTIES
1.1. General. The Company hereby employs the Executive, and the Executive
agrees to serve, as Chief Financial Officer of the Company upon the terms and
conditions herein contained during the Employment Term, and in such capacities
the Executive agrees to serve the Company faithfully and to the best of his
ability under the direction of the Board. The Executive also agrees to serve, if
elected, at no compensation in addition to that provided for in this Agreement,
in the position of director of the Company or officer or director of Group and
of any subsidiary of Group or the Company during the Employment Term.
1.2. Exclusive Services. For so long as the Executive is employed by the
Company, he shall devote his full-time working hours to his duties hereunder.
The Executive shal1 not, directly or indirectly, render services to any other
person or organization for which he receives compensation without the unanimous
consent of the Board of Directors of the Company (the "Board") or otherwise
engage in activities which would interfere significantly with his faithful
performance of his duties hereunder.
1.3. Term of Employment. The Executive's employment under this Agreement
shall commence on November 4, 1998 (the "Effective Date") and shal1 terminate on
the earliest of (i) the fourth anniversary of the Effective Date, (ii) the death
of the Executive or (iii) the termination of the Executive's employment pursuant
to this Agreement; provided, however, that the term of the Executive's
employment under this Agreement may be extended on the terms hereof for a period
of up to one year by notice of approval from the Board to the Executive at least
60 days prior to the expiration of the then effective Employment Term (the
period during which the Executive is employed pursuant to this Agreement,
including any extension thereof in accordance with this Section 1.3, shall be
referred to as the "Employment Term").
2. SALARY
2.1. Base Salary. From the Effective Date, the Executive shal1 be entitled
to receive a base salary ("Base Salary") at a rate of $205,000 per annum,
payable monthly on or about the 15th day of each month in equal installments
in accordance with the Company's payroll practices, with such increases as may
be provided in accordance with the terms hereof. Once increased, such higher
amount shall constitute the Executive's annual Base Salary.
3. EMPLOYEE BENEFITS
3.1. General Benefits The Executive shall receive the following benefits
during the Employment Term:
2
<PAGE>
(a) the Executive will be eligible to participate in benefit programs of
the Company consistent with those benefit programs provided to other senior
executives of the Company;
(b) an automobile allowance of $250 per month plus a company car (as
approved by the Board);
(c) a life insurance premium allowance of $2,500 payable annually in
February of each year of the term hereof.
(d) a travel allowance not to exceed $10,000 annually; and
(e) bonus at an annual rate not less than $2,500 as determined by the
Board.
3.2. Vacation. The Executive shall be entitled to 15 days' paid vacation
each year in accordance with the applicable policies of the Company.
3.3. Reimbursement of Expenses. The Company will reimburse the Executive
for reasonable, ordinary and necessary business expenses incurred by him in the
fulfillment of his duties hereunder upon presentation by the Executive of an
itemized account of such expenditures, in accordance with Company practices
consistently applied.
3.4. Non-Renewal of Agreement. Subject to Section 4.1.1, in the event this
Agreement is not renewed by the Company following the expiration of the initial
term as provided in Section 1.3, the Executive shall be entitled to twelve
months of his Base Salary as severance, payable in equal installments on the
same terms as at the end of the Employment Term (such severance, "Non-Renewal
Severance Pay").
4. TERMINATION OF EMPLOYMENT
4.1. Termination for Cause; Termination Without Cause; Termination for
Permanent Disability; Resignation.
4.1.1. General. (a) If, prior to the expiration of the Employment Term,
the Executive's employment is terminated by the Company for Cause, the Executive
shall be entitled only to (i) his accrued but unpaid Base Salary through and
including the date of termination ("Accrued Base Salary"), (ii) six months of
his Base Salary as severance, payable in equal installments on the same terms as
at the end of the Employment Term, unless such termination is for a Disloyalty
Termination Event, in which case the Executive shall be entitled only to payment
of his Accrued Base Salary.
3
<PAGE>
(b) If, prior to the expiration of the Employment Term, the Executive is
terminated by the Company Without Cause, the Executive shal1 be entitled only to
(i) his Accrued Base Salary,and (ii)(1) his Base Salary from the day after the
termination date through the normal expiration date of the Employment Term (but
in no event for less than a six-month period), payable in equal installments on
the same terms as at the end of the Employment Term and the benefits set forth
under Section 3.1 of this Agreement during such period, as severance, and (2) in
the event of a termination by the Company Without Cause prior to the first
anniversary of the Effective Date, the Non-Renewal Severance Pay as severance,
payable in equal installments on the same terms as at the end of the Employment
Term, any severance payable pursuant to clause (ii) (2) to be paid, in
installments, commencing immediately after the payment of severance pursuant to
clause (ii) (1).
(c) If, prior to the expiration of the Employment Term, the Executive's
employment is terminated by the Company for Permanent Disability (as defined in
Section 5), the Executive shall be entitled only to the payments and benefits
provided for in Section 5 hereof.
(d) If the Executive resigns from his employment hereunder, the Executive
shall be entitled only to payment of his Accrued Base Salary.
(e) Except as otherwise provided herein, the Executive shall have no
further right to receive any other compensation, or to participate in any other
plan, arrangement, or benefit, after any termination or resignation of
employment, subject to the terms of such plans or arrangements.
(f) Notwithstanding anything to the contrary herein, the Company may
elect, in its sole discretion, to pay any remaining installments of severance or
other payments hereunder in a lump sum rather than in installments over time.
4.1.2. Date of Termination/Resignation. The date of termination for a
termination by the Company for Cause shall be the date of the written notice of
termination provided for in Section 4.1.3. The date of termination for a
Termination Without Cause shal1 be as provided in Section 4.1.4. The date of
termination for a termination for Permanent Disability shal1 be as provided in
Section 5. The date of resignation shal1 be the date specified in the written
notice of resignation from the Executive to the Company, or if no date is
specified therein, 10 business days after receipt by the Company of written
notice of resignation from the Executive.
4.1.3. Notice of Termination for Cause. Termination of the Executive's
employment by the Company for Cause shal1 be effected by delivery of a written
notice of
4
<PAGE>
termination from the Company to the Executive, which notice shall specify the
event or events set forth in Section 4.2 giving rise to such termination.
4.1.4. Notice of Termination Without Cause. Termination of the Executive's
employment for a Termination Without Cause shall be effected by written notice
of termination from the Company to the Executive, specifying a termination date
no earlier than 10 business days after the date on which such notice is given.
4.2. Termination for Cause. Termination for "Cause" shall mean termination
by the Company of the Executive's employment because the Executive (a) has
engaged in fraudulent or criminal conduct in connection with the performance of
his duties hereunder, which conduct materially and adversely affects Group, the
Company or any of their respective affiliates (a "Conduct Termination Event"),
(b) admits to, has been convicted of or has entered into a plea of nolo
contendere to a crime punishable by imprisonment for more than one year (a
"Felony Termination Event"), (c) has failed to perform in all material respects
(following a written warning specifying such deficiency) the normal and
customary duties required of his position of employment (a "Performance
Termination Event"), (d) has been disloyal to Group, the Company or any of their
respective affiliates by assisting competitors of Group, the Company or any of
their respective affiliates to the disadvantage of Group, the Company or any of
their respective affiliates by a breach of Section 6 or by otherwise actively
assisting competitors to the disadvantage of Group, the Company or any of their
respective affiliates (a "Disloyalty Termination Event"), or (e) has been
identified by the Board of Education of the City of New York in a notice to
Group, the Company or any of their respective affiliates (a "BOE notice") that
the Board of Education has elected either not to extend an existing
transportation contract or that it will not accept bids from Group, the Company
or any of their respective affiliates for a new transportation contract unless
the employment of the Executive is terminated together with divestiture of the
Executive's stock ownership in Group (a "BOE Termination Event").
4.3 Termination Without Cause. "Termination Without Cause" shall mean any
termination by the Company of the Executive's employment at any time during the
Employment Term for any reason other than Cause, death or Permanent Disability.
5. PERMANENT DISABILITY
If, prior to the expiration of the Employment Term, the Executive shall
fai1 because of illness, physical or mental disability or other incapacity, for
a period of six consecutive months, or for shorter periods aggregating six
months during any twelve-month period, to render the services provided for by
this Agreement, then the Company may, by written notice to the Executive after
the last day of the six consecutive months of disability or the day on which the
shorter periods of disability equal an aggregate of six months, terminate the
5
<PAGE>
Executive's employment for "Permanent Disability", specifying a termination date
no earlier than 10 business days after the date on which such notice is given.
The determination of the Executive's Permanent Disability shal1 be made by an
independent physician who is reasonably acceptable to the Executive and the
Company and shall be final and binding and shall be based on such competent
medical evidence as shal1 be presented to it by the Executive or by any
physician or group of physicians or other competent medical experts employed by
the Executive and/or the Company to advise such independent physician.
In the event of a termination of the Executive's employment by the Company
for Permanent Disability, the Executive shall be entitled only to (i) his
Accrued Base Salary, (ii) six months of his Base Salary as severance, payable in
equal installments on the same terms as at the end of the Employment Term and
(iii) receive the benefits set forth under Section 3.1 of this Agreement during
the six-month severance period. Except as otherwise provided in this Section 5,
following the effective date of a termination for Permanent Disability, the
Company shall have no further obligation to the Executive under this Agreement.
6. NONCOMPETITION/NONSOLICITATION AND CONFIDENTIALITY
6.1. Noncompetition/Nonsolicitation. The Executive shall not, directly or
indirectly, as a sole proprietor, member of a partnership, stockholder or
investor, officer or director of a corporation, or as an employee, associate,
consultant or agent of any person, partnership, corporation or other business
organization or entity other than the Company: (a) engage in, or acquire an
interest in any entity or enterprise which engages in, any business that is in
competition with any business actively conducted by Group, the Company or any of
their respective subsidiaries within (i) the counties then served by Group, the
Company or their respective subsidiaries as well as adjacent counties, and (ii)
any other counties in which Group, the Company or their respective subsidiaries
has made a bid within 24 months prior to the Executive's termination and any
adjacent counties in which Group, the Company or their respective subsidiaries
conducts business, (b) solicit or endeavor to entice away from Group, the
Company or any of their respective subsidiaries any person who is, or was during
the then most recent 24-month period, employed by or associated with Group, the
Company or any of their respective subsidiaries; or (c) solicit or endeavor to
entice away from Group, the Company or any of their respective subsidiaries, or
otherwise interfere with the business relationship of Group, the Company or any
of their respective subsidiaries with, any person or entity who is, or was
within the then most recent 24-month period, a customer, client or prospect of
Group, the Company or any of their respective subsidiaries. The obligations of
this Section 6.1 shall apply for 24 months after termination of employment of
the Executive as well as during employment and shall be extended by a period of
time equal to any period during which the Executive shall be in breach of such
obligations.
6
<PAGE>
6.2. Confidentiality. The Executive covenants and agrees with the Company
that he will not at any time, except in performance of his obligations to the
Company hereunder or with the prior written consent of the Company, directly or
indirectly, disclose any secret or confidential information that he may learn or
has learned by reason of his association with Group, the Company or any of their
respective subsidiaries and affiliates. The term "confidential information"
includes information not previously disclosed to the public or to the trade by
the Company's or Group's management, or otherwise in the public domain, with
respect to the Company's or Group's, or any of their respective affiliates' or
subsidiaries', products, services, facilities, applications and methods, trade
secrets and other intellectual property, systems, procedures, manuals,
confidentia1 reports, product or service price lists, customer lists, technical
information, financial information (including the revenues, costs or profits
associated with any of the Company's or Group's Products), business plans,
prospects or opportunities.
6.3. Exclusive Property. The Executive confirms that all confidential
information is and shall remain the exclusive property of Group and the Company.
All business records, papers and documents kept or made by the Executive
relating to the business of Group, the Company or their respective subsidiaries
shall be and remain the property of Group and the Company.
6.4. Injunctive Relief. Without intending to limit the remedies available
to Group and the Company, the Executive acknowledges that a breach of any of the
covenants contained in this Section 6 may result in material and irreparable
injury to Group, the Company or their respective affiliates or subsidiaries for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of such a
breach or threat thereof, Group and the Company shall be entitled to obtain a
temporary restraining order and/or a preliminary or permanent injunction
restraining the Executive from engaging in activities prohibited by this Section
6 or such other relief as may be required specifically to enforce any of the
covenants in this Section 6. If for any reason a final decision of any court
determines that the restrictions under this Section 6 are not reasonable or that
consideration therefor is inadequate, such restrictions shal1 be interpreted,
modified or rewritten by such court to include as much of the duration and scope
identified in this Section 6 as will render such restrictions valid and
enforceable.
7. MISCELLANEOUS
7.1 Notices. All notices or communications hereunder shall be in
writing, addressed as follows:
7
<PAGE>
To the Company or Group, to it at:
Atlantic Express Transportation Corp.
7 North Street
Staten Island, NY 10302
Attention: Corporate Secretary
with a copy to each of:
GSCP II Holdings (AE), LLC
c/o Greenwich Street Capital Partners, Inc.
388 Greenwich Street, 36th Floor
New York, NY 10013
Fax: (212)816-0166
Attention: Thomas V. Inglesby
and
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Fax: (212)909-6836
Attention: Andrew L. Sommer
To the Executive:
Nathan Schlenker
136 Bushnell Road
Mayfield, NJ 12117
Fax: (518) 661-5732
with a copy to:
Silverman, Collura, Chernis & Halzano
381 Park Avenue South
Suite 1601
New York, NY 10016
Fax: (212) 779-8858
Attention: Peter R. Silverman
8
<PAGE>
Any such notice or communication shal1 be sent certified or registered
mail, return receipt requested, or by telefax, addressed as above (or to such
other address as such party may designate in writing from time to time), and the
actual date of receipt shal1 determine the time at which notice was given.
7.2. Severability. If a court of competent jurisdiction determines that
any term or provision hereof is invalid or unenforceable, (a) the remaining
terms and provisions hereof shall be unimpaired and (b) such court shal1 have
the authority to replace such invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
7.3. Assignment. This Agreement shall inure to the benefit of the heirs
and representatives of the Executive and the assigns and successors of the
Company, but neither this Agreement nor any rights hereunder shal1 be assignable
or otherwise subject to hypothecation by the Executive. Each of Group and the
Company may assign this Agreement without prior written approval of the
Executive upon the transfer of all or substantially al1 of its business and/or
assets (whether by purchase, merger, consolidation or otherwise), provided that
the successor to such business and/or assets shal1 expressly assume and agree to
perform this Agreement.
7.4. Entire Agreement; Amendment. This Agreement represents the entire
agreement of the parties with respect to the subject matter hereof and shall
supersede any and all previous contracts, arrangements or understandings between
or among Group, the Company and the Executive, including the Prior Agreements.
The Agreement may be amended at any time by mutual written agreement of the
parties hereto.
7.5. Withholding. The Company shal1 be entitled to withhold, or cause to
be withheld, from payment any amount of withholding taxes required by law with
respect to payments made to the Executive in connection with his employment
hereunder.
7.6. Governing Law. This Agreement shall be construed, interpreted, and
governed in accordance with the laws of the State of New York without reference
to principles of conflict of laws.
7.7 Survival. Sections 3.4 (relating to non-renewal), 4.1.1 (relating to
early termination), 5 (relating to Permanent Disability), 6 (relating to
noncompetition, nonsolicitation and confidentiality) and 7.6 (relating to
governing law) shall survive the termination hereof, whether such termination
shall be by expiration of the Employment Term or an early termination pursuant
to Sections 4 or 5 hereof.
9
<PAGE>
7.8 Headings. Headings to sections in this Agreement are for the
convenience of the parties only and are not intended to be a part of or to
affect the meaning or interpretation hereof.
7.9 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
10
<PAGE>
IN WITNESS WHEREOF, the Company and Group have caused this Agreement to be
duly executed by their authorized representatives and the Executive has hereunto
set his hand, in each case effective as of the day and year first above written.
ATLANTIC EXPRESS
TRANSPORTATION GROUP INC.
By: /s/ Domenic Gatto
---------------------
Name: Domenic Gatto
Title: President
ATLANTIC EXPRESS
TRANSPORTATION CORP.
By: /s/ Domenic Gatto
---------------------
Name: Domenic Gatto
Title: President
EXECUTIVE:
/s/ Nathan Schlenker
--------------------------
Nathan Schlenker
Exhibit 10.22
SECOND AMENDMENT
TO THE
SECURITY AND PLEDGE AGREEMENT, WITH ADDENDA
-------------------------------------------
Second Amendment, dated as of December 12, 1997 (the "Second Amendment")
to the Security and Pledge Agreement (the "Security Agreement"), dated as of
February 4, 1997, among Atlantic Express Transportation Group Inc., a New York
corporation (together with its successors and assigns, "AETG"), Atlantic Express
Transportation Corp., a New York corporation and a subsidiary of AETG (together
with its successors and assigns, the "Company"), the subsidiaries of the Company
that are party thereto and The Bank of New York, as the trustee under the
Indenture for the benefit of the holders of the Notes (together with its
successors and assigns, the "Secured Party"), as amended by the First Amendment
to the Security and Pledge Agreement, dated as of August 14, 1997, among AETG,
the Company, the subsidiaries of the Company that are party thereto and the
Secured Party. Capitalized terms not defined herein shall have the respective
meaning set forth for such terms in the Security Agreement.
WHEREAS, the parties to Security Agreement desire to amend the Security
Agreement as set forth below.
NOW, THEREFORE, in consideration of the agreements set forth herein and
for other and good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. Schedules I, II and III shall hereby be amended to include the
information set forth on such corresponding Schedules I, II and III attached
hereto.
2. Except as herein amended, all terms, provisions and conditions of the
Security Agreement, all Annexes and Schedules thereto and all documents executed
in connection therewith shall continue in full force and effect and shall remain
enforceable and binding in accordance with their terms.
3. This Amendment may be executed in any number of counterparts, each of
which shall for all purposes be deemed an original and all of which constitute,
collectively, one agreement.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE
OF NEW YORK (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS).
<PAGE>
5. In the event of a conflict between the terms and conditions of the
Security Agreement and the terms and conditions of this Amendment, then the
terms and conditions of this Amendment shall prevail.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the date first above written.
ATLANTIC EXPRESS TRANSPORTATION ATLANTIC EXPRESS
GROUP INC. TRANSPORTATION CORP.
By: /s/ Domenic Gatto By: /s/ Domenic Gatto
----------------- -----------------
Name: Domenic Gatto Name: Domenic Gatto
Title: President Title: President
GUARANTORS
BROOKFIELD TRANSIT INC. ATLANTIC PARATRANS, INC.
AMBOY BUS CO., INC. 180 JAMAICA CORP.
STATEN ISLAND BUS, INC. ATLANTIC EXPRESS COACHWAYS, INC.
RAYBERN CAPITAL CORP. ATLANTIC EXPRESS OF PENNSYLVANIA, INC.
METROPOLITAN ESCORT SERVICE, INC. ATLANTIC PARATRANS OF KENTUCKY, INC.
MERIT TRANSPORTATION CORP. ATLANTIC-CONN. TRANSIT, INC.
TEMPORARY TRANSIT SERVICE, INC. RAYBERN BUS SERVICE, INC.
ATLANTIC-HUDSON, INC. G.V.D. LEASING CO., INC.
COURTESY BUS CO., INC. BLOCK 7932, INC.
K. CORR, INC. ATLANTIC EXPRESS OF MISSOURI INC.
RAYBERN EQUITY CORP. ATLANTIC EXPRESS OF L.A. INC.
METRO AFFILIATES, INC. JERSEY BUSINESS LAND CO., INC.
MIDWAY LEASING INC. JERSEY BUS SALES, INC.
CENTRAL NEW YORK COACH 201 WEST SOTELLO REALTY, INC.
SALES & SERVICE, INC.
ATLANTIC-CHITTENANGO REAL
PROPERTY CORP.
By: /s/ Domenic Gatto
-----------------
Name: Domenic Gatto
Title: President
<PAGE>
THE BANK OF NEW YORK, as
Trustee and Secured Party
By: /s/ Van K. Brown
----------------
Name: Van K. Brown
Title: Assistant Vice President
<PAGE>
<TABLE>
<CAPTION>
Schedule I
Pledged Securities Owned By Atlantic Express Transportation Corp.
-----------------------------------------------------------------
Stock Percentage of
Stock Class of Certificate Number of Outstanding
Issuer Stock Number Par Value Shares Shares
------ -------- ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Atlantic-Chittenango common 1 None 100 100%
Real Property Corp.
Jersey Business Land Co., Inc. common 1 None 100 100%
201 West Sotello Realty, common 1 None 100 100%
Inc.
</TABLE>
<PAGE>
Schedule II
Filing Offices
--------------
Debtor Name Jurisdictions Where UCC-1s Filed
----------- --------------------------------
Atlantic-Chittenango Secretary of State, New York
Real Property Corp. Richmond County, New York
Madison County, New York
Jersey Business Land Co., Inc. Secretary of State, New York
Richmond County, New York
Secretary of State, New Jersey
Burlington County, New York
201 West Sotello Realty, Inc. Secretary of State, California
Secretary of State, New York
Richmond County, New York
<PAGE>
Schedule III
Location of Collateral
----------------------
Atlantic-Chittenango Real Property Corp.
7765 Lakeport Road
Chittenango New York
Jersey Business Land Co., Inc.
2015 Route 206
Bordentown New Jersey
201 West Sotello Realty, Inc.
201 West Sotello Street
Los Angeles, California
<PAGE>
ADDENDUM TO SECURITY AND PLEDGE AGREEMENT
The undersigned, ATLANTIC-CHITTENANGO REAL PROPERTY CORP., a New York
corporation:
(i) agrees to all of the provisions of the Security and Pledge Agreement,
dated as of February 4, 1997, among AETG, the Company and the Restricted
Subsidiaries (each as defined therein), in favor of The Bank of New York (the
"Secured Party"), as amended by the First Amendment to the Security and Pledge
Agreement, dated as of August 14, 1997, among the AETG, the Company and the
Restricted Subsidiaries (each as defined therein), in favor of the Secured Party
(the "Security Agreement"), pursuant to the Indenture, dated as of February 4,
1997, among the Company, the Restricted Subsidiaries (each as defined therein)
and the Secured Party, as amended by the First Supplemental Indenture dated as
of August 14, 1997, among the Company, Restricted Subsidiaries (each as defined
therein and the Secured Party) (the "Indenture"), and
(ii) effective on the date hereof becomes a party to the Security
Agreement, as a Restricted Subsidiary, with the same effect as if the
undersigned were an original signatory to the Security Agreement (with the
representations and warranties contained therein) being deemed to be made by the
undersigned Restricted Subsidiary as of the date hereof.
Terms defined in the Security Agreement and the Indenture shall have such
defined meanings when used herein.
By its acceptance hereof, each undersigned Restricted Subsidiary hereby
ratifies and confirms its respective obligations under the Guaranty, as
supplemented hereby.
ATLANTIC-CHITTENANGO REAL PROPERTY CORP.
By: /s/ Domenic Gatto
-----------------
Name: Domenic Gatto
Title: President
Date: December 12, 1997
<PAGE>
ADDENDUM TO SECURITY AND PLEDGE AGREEMENT
The undersigned, JERSEY BUSINESS LAND CO., INC., a New Jersey corporation:
(i) agrees to all of the provisions of the Security and Pledge Agreement,
dated as of February 4, 1997, among AETG, the Company and the Restricted
Subsidiaries (each as defined therein), in favor of The Bank of New York (the
"Secured Party"), as amended by the First Amendment to the Security and Pledge
Agreement, dated as of August 14, 1997, among the AETG, the Company and the
Restricted Subsidiaries (each as defined therein), in favor of the Secured Party
(the "Security Agreement"), pursuant to the Indenture, dated as of February 4,
1997, among the Company, the Restricted Subsidiaries (each as defined therein)
and the Secured Party, as amended by the First Supplemental Indenture dated as
of August 14, 1997, among the Company, the Restricted Subsidiaries (each as
defined therein) and the Secured Party (the "Indenture"), and
(ii) effective on the date hereof becomes a party to the Security
Agreement, as a Restricted Subsidiary, with the same effect as if the
undersigned were an original signatory to the Security Agreement (with the
representations and warranties contained therein) being deemed to be made by the
undersigned Restricted Subsidiary as of the date hereof.
Terms defined in the Security Agreement and the Indenture shall have such
defined meanings when used herein.
By its acceptance hereof, each undersigned Restricted Subsidiary hereby
ratifies and confirms its respective obligations under the Guaranty, as
supplemented hereby.
JERSEY BUSINESS LAND CO., INC.
By: /s/ Domenic Gatto
-----------------
Name: Domenic Gatto
Title: President
Date: December 12, 1997
<PAGE>
ADDENDUM TO SECURITY AND PLEDGE AGREEMENT
The undersigned, 201 WEST SOTELLO REALTY, INC., a California corporation:
(i) agrees to all of the provisions of the Security and Pledge Agreement,
dated as of February 4, 1997, among AETG, the Company and the Restricted
Subsidiaries (each as defined therein), in favor of The Bank of New York (the
"Secured Party"), as amended by the First Amendment to the Security and Pledge
Agreement, dated as of August 14, 1997, among the AETG, the Company and the
Restricted Subsidiaries (each as defined therein), in favor of the Secured Party
(the "Security Agreement"), pursuant to the Indenture, dated as of February 4,
1997, among the Company, the Restricted Subsidiaries (each as defined therein)
and the Secured Party, as amended by the First Supplemental Indenture dated as
of August 14, 1997, among the Company, the Restricted Subsidiaries (each as
defined therein) and the Secured Party (the "Indenture"), and
(ii) effective on the date hereof becomes a party to the Security
Agreement, as a Restricted Subsidiary, with the same effect as if the
undersigned were an original signatory to the Security Agreement (with the
representations and warranties contained therein) being deemed to be made by the
undersigned Restricted Subsidiary as of the date hereof.
Terms defined in the Security Agreement and the Indenture shall have such
defined meanings when used herein.
By its acceptance hereof, each undersigned Restricted Subsidiary hereby
ratifies and confirms its respective obligations under the Guaranty, as
supplemented hereby.
201 WEST SOTELLO REALTY, INC.
By: /s/ Domenic Gatto
-----------------
Name: Domenic Gatto
Title: President
Date: December 12, 1997
Exhibit 10.24
FOURTH SUPPLEMENTAL INDENTURE
-----------------------------
FOURTH SUPPLEMENTAL INDENTURE, dated as of April 28, 1999, 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, the Second Supplemental Indenture dated as of
December 12, 1997 and the Third Supplemental Indenture dated as of October 28,
1998, each 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 Medford, Inc.,
a New York corporation, Atlantic Paratrans of Colorado, Inc., a Colorado
corporation, Atlantic Paratrans of Pennsylvania, Inc., a Pennsylvania
corporation and Atlantic Express of New Jersey, Inc., a New Jersey corporation.
WHEREAS, the Company has acquired Fiore Bus Service, Inc., a Massachusetts
corporation, Groom Transportation, Inc., a Massachusetts corporation, McIntire
Transportation, Inc., a Massachusetts corporation, R. Fiore Bus Service, Inc., a
Massachusetts corporation and Mountain Transit, Inc., a Vermont corporation;
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:
<PAGE>
SECTION 1 DEFINITIONS.
- -----------------------
Capitalized terms not defined herein shall have the meanings given to such
terms in the Indenture.
SECTION 2 GUARANTEE BY RESTRICTED SUBSIDIARIES.
- ------------------------------------------------
Each of Atlantic Medford, Inc., Atlantic Paratrans of Colorado, Inc.,
Atlantic Paratrans of Pennsylvania, Inc., Atlantic Express of New Jersey, Inc.,
Fiore Bus Service, Inc., Groom Transportation, Inc., McIntire Transportation,
Inc., R. Fiore Bus Service, Inc. and Mountain Transit, 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 FOURTH 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
2
<PAGE>
OTHERWISE PROCEED AGAINST EACH OF THE ADDITIONAL GUARANTORS IN ANY OTHER
JURISDICTION.
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 Fourth Supplemental Indenture,
then the terms and conditions of this Fourth Supplemental Indenture shall
prevail.
Section 3.4 Counterpart Originals.
- -----------------------------------
The parties may sign any number of copies of this Fourth 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 Fourth 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
<PAGE>
BROOKFIELD TRANSIT INC. ATLANTIC PARATRANS OF KENTUCKY INC.
AMBOY BUS CO., INC. RAYBERN BUS SERVICE, INC.
STATEN ISLAND BUS, INC. G.V.D. LEASING CO., INC.
RAYBERN CAPITAL CORP. BLOCK 7932, INC.
METROPOLITAN ESCORT SERVICE, INC. ATLANTIC-CONN. TRANSIT, INC.
MERIT TRANSPORTATION CORP. ATLANTIC EXPRESS OF MISSOURI INC.
TEMPORARY TRANSIT SERVICE, INC. ATLANTIC EXPRESS OF L.A. INC.
ATLANTIC-HUDSON, INC. JERSEY BUS SALES, INC.
COURTESY BUS CO., INC. JERSEY BUSINESS LAND CO. INC.
K. CORR, INC. 201 WEST SOTELLO REALTY, INC.
RAYBERN EQUITY CORP. ATLANTIC MEDFORD, INC.
METRO AFFILIATES, INC. ATLANTIC PARATRANS OF COLORADO, INC.
MIDWAY LEASING INC. ATLANTIC PARATRANS OF PENNSYLVANIA, INC.
CENTRAL NEW YORK COACH ATLANTIC EXPRESS OF NEW JERSEY, INC.
SALES & SERVICE, INC. FIORE BUS SERVICE, INC.
ATLANTIC-CHITTENANGO REAL GROOM TRANSPORTATION, INC.
PROPERTY CORP. McINTIRE TRANSPORTATION, INC.
ATLANTIC PARATRANS, INC. R. FIORE BUS SERVICE, INC.
180 JAMAICA CORP. MOUNTAIN TRANSIT, INC.
ATLANTIC EXPRESS COACHWAYS, INC.
ATLANTIC EXPRESS OF
PENNSYLVANIA, INC.
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
Exhibit 10.25
THIRD AMENDMENT
TO THE
SECURITY AND PLEDGE AGREEMENT, WITH ADDENDA
-------------------------------------------
Third Amendment, dated as of April 28, 1999 (the "Third Amendment") to the
Security and Pledge Agreement (the "Security Agreement"), dated as of February
4, 1997, among Atlantic Express Transportation Group Inc., a New York
corporation (together with its successors and assigns, "AETG"), Atlantic Express
Transportation Corp., a New York corporation and a subsidiary of AETG (together
with its successors and assigns, the "Company"), the subsidiaries of the Company
that are party thereto and The Bank of New York, as the trustee under the
Indenture(as defined below) for the benefit of the holders of the Notes (as
defined below)(together with its successors and assigns, the "Secured Party"),
as amended by the First Amendment to the Security and Pledge Agreement, dated as
of August 14, 1997, and the Second Amendment to the Security and Pledge
Agreement, dated as of December 12, 1997, each among AETG, the Company, the
subsidiaries of the Company that are party thereto and the Secured Party.
Capitalized terms not defined herein shall have the respective meaning set forth
for such terms in the Security Agreement.
WHEREAS, the subsection (i) of Section 2.2 of the Security Agreement
contained an ambiguity, defect and/or inconsistency;
WHEREAS, Section 7.5 of the Security Agreement, as amended, and Section
9.1 of the Indenture, as amended (the "Indenture"), dated February 4, 1997,
among the Company, the Guarantors named therein and the Trustee, as amended,
provide among other things, that the Company and the Trustee may amend or
supplement the Security Agreement without the consent of any Holder to cure any
ambiguity, defect or inconsistency;
WHEREAS, the parties to Security Agreement desire to amend the Security
Agreement as set forth below.
NOW, THEREFORE, in consideration of the agreements set forth herein and
for other and good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. Subsection (i) of Section 2.2 of the Security Agreement is
hereby amended and restated in its entirety, as follows:
(i) the issued and outstanding shares of capital stock of the
Company and the Subsidiaries identified on Schedule I hereto
as owned by AETG and the Company, respectively, as of February
4, 1997 and all shares of capital stock of the Company and
each of the Subsidiaries of the Company or of any Restricted
Subsidiary acquired by AETG, the Company or any other
Restricted Subsidiary after February 4, 1997 (collectively,
the "Pledged Stock") and all certificate(s) representing such
stock; and
<PAGE>
2. Schedules I, II and III shall hereby be amended to include
the information set forth on such corresponding Schedules I, II and III attached
hereto.
3. Except as herein amended, all terms, provisions and
conditions of the Security Agreement, all Annexes and Schedules thereto and all
documents executed in connection therewith shall continue in full force and
effect and shall remain enforceable and binding in accordance with their terms.
4. This Amendment may be executed in any number of
counterparts, each of which shall for all purposes be deemed an original and all
of which constitute, collectively, one agreement.
5. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS
OF LAWS).
6. In the event of a conflict between the terms and conditions
of the Security Agreement and the terms and conditions of this Amendment, then
the terms and conditions of this Amendment shall prevail.
IN WITNESS WHEREOF, the parties have caused this Amendment to
be duly executed and delivered as of the date first above written.
ATLANTIC EXPRESS TRANSPORTATION ATLANTIC EXPRESS
GROUP INC. TRANSPORTATION CORP.
By: /s/ Domenic Gatto By: /s/ Domenic Gatto
----------------- -----------------
Name: Domenic Gatto Name: Domenic Gatto
Title: President Title: Domenic Gatto
GUARANTORS
<PAGE>
BROOKFIELD TRANSIT INC. ATLANTIC PARATRANS OF KENTUCKY INC.
AMBOY BUS CO., INC. RAYBERN BUS SERVICE, INC.
STATEN ISLAND BUS, INC. G.V.D. LEASING CO., INC.
RAYBERN CAPITAL CORP. BLOCK 7932, INC.
METROPOLITAN ESCORT SERVICE, INC. ATLANTIC-CONN. TRANSIT, INC.
MERIT TRANSPORTATION CORP. ATLANTIC EXPRESS OF MISSOURI INC.
TEMPORARY TRANSIT SERVICE, INC. ATLANTIC EXPRESS OF L.A. INC.
ATLANTIC-HUDSON, INC. JERSEY BUS SALES, INC.
COURTESY BUS CO., INC. JERSEY BUSINESS LAND CO. INC.
<PAGE>
K. CORR, INC. 201 WEST SOTELLO REALTY, INC.
RAYBERN EQUITY CORP. ATLANTIC MEDFORD, INC.
METRO AFFILIATES, INC. ATLANTIC PARATRANS OF COLORADO, INC.
MIDWAY LEASING INC. ATLANTIC PARATRANS OF PENNSYLVANIA, INC.
CENTRAL NEW YORK COACH ATLANTIC EXPRESS OF NEW JERSEY, INC.
SALES & SERVICE, INC. FIORE BUS SERVICE, INC.
ATLANTIC-CHITTENANGO REAL GROOM TRANSPORTATION, INC
PROPERTY CORP. McINTIRE TRANSPORTATION, INC.
ATLANTIC PARATRANS, INC. R. FIORE BUS SERVICE, INC
180 JAMAICA CORP. MOUNTAIN TRANSIT, INC.
ATLANTIC EXPRESS COACHWAYS, INC.
ATLANTIC EXPRESS OF
PENNSYLVANIA, INC.
By: /s/ Domenic Gatto
-----------------
Name: Domenic Gatto
Title: President
THE BANK OF NEW YORK, as
Trustee and Secured Party
By: /s/ Van K. Brown
----------------
Name: Van K. Brown
Title: Assistant Vice President
<PAGE>
<TABLE>
<CAPTION>
Schedule I
Pledged Securities Owned By Atlantic Express Transportation Corp.
-----------------------------------------------------------------
Stock Percentage of
Stock Class of Certificate Number of Outstanding
Issuer Stock Number Par Value Shares Shares
------ -------- ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Atlantic Medford, Inc. Common 1 None 10 100%
Atlantic Paratrans of Common 2 None 100%
Colorado, Inc. 10
Atlantic Paratrans of Common 1 None 100%
Pennsylvania, Inc. 10
Atlantic Express of Common 2 None 100%
New Jersey, Inc. 10
Fiore Bus Service, Inc. Common 18 None 100%
950
Groom Transportation, Common 2 None 100%
Inc. 100
McIntire Common 7 None 100%
Transportation, Inc. 100
R. Fiore Bus Service, Inc. Common 12 None 100%
70
Mountain Transit, Inc. Common 2 None 100%
100
</TABLE>
<PAGE>
Schedule II
Filing Offices
--------------
Debtor Name Jurisdictions Where UCC-1s Filed
----------- --------------------------------
Atlantic Medford, Inc. Secretary of State, New York
Richmond County, New York
Nassau County, New York
Atlantic Paratrans of Colorado, Inc. Secretary of State, New York
Richmond County, New York
Secretary of State, Colorado
Denver County, Colorado
Atlantic Paratrans of Pennsylvania, Inc. Secretary of State, New York
Richmond County, New York
Secretary of State, Pennsylvania
Philadelphia County, Pennsylvania
Atlantic Express of New Jersey, Inc. Secretary of State, New York
Richmond County, New York
Secretary of State, New Jersey
Burlington County, New Jersey
Middlesex County, New Jersey
Fiore Bus Service, Inc. Secretary of State, New York
Richmond County, New York
Secretary of State, Massachusetts
Essex County, Massachusetts
Groom Transportation, Inc. Secretary of State, New York
Richmond County, New York
Secretary of State, Massachusetts
Essex County, Massachusetts
McIntire Transportation, Inc. Secretary of State, New York
Richmond County, New York
Secretary of State, Massachusetts
Essex County, Massachusetts
R. Fiore Bus Service, Inc. Secretary of State, New York
Richmond County, New York
Secretary of State, Massachusetts
Essex, County, Massachusetts
Mountain Transit, Inc. Secretary of State, New York
Richmond County, New York
Secretary of State, Vermont
Chittenden County, Vermont
<PAGE>
Schedule III
Location of Collateral
----------------------
Atlantic Medford, Inc.
3250 Lawson Boulevard
Oceanside, New York
Atlantic Paratrans of Colorado, Inc.
5135 York Street
Denver, Colorado
5101 Columbine Street
Denver, Colorado
Atlantic Paratrans of Pennsylvania, Inc.
3470 E. Thompson Street
Philadelphia, Pennsylvania
Atlantic Express of New Jersey, Inc.
2015 Route 206
Bordentown, New Jersey
226 Red Lion Road
South Hampton, New Jersey
Fiore Bus Service, Inc.
24R Bennett Highway
Saugus, Massachusetts
Groom Transportation, Inc.
24R Bennett Highway
Sauagus, Massachusetts
3 Plank Street
Billerica, Massachusetts
McIntire Transportation, Inc.
24R Bennet Highway
Saugus, Massachusetts
R. Fiore Bus Service, Inc.
24R Bennett Highway
Saugus, Massachusetts
3 Plank Street
Billerica, Massachusetts
100(J) Ashberton Avenue
Woburn, Massachusetts
Mountain Transit, Inc.
222 Railroad Street
Melton, Vermont
Blackey Road
Colchester, Vermont
Sounders Road
Essex, Vermont
Landfill Road
Milton, Vermont
<PAGE>
ADDENDUM TO SECURITY AND PLEDGE AGREEMENT
The undersigned, ATLANTIC MEDFORD, INC., a New York corporation:
(i) agrees to all of the provisions of the Security and Pledge Agreement,
dated as of February 4, 1997, among AETG, the Company and the Restricted
Subsidiaries (each as defined therein), in favor of The Bank of New York (the
"Secured Party"), as amended by the First Amendment to the Security and Pledge
Agreement, dated as of August 14, 1997, and the Second Amendment to the Security
and Pledge Agreement, dated as of December 12, 1997, each among AETG, the
Company and the Restricted Subsidiaries (each as defined therein), in favor of
the Secured Party (the "Security Agreement"), pursuant to the Indenture, dated
as of February 4, 1997, each among the Company, the Restricted Subsidiaries
(each as defined therein) and the Secured Party, as amended by the First
Supplemental Indenture dated as of August 14, 1997, the Second Supplemental
Indenture dated as of December 12, 1997 and the Third Supplemental Indenture
dated as of October 28, 1998, each among the Company, Restricted Subsidiaries
(each as defined therein ) and the Secured Party (the "Indenture"), and
(ii) effective on the date hereof becomes a party to the Security
Agreement, as a Restricted Subsidiary, with the same effect as if the
undersigned were an original signatory to the Security Agreement (with the
representations and warranties contained therein) being deemed to be made by the
undersigned Restricted Subsidiary as of the date hereof.
Terms defined in the Security Agreement and the Indenture shall have such
defined meanings when used herein.
By its acceptance hereof, each undersigned Restricted Subsidiary hereby
ratifies and confirms its respective obligations under the Guaranty, as
supplemented hereby.
ATLANTIC MEDFORD, INC.
By: /s/ Domenic Gatto
-----------------
Name: Domenic Gatto
Title: President
Date: April 28, 1999
<PAGE>
ADDENDUM TO SECURITY AND PLEDGE AGREEMENT
The undersigned, ATLANTIC PARATRANS OF COLORADO, INC., a Colorado
corporation:
(i) agrees to all of the provisions of the Security and Pledge Agreement,
dated as of February 4, 1997, among AETG, the Company and the Restricted
Subsidiaries (each as defined therein), in favor of The Bank of New York (the
"Secured Party"), as amended by the First Amendment to the Security and Pledge
Agreement, dated as of August 14, 1997, and the Second Amendment to the Security
and Pledge Agreement, dated as of December 12, 1998, each among AETG, the
Company and the Restricted Subsidiaries (each as defined therein), in favor of
the Secured Party (the "Security Agreement"), pursuant to the Indenture, dated
as of February 4, 1997, among the Company, the Restricted Subsidiaries (each as
defined therein) and the Secured Party, as amended by the First Supplemental
Indenture dated as of August 14, 1997, the Second Supplemental Indenture dated
as of December 12, 1997, and the Third Supplemental Indenture dated as of
October 28, 1998, each among the Company, Restricted Subsidiaries (each as
defined therein) and the Secured Party (the "Indenture"), and
(ii) effective on the date hereof becomes a party to the Security
Agreement, as a Restricted Subsidiary, with the same effect as if the
undersigned were an original signatory to the Security Agreement (with the
representations and warranties contained therein) being deemed to be made by the
undersigned Restricted Subsidiary as of the date hereof.
Terms defined in the Security Agreement and the Indenture shall have such
defined meanings when used herein.
By its acceptance hereof, each undersigned Restricted Subsidiary hereby
ratifies and confirms its respective obligations under the Guaranty, as
supplemented hereby.
ATLANTIC PARATRANS OF COLORADO, INC.
By: /s/ Domenic Gatto
-----------------
Name: Domenic Gatto
Title: President
Date: April 28, 1999
<PAGE>
ADDENDUM TO SECURITY AND PLEDGE AGREEMENT
The undersigned, ATLANTIC PARATRANS OF PENNSYLVANIA, INC., a Pennsylvania
corporation:
(i) agrees to all of the provisions of the Security and Pledge Agreement,
dated as of February 4, 1997, among AETG, the Company and the Restricted
Subsidiaries (each as defined therein), in favor of The Bank of New York (the
"Secured Party"), as amended by the First Amendment to the Security and Pledge
Agreement, dated as of August 14, 1997, and the Second Amendment to the Security
and Pledge Agreement, dated as of December 12, 1997, each among AETG, the
Company and the Restricted Subsidiaries (each as defined therein), in favor of
the Secured Party (the "Security Agreement"), pursuant to the Indenture, dated
as of February 4, 1997, among the Company, the Restricted Subsidiaries (each as
defined therein) and the Secured Party, as amended by the First Supplemental
Indenture dated as of August 14, 1997, the Second Supplemental Indenture dated
as of December 12, 1997, and the Third Supplemental Indenture dated as of
October 28, 1998, each among the Company, Restricted Subsidiaries (each as
defined therein) and the Secured Party (the "Indenture"), and
(ii) effective on the date hereof becomes a party to the Security
Agreement, as a Restricted Subsidiary, with the same effect as if the
undersigned were an original signatory to the Security Agreement (with the
representations and warranties contained therein) being deemed to be made by the
undersigned Restricted Subsidiary as of the date hereof.
Terms defined in the Security Agreement and the Indenture shall have such
defined meanings when used herein.
By its acceptance hereof, each undersigned Restricted Subsidiary hereby
ratifies and confirms its respective obligations under the Guaranty, as
supplemented hereby.
ATLANTIC PARATRANS OF PENNSYLVANIA, INC.
By: /s/ Domenic Gatto
-----------------
Name: Domenic Gatto
Title: President
Date: April 28, 1999
<PAGE>
ADDENDUM TO SECURITY AND PLEDGE AGREEMENT
The undersigned, ATLANTIC EXPRESS OF NEW JERSEY, INC., a New Jersey
corporation:
(i) agrees to all of the provisions of the Security and Pledge Agreement,
dated as of February 4, 1997, among AETG, the Company and the Restricted
Subsidiaries (each as defined therein), in favor of The Bank of New York (the
"Secured Party"), as amended by the First Amendment to the Security and Pledge
Agreement, dated as of August 14, 1997, and the Second Amendment to the Security
and Pledge Agreement, dated as of December 12, 1997, each among AETG, the
Company and the Restricted Subsidiaries (each as defined therein), in favor of
the Secured Party (the "Security Agreement"), pursuant to the Indenture, dated
as of February 4, 1997, among the Company, the Restricted Subsidiaries (each as
defined therein) and the Secured Party, as amended by the First Supplemental
Indenture dated as of August 14, 1997, the Second Supplemental Indenture dated
as of December 12, 1997, and the Third Supplemental Indenture dated as of
October 28, 1998, each among the Company, Restricted Subsidiaries (each as
defined therein) and the Secured Party (the "Indenture"), and
(ii) effective on the date hereof becomes a party to the Security
Agreement, as a Restricted Subsidiary, with the same effect as if the
undersigned were an original signatory to the Security Agreement (with the
representations and warranties contained therein) being deemed to be made by the
undersigned Restricted Subsidiary as of the date hereof.
Terms defined in the Security Agreement and the Indenture shall have such
defined meanings when used herein.
By its acceptance hereof, each undersigned Restricted Subsidiary hereby
ratifies and confirms its respective obligations under the Guaranty, as
supplemented hereby.
` ATLANTIC EXPRESS OF NEW JERSEY, INC.
By: /s/ Domenic Gatto
-----------------
Name: Domenic Gatto
Title: President
Date: April 28, 1999
<PAGE>
ADDENDUM TO SECURITY AND PLEDGE AGREEMENT
The undersigned, FIORE BUS SERVICE, INC., a Massachusetts corporation:
(i) agrees to all of the provisions of the Security and Pledge Agreement,
dated as of February 4, 1997, among AETG, the Company and the Restricted
Subsidiaries (each as defined therein), in favor of The Bank of New York (the
"Secured Party"), as amended by the First Amendment to the Security and Pledge
Agreement, dated as of August 14, 1997, and the Second Amendment to the Security
and Pledge Agreement, dated as of December 12, 1997, each among AETG, the
Company and the Restricted Subsidiaries (each as defined therein), in favor of
the Secured Party (the "Security Agreement"), pursuant to the Indenture, dated
as of February 4, 1997, among the Company, the Restricted Subsidiaries (each as
defined therein) and the Secured Party, as amended by the First Supplemental
Indenture dated as of August 14, 1997, the Second Supplemental Indenture dated
as of December 12, 1997, and the Third Supplemental Indenture dated as of
October 28, 1998, each among the Company, Restricted Subsidiaries (each as
defined therein) and the Secured Party (the "Indenture"), and
(ii) effective on the date hereof becomes a party to the Security
Agreement, as a Restricted Subsidiary, with the same effect as if the
undersigned were an original signatory to the Security Agreement (with the
representations and warranties contained therein) being deemed to be made by the
undersigned Restricted Subsidiary as of the date hereof.
Terms defined in the Security Agreement and the Indenture shall have such
defined meanings when used herein.
By its acceptance hereof, each undersigned Restricted Subsidiary hereby
ratifies and confirms its respective obligations under the Guaranty, as
supplemented hereby.
FIORE BUS SERVICE, INC.
By: /s/ Domenic Gatto
-----------------
Name: Domenic Gatto
Title: President
Date: April 28, 1999
<PAGE>
ADDENDUM TO SECURITY AND PLEDGE AGREEMENT
The undersigned, GROOM TRANSPORTATION, INC., a Massachusetts corporation:
(i) agrees to all of the provisions of the Security and Pledge Agreement,
dated as of February 4, 1997, among AETG, the Company and the Restricted
Subsidiaries (each as defined therein), in favor of The Bank of New York (the
"Secured Party"), as amended by the First Amendment to the Security and Pledge
Agreement, dated as of August 14, 1997, and the Second Amendment to the Security
and Pledge Agreement, dated as of December 12, 1997, each among AETG, the
Company and the Restricted Subsidiaries (each as defined therein), in favor of
the Secured Party (the "Security Agreement"), pursuant to the Indenture, dated
as of February 4, 1997, among the Company, the Restricted Subsidiaries (each as
defined therein) and the Secured Party, as amended by the First Supplemental
Indenture dated as of August 14, 1997, the Second Supplemental Indenture dated
as of December 12, 1997, and the Third Supplemental Indenture dated as of
October 28, 1998, each among the Company, Restricted Subsidiaries (each as
defined therein) and the Secured Party (the "Indenture"), and
(ii) effective on the date hereof becomes a party to the Security
Agreement, as a Restricted Subsidiary, with the same effect as if the
undersigned were an original signatory to the Security Agreement (with the
representations and warranties contained therein) being deemed to be made by the
undersigned Restricted Subsidiary as of the date hereof.
Terms defined in the Security Agreement and the Indenture shall have such
defined meanings when used herein.
By its acceptance hereof, each undersigned Restricted Subsidiary hereby
ratifies and confirms its respective obligations under the Guaranty, as
supplemented hereby.
GROOM TRANSPORTATION, INC.
By: /s/ Domenic Gatto
-----------------
Name: Domenic Gatto
Title: President
Date: April 28, 1999
<PAGE>
ADDENDUM TO SECURITY AND PLEDGE AGREEMENT
The undersigned, McINTIRE TRANSPORTATION, INC., a Massachusetts
corporation:
(i) agrees to all of the provisions of the Security and Pledge Agreement,
dated as of February 4, 1997, among AETG, the Company and the Restricted
Subsidiaries (each as defined therein), in favor of The Bank of New York (the
"Secured Party"), as amended by the First Amendment to the Security and Pledge
Agreement, dated as of August 14, 1997, and the Second Amendment to the Security
and Pledge Agreement, dated as of December 12, 1997, each among AETG, the
Company and the Restricted Subsidiaries (each as defined therein), in favor of
the Secured Party (the "Security Agreement"), pursuant to the Indenture, dated
as of February 4, 1997, among the Company, the Restricted Subsidiaries (each as
defined therein) and the Secured Party, as amended by the First Supplemental
Indenture dated as of August 14, 1997, the Second Supplemental Indenture dated
as of December 12, 1997, and the Third Supplemental Indenture dated as of
October 28, 1998, each among the Company, Restricted Subsidiaries (each as
defined therein) and the Secured Party (the "Indenture"), and
(ii) effective on the date hereof becomes a party to the Security
Agreement, as a Restricted Subsidiary, with the same effect as if the
undersigned were an original signatory to the Security Agreement (with the
representations and warranties contained therein) being deemed to be made by the
undersigned Restricted Subsidiary as of the date hereof.
Terms defined in the Security Agreement and the Indenture shall have such
defined meanings when used herein.
By its acceptance hereof, each undersigned Restricted Subsidiary hereby
ratifies and confirms its respective obligations under the Guaranty, as
supplemented hereby.
McINTIRE TRANSPORTATION, INC.
By: /s/ Domenic Gatto
-----------------
Name: Domenic Gatto
Title: President
Date: April 28, 1999
<PAGE>
ADDENDUM TO SECURITY AND PLEDGE AGREEMENT
The undersigned, R. FIORE BUS SERVICE, INC., a Massachusetts corporation:
(i) agrees to all of the provisions of the Security and Pledge Agreement,
dated as of February 4, 1997, among AETG, the Company and the Restricted
Subsidiaries (each as defined therein), in favor of The Bank of New York (the
"Secured Party"), as amended by the First Amendment to the Security and Pledge
Agreement, dated as of August 14, 1997, and the Second Amendment to the Security
and Pledge Agreement, dated as of December 12, 1997, each among AETG, the
Company and the Restricted Subsidiaries (each as defined therein), in favor of
the Secured Party (the "Security Agreement"), pursuant to the Indenture, dated
as of February 4, 1997, among the Company, the Restricted Subsidiaries (each as
defined therein) and the Secured Party, as amended by the First Supplemental
Indenture dated as of August 14, 1997, the Second Supplemental Indenture dated
as of December 12, 1997, and the Third Supplemental Indenture dated as of
October 28, 1998, each among the Company, Restricted Subsidiaries (each as
defined therein) and the Secured Party (the "Indenture"), and
(ii) effective on the date hereof becomes a party to the Security
Agreement, as a Restricted Subsidiary, with the same effect as if the
undersigned were an original signatory to the Security Agreement (with the
representations and warranties contained therein) being deemed to be made by the
undersigned Restricted Subsidiary as of the date hereof.
Terms defined in the Security Agreement and the Indenture shall have such
defined meanings when used herein.
By its acceptance hereof, each undersigned Restricted Subsidiary hereby
ratifies and confirms its respective obligations under the Guaranty, as
supplemented hereby.
R. FIORE BUS SERVICE, INC.
By: /s/ Domenic Gatto
-----------------
Name: Domenic Gatto
Title: President
Date: April 28, 1999
<PAGE>
ADDENDUM TO SECURITY AND PLEDGE AGREEMENT
The undersigned, MOUNTAIN TRANSIT, INC., a Vermont corporation:
(i) agrees to all of the provisions of the Security and Pledge Agreement,
dated as of February 4, 1997, among AETG, the Company and the Restricted
Subsidiaries (each as defined therein), in favor of The Bank of New York (the
"Secured Party"), as amended by the First Amendment to the Security and Pledge
Agreement, dated as of August 14, 1997, and the Second Amendment to the Security
and Pledge Agreement, dated as of December 12, 1997, each among AETG, the
Company and the Restricted Subsidiaries (each as defined therein), in favor of
the Secured Party (the "Security Agreement"), pursuant to the Indenture, dated
as of February 4, 1997, among the Company, the Restricted Subsidiaries (each as
defined therein) and the Secured Party, as amended by the First Supplemental
Indenture dated as of August 14, 1997, the Second Supplemental Indenture dated
as of December 12, 1997, and the Third Supplemental Indenture dated as of
October 28, 1998, each among the Company, Restricted Subsidiaries (each as
defined therein) and the Secured Party (the "Indenture"), and
(ii) effective on the date hereof becomes a party to the Security
Agreement, as a Restricted Subsidiary, with the same effect as if the
undersigned were an original signatory to the Security Agreement (with the
representations and warranties contained therein) being deemed to be made by the
undersigned Restricted Subsidiary as of the date hereof.
Terms defined in the Security Agreement and the Indenture shall have such
defined meanings when used herein.
By its acceptance hereof, each undersigned Restricted Subsidiary hereby
ratifies and confirms its respective obligations under the Guaranty, as
supplemented hereby.
MOUNTAIN TRANSIT, INC.
By: /s/ Domenic Gatto
-----------------
Name: Domenic Gatto
Title: President
Date: April 28, 1999
Exhibit 10.26
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (the "Agreement") made as of this 2nd day of
October, 1998 by and between:
ATLANTIC EXPRESS TRANSPORTATION CORP., a New York corporation, with
offices located at 7 North Street, Staten Island, New York 10302
("Seller");
DOMENIC GATTO, residing at 136 Monmouth Road, Spotswood, NJ 08884;
MICHAEL GATTO, residing at 1 Elm Court, Perrinville, NJ 08535; and
PATRICK GATTO, residing at 100 Sandalwood Drive, Marlboro, NJ 07746
(Domenic Gatto Michael Gatto and Patrick Gatto collectively referred
to herein as, the "Purchasers").
WHEREAS, the Seller desires to sell, transfer and assign to the Purchasers
and Purchasers desire to purchase and acquire from the Seller that certain
promissory note dated as of January 30, 1997, in the original principal amount
of $4,640,533 made severally by (i) Westshore Partners, a New York limited
partnership; (ii) Richmond Investors Inc., a New York corporation; and (iii)
Staten Entertainment Inc., a New York corporation, in favor of the Seller (the
"Entertainment Group Note").
NOW, THEREFORE, in consideration of the promises and mutual agreements
contained herein the parties agree as follows:
ARTICLE I
SALE OF THE ENTERTAINMENT GROUP NOTE
------------------------------------
1.1 In consideration of the purchase price provided in Article 1.2 hereof,
Seller hereby sells, transfers, conveys and assigns the Entertainment Group Note
to the Purchasers.
1.2 The purchase price ("Purchase Price") for the Entertainment Group Note
shall be (i) $510,000 payable severally by Purchasers to the Seller in the
respective amounts set forth on
<PAGE>
Schedule 1.2 on the Closing as defined herein; and (ii) an amount equal to
one-half of the net proceeds paid upon any sale of any asset of either Westshore
Partners, or Richmond Investors, Inc., provided such sale is completed within
twelve (12) months after the Closing. Net Proceeds shall mean the total cash,
and the fair market value of any property received upon sale of such assets,
less the amount of any existing liens on such assets.
1.3 Subject to satisfaction of the conditions herein, the consummation of
the purchase and sale of the Entertainment Group Note (the "Closing") shall take
place at the offices of Silverman, Collura, Chernis & Balzano, P.C. on the
earlier of (i) the closing of the transactions contemplated by that certain
Recapitalization and Stock Purchase Agreement dated September 29, 1998 (the
"Recapitalization Agreement") between Atlantic Express Transportation Group,
Inc., the Purchasers and certain other parties; or (ii) November 15, 1998.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
Each of the Purchasers represents and warrants to the Seller as follows:
2.1 Each of the Purchasers has all the requisite power and authority to
execute, deliver and perform this Agreement. This Agreement constitutes the
legal, valid and binding obligations of each of the Purchasers and is
enforceable against him in accordance with the terms hereof.
2.2 Each of the Purchasers acknowledges that the Seller has made no
representation, warranty or guaranty as to the collectability or enforcement of
the Entertainment Group Note.
2.3 Each of the Purchasers understands that an investment in the
Entertainment Group Note is extremely speculative with a high degree of risk of
loss.
2
<PAGE>
2.4 Each of the Purchasers understands that an investment in the
Entertainment Group Note is extremely speculative with a high degree of risk of
loss, and there are substantial restrictions on the transferability of such
note.
2.5 Each of the Purchasers is able to (a) bear the economic risk of his
investment, (b) hold the Entertainment Group Note, and (c) can presently afford
a loss of this investment.
2.6 Each of the Purchasers has adequate means of providing for current
needs and personal contingencies and has no need for liquidity in this
investment. Each of the Purchasers further represents that his overall
commitment to investments which are not marketable is not disproportionate to
his net worth and the investment in the Entertainment Group Note will not cause
such commitment to become excessive.
2.7 Each of the Purchasers confirms that he is acquiring the Entertainment
Group Note for his own account and not with a view to distribution within the
meaning of Section 2(11) of the Securities Act of 1933, as amended (the
"Securities Act"). Each of the Purchasers hereby acknowledges and confirms that
the said security has not been registered under the Securities Act or any state
securities or "blue sky" laws and may not be sold, transferred or otherwise
disposed of except in compliance with the provisions of the Securities Act and
the rules and regulations promulgated thereunder and such state securities or
"blue sky" laws.
2.8 Each Purchaser is an "accredited investor" as such term is defined in
Rule 501 of Regulation D promulgated under the Securities Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller hereby warrants and represents to the Purchasers as follows:
3
<PAGE>
3.1 The execution and delivery of this Agreement and the sale of the
Entertainment Group Note has been duly authorized by all necessary corporate or
other action of the Seller.
3.2 The Seller owns beneficially and of record, the Entertainment Group
Note free and clear of all liens, claims and encumbrances. Upon delivery of and
payment for the said note at Closing, as provided for in this Agreement, the
Purchasers will acquire good and valid title thereto.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.1 Entire Agreement. (a) This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof. The
representations, warranties, covenants and agreements set forth in this
Agreement constitute all the representations, warranties, covenants and
agreements of the parties hereto and upon which the parties have relied and
except as may be specifically provided herein. No change, modification,
amendment, addition or termination of this Agreement or any part thereof shall
be valid unless it is in writing, and signed by or on behalf of the party to be
charged therewith; and with the written consent of GSCP II Holdings (AE)
("GSCP"), LLC as the buyer under the Recapitalization Agreement provided that no
such consent shall be required after the termination of the Recapitalization
Agreement.
(b) GSCP is an intended beneficiary of this Agreement unless and until the
Recapitalization Agreement is terminated.
4.2 Notices. Any and all notices or other communications or deliveries
required or permitted to be given or made pursuant to any of the provisions of
this Agreement shall be deemed to have been duly given or made for all purposes
if sent by Federal Express delivery
4
<PAGE>
or by certified or registered mail, return receipt requested and postage prepaid
or hand delivered as follows:
If to Purchasers:
Domenic Gatto
136 Monmouth Road
Spotswood, NJ 08884
Michael Gatto
1 Elm Court
Perrinville, NJ 08535
Patrick Gatto
100 Sandalwood Drive
Marlboro, NJ 07746
with a copy to:
Peter R. Silverman
c/o Silverman, Collura & Chernis, P.C.
381 Park Avenue South, Suite 1601
New York, New York 10016
If to Seller:
Atlantic Express Transportation Group Inc.
7 North Street
Staten Island, New York 10302
Attn: President
4.3 Waiver. No waiver of the provisions hereof shall be effective unless
in writing and signed by the party to be charged with such waiver. No waiver
shall be deemed a continuing waiver or waiver in respect of any subsequent
breach or default, either of a similar or different nature, unless expressly so
stated in writing.
4.4 Governing Law. This Agreement shall be governed, interpreted and
construed in accordance with the laws of the State of New York applicable to
contracts to be performed entirely within that State. Any dispute in any way
related to the subject matter of this
5
<PAGE>
Agreement shall be litigated exclusively within the State of New York and all
parties hereto, consent to the jurisdiction of the State and/or United States
Federal District Courts of New York. Should any clause, section or part of this
Agreement be held or declared to be void or illegal for any reason, all other
clauses, sections or parts of this Agreement which can be affected without such
illegal clause, section or part shall nevertheless continue in full force and
effect.
4.5 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns
or heirs and personal representatives.
4.6 Captions. The headings, captions or titles of paragraphs under
sections or subsections of this Agreement are for convenience and reference only
and do not in any way modify, interpret or construe the intent of the parties or
effect any of the provisions of this Agreement.
4.7 Time Periods. Any time period provided for herein which shall end or
expire on a Saturday, Sunday, or legal holiday shall be deemed extended to the
next full business day thereafter.
5a
<PAGE>
4.8 Counterparts. This Agreement may be executed by fax transmission and
in one or more counterparts, each of which shall be deemed to be an original,
but all of which shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed on the date and year first above written.
ATLANTIC EXPRESS TRANSPORTATION CORP.
/s/ Domenic Gatto /s/ Michael Gatto
- ----------------- -----------------
By: Domenic Gatto Michael Gatto
Title: President
/s/ Domenic Gatto /s/ Patrick Gatto
- ----------------- -----------------
Domenic Gatto Patrick Gatto
6
<PAGE>
SCHEDULE 1.2
Payment of Purchase Price
Domenic Gatto $224,400
Michael Gatto $142,800
Patrick Gatto $142,800
--------
$510,000
Exhibit 10.27
ACCOUNTS PURCHASE AND SALE AGREEMENT
Dated as of July 8, 1999
among
CONGRESS FINANCIAL CORPORATION
as Purchaser,
and
CERTAIN SUBSIDIARIES OF
ATLANTIC EXPRESS TRANSPORTATION CORP.,
as Sellers,
and
ATLANTIC EXPRESS TRANSPORTATION CORP.,
Individually and as Sellers' Representative and Initial Servicer
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS ................................................... 1
ARTICLE II AGREEMENT TO PURCHASE AND SELL ................................ 1
2.1 Agreement To Purchase and Sell ................................ 1
2.2 No Assumption of Obligations .................................. 2
2.3 Purchase Procedures ........................................... 2
2.4 Payment of Purchase Price ..................................... 2
2.5 Sellers' Account .............................................. 2
2.6 Debits to Sellers' Account; Repurchase of Accounts. ........... 3
2.8 Payment of Debit Balance ...................................... 3
2.9 Statements .................................................... 4
2.10 Sellers' Representative ....................................... 4
2.11 True Sales; Security Interests ................................ 4
ARTICLE III COMMISSIONS AND EXPENSES ...................................... 5
3.1 Commissions ................................................... 5
3.2 Purchaser's Costs and Expenses ................................ 5
ARTICLE IV CERTAIN ADDITIONAL AGREEMENTS WITH RESPECT TO THE ACCOUNTS .... 6
4.1 Administration of Accounts .................................... 6
4.2 Reporting ..................................................... 7
4.3 Accounts Covenants ............................................ 7
4.4 Application of Collections .................................... 8
4.5 Power of Attorney ............................................. 8
4.6 Access to Premises ............................................ 8
ARTICLE V CONDITIONS TO PURCHASES ....................................... 9
5.1 Conditions Precedent to Initial Purchase ...................... 9
ARTICLE VI PROVISIONS REGARDING SERVICER ................................. 10
6.l Appointment of Servicer ....................................... 10
6.2 Replacement of Servicer ....................................... 10
ARTICLE VII REPRESENTATIONS AND WARRANTIES ................................ 10
7.1 Representations and Warranties of Sellers and Parent .......... 10
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TABLE OF CONTENTS
Page
ARTICLE VIII COVENANTS ................................................... 13
8.1 Affirmative Covenants ........................................ 13
8.2 Negative Covenants ........................................... 15
ARTICLE IX EVENTS OF TERMINATION ........................................ 15
9.1 Events of Termination ........................................ 15
ARTICLE X TERMINATION .................................................. 16
10.1 Termination .................................................. 16
10.2 Remedies ..................................................... 17
ARTICLE XI MISCELLANEOUS ................................................ 17
11.1 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver ............................................ 17
11.2 Waiver of Notices ............................................ 18
11.3 Amendments and Waivers ....................................... 18
11.4 Waiver of Counterclaims ...................................... 19
11.5 Indemnification .............................................. 19
11.6 Notices ...................................................... 19
11.7 Partial Invalidity ........................................... 19
11.8 Successors ................................................... 20
11.9 Entire Agreement ............................................. 20
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ACCOUNTS PURCHASE AND SALE AGREEMENT
THIS ACCOUNTS PURCHASE AND SALE AGREEMENT (this "Agreement"), dated as of
July 8, 1999, is among CONGRESS FINANCIAL CORPORATION, a Delaware corporation
("Purchaser"), and AMBOY BUS CO., INC., a New York corporation, ATLANTIC
PARATRANS, INC., a New York corporation, ATLANTIC PARATRANS OF KENTUCKY INC., a
Kentucky corporation, ATLANTIC EXPRESS OF L.A. INC., a California corporation,
ATLANTIC EXPRESS OF MISSOURI INC., a Missouri corporation, ATLANTIC EXPRESS OF
PENNSYLVANIA, INC., a Delaware corporation, COURTESY BUS CO., INC., a New York
corporation, CENTRAL NEW YORK COACH SALES & SERVICE INC., a New York
corporation, JERSEY BUS SALES, INC., a New Jersey corporation, STATEN ISLAND
BUS, INC., a New York corporation, ATLANTIC PARATRANS OF COLORADO, INC., a
Colorado corporation, ATLANTIC PARATRANS OF PENNSYLVANIA, INC., a Pennsylvania
corporation and ATLANTIC EXPRESS OF NEW JERSEY, INC., a New Jersey corporation
(each, individually, a "Seller", and any two or more collectively, "Sellers"),
and ATLANTIC EXPRESS TRANSPORTATION CORP., a New York corporation ("Parent").
RECITALS
1. Purchaser is a corporation engaged in the business of, among other
things, providing financial accommodations with respect to accounts.
2. Sellers generate accounts in the ordinary course of their business.
3. Sellers, in order to finance their business, wish to sell accounts to
Purchaser, and Purchaser is willing, on the terms and subject to the conditions
set forth herein, to purchase accounts from Sellers.
4. Sellers and Purchaser each intend this transaction to be a true sale of
accounts by Sellers to Purchaser, providing Purchaser with the full benefits of
ownership of the accounts, and Sellers and Purchaser do not intend the
transactions hereunder to be characterized as a loan from Purchaser to Sellers.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Unless otherwise indicated, capitalized terms used in this Agreement are
defined in Appendix A.
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ARTICLE II
AGREEMENT TO PURCHASE AND SELL
2.1 Agreement To Purchase and Sell. Upon the terms and subject to the
conditions set forth in this Agreement, each Seller may request that Purchaser
purchase Accounts and Related Assets, and Purchaser may in its sole discretion,
exercised reasonably and in good faith, purchase such Accounts and Related
Assets from Sellers, from time to time on or after the Initial Closing Date, but
before the Termination Date; provided; however, that no such purchase shall be
made if, after giving effect thereto, either (a) the Purchaser's Total
Investment would exceed $12,750,000 or (b) the Unpaid Balance of Service
Accounts purchased hereunder would exceed 90% of the Unpaid Balance of all
Accounts purchased hereunder at any time from the Initial Closing Date until and
including June 30, 1999 or 60% of the Unpaid Balance of all Accounts purchased
hereunder at any time on or after July 31, 1999. Except as otherwise expressly
provided herein, all purchases hereunder shall be made as true sales without
recourse, but shall be made pursuant to, and in reliance upon, the
representations, warranties and covenants of Sellers set forth in this Agreement
and each other Transaction Document.
2.2 No Assumption of Obligations. Purchaser shall not have any obligation
or liability with respect to any Account, any Contract related thereto or any
other related purchase orders or other agreements, nor shall Purchaser be
obligated to perform any of the obligations of Sellers thereunder, and any such
assumption is expressly disclaimed.
2.3 Purchase Procedures. Seller's Representative may request that
Purchaser purchase Accounts and Related Assets on the Initial Closing Date and
on each subsequent Purchase Date prior to the Termination Date by delivering to
Purchaser a written purchase request, in a form prescribed by Purchaser, not
later than two (2) Business Days prior to such Purchase Date, specifying the
Accounts that Purchaser is being requested to purchase. Each such request shall
be deemed to be a representation and warranty by each Seller and Parent that
Sellers' and Parent's representations and warranties in this Agreement are true
and correct on such date as if made on and as of such date and that no Event of
Termination, or event which would become an Event of Termination with notice or
the passage of time, shall have occurred and be continuing. On each Purchase
Date for which a purchase notice is timely given, Purchaser shall purchase from
such Sellers all Accounts identified in such request which Purchaser determines
are Eligible Accounts and which Purchaser has elected to purchase in its sole
discretion, exercised reasonably and in good faith, together with the applicable
Related Assets.
2.4 Payment of Purchase Price. The purchase price for an Account (the
"Purchase Price") shall be determined as of the Purchase Date therefor and shall
be equal to the Net Amount of such Account. On each Purchase Date, Purchaser
shall pay eighty-five percent (85%) of the Purchase Price of each Account
purchased on such date by crediting such amount to Sellers' account maintained
by Purchaser. On each Business Day that Purchaser (or Servicer on behalf of
Purchaser) receives Excess Collections, Purchaser shall credit to Sellers'
account with Purchaser and amount equal to the lesser of (a) the Remaining
Deferred Purchase Price of such Account at such time or (b) the amount of such
Excess Collections.
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2.5 Sellers' Account. Purchaser shall maintain one or more accounts on its
books on which are recorded the purchase of Accounts hereunder, Collections in
respect thereof, and all other appropriate debits and credits as provided in
this Agreement, including, without limitation, Commissions, interest, costs, and
expenses. All entries in such accounts shall be made in accordance with
Purchaser's customary practices as in effect from time to time.
2.6 Debits to Sellers' Account; Repurchase of Accounts.
(a) If any representation or warranty set forth in Section 7.1(g) or
7.1(h) was not true when made, or shall cease to be true (other than as a
result of the Account Debtor's financial inability to pay), with respect
to any Account purchased hereunder, Purchaser shall debit Seller's account
for the Unpaid Balance of such Account, and the applicable Seller shall,
immediately upon Purchaser's demand, pay to Purchaser the Unpaid Balance
of such Account in the same manner as applies to the elimination of a
Debit Balance under Section 2.8.
(b) If the Unpaid Balance of any Account purchased hereunder is
reduced or is subject to reduction on account of (i) any discount, rebate,
refund, or allowance not originally included in calculating the Purchase
Price of such Account, (ii) any claim or dispute of any kind with the
Account Debtor (whether or not related to such Account), (iii) any return
or rejection of goods or services, (iv) any adjustment thereof by the
Servicer or Purchaser in accordance with this Agreement, or (v) any other
reason except payment or an Event of Bankruptcy, then Purchaser shall
debit Sellers' account with Purchaser for the amount by which the Unpaid
Balance is reduced or subject to reduction (as determined by Purchaser).
(c) No debit to Sellers' account pursuant to this Section shall be
deemed to have effected a reconveyance of any Account to any Seller unless
and until the applicable Seller has either (i) paid to Purchaser in cash
the Unpaid Balance of such Account or (ii) assigned to Purchaser another
Eligible Account (as determined by Purchaser in its sole discretion
exercised reasonably and in good faith) the Unpaid Balance of which is at
least equal to the Unpaid Balance of the Account to be reconveyed.
2.7 Availability of Credit Balance; Interest on Credit Balance. At the
request of Sellers' Representative from time to time, and from time to time at
Purchaser's option, Purchaser shall remit to Sellers' Representative, for the
account of Sellers, any Credit Balance. Such remittances shall be made (a) on
the same Business Day if the request of Sellers' Representative is received
prior to 11:00 a.m. New York City time, or on the next Business Day if such
request is received after such time and (b) to a deposit account designated in
writing by Sellers' Representative. As of the last day of each month, Purchaser
shall pay interest to Sellers on the average daily Credit Balance during such
month, at a rate per annum equal to the Prime Rate minus three percent (3%).
Such interest shall be paid by crediting the amount thereof to Sellers' account
with Purchaser.
2.8 Payment of Debit Balance. If on any day a Debit Balance exists in
Sellers' account with Purchaser, then Sellers shall, jointly and severally,
immediately upon Purchaser's demand, eliminate such Debit Balance by, in such
combination as Sellers, Representative shall
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determine, (i) a payment to Purchaser in immediately available funds and (ii) a
transfer to Purchaser of Eligible Accounts not already purchased by Purchaser
hereunder, such that the sum of such payments and the Net Amount of such
Eligible Accounts equals or exceeds such Debit Balance plus accrued but unpaid
interest thereon; provided; however, if such Debit Balance arises on or after
the Termination Date, then Sellers' Representative may not elect to transfer
Eligible Accounts to eliminate such Debit Balance without Purchaser's prior
written consent thereto. If Seller's Representative elects (in accordance with
this Section) only to transfer Eligible Accounts to Purchaser, and the Net
Amount thereof exceeds the Debit Balance plus accrued but unpaid interest
thereon, then Purchaser shall be deemed to have purchased the excess Net Amount
of such Account in accordance with Section 2.4. The Purchase Date shall be the
date of transfer and the Purchase Price shall be calculated on such excess Net
Amount. Sellers, jointly and severally, shall pay interest on any Debit Balance
from the date it arises until fully eliminated at a rate per annum equal to the
Prime Rate plus two and three-quarters percent (2-3/4%). Accrued interest on a
Debit Balance shall be payable on demand.
2.9 Statements. Purchaser shall render to Sellers' Representative each
month a statement setting forth in reasonable detail the balance in Sellers'
accounts maintained by Purchaser pursuant to the provisions of this Agreement.
Each such statement shall be subject to subsequent adjustment by Purchaser but
shall, absent manifest errors or omissions, be considered correct and deemed
accepted by each Seller and conclusively binding upon each Seller as an account
stated except to the extent that Purchaser receives a written notice from
Sellers' Representative of any specific exceptions of any Seller thereto within
thirty (30) days after the date such statement has been mailed by Purchaser.
Until such time as Purchaser shall have rendered to Sellers' Representative a
written statement as provided above, the balance in Sellers' account(s) shall be
presumptive evidence of the amounts due and owing between Purchaser and Sellers.
2.10 Sellers' Representative. Each of the Sellers hereby appoints the
Sellers' Representative as its agent and representative for the purposes of all
communications and authorizations between such Seller and Purchaser under this
Agreement or any of the other Transaction Documents, including, without
limitation: making requests for the purchase of Accounts; giving notices to
Purchaser and receiving notices from Purchaser, and giving any direction or
instruction to Purchaser contemplated by this Agreement. Each of the Sellers
hereby authorizes and directs Purchaser to act in accordance with any and every
authorization, request, notice, instruction, or direction received on such
Seller's behalf from the Sellers' Representative, without requiring Purchaser to
confirm such Seller's authorization therefor, and each Seller hereby releases
Purchaser from and indemnifies Purchaser and holds Purchaser harmless against
any liability, claim, loss, damages, cost, or expense arising from or relating
in any way to Purchaser's acting upon such authorization, request, notice,
instruction, or direction. Notwithstanding the foregoing, Purchaser may require
a Seller to confirm such request, notice, instruction, or direction, or to
execute personally any agreement or instrument between such Seller and
Purchaser, whenever Purchaser in its sole discretion deems it necessary or
desirable to do so.
2.11 True Sales: Security Interests. Purchaser and Sellers intend the
transfers of Accounts hereunder to be true sales by Sellers to Purchaser that
are absolute and irrevocable and that provide Purchaser with the full benefits
of ownership of the Accounts and the Related
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Assets, and neither Purchaser nor Sellers intends the transactions contemplated
hereunder to be, or for any purpose to be characterized as, loans from Purchaser
to Sellers. It is, further, not the intention of the parties hereto that the
conveyance of the Accounts and Related Assets be deemed a grant of a security
interest in the Accounts and Related Assets by Sellers to Purchaser to secure a
debt or other obligation of Sellers. However, in the event that, notwithstanding
the intent of the parties, any Accounts and Related Assets are property of a
Seller's estate, then (i) this Agreement also shall be deemed to be and hereby
is a security agreement within the meaning of the UCC, and (ii) the conveyance
by Sellers provided for in this Agreement shall be deemed to be a grant by
Sellers to Purchaser of, and each Seller hereby grants to Purchaser, a security
interest in and to all of such Seller's right, title and interest in, to and
under the Accounts and Related Assets to secure (1) the rights of Purchaser and
its assigns hereunder and (2) a loan by Purchaser to Sellers in the amount of
the related Purchase Price of the assets sold by Sellers to Purchaser. Purchaser
and Sellers shall, to the extent consistent with this Agreement, take such
actions as may be necessary to ensure that, if this Agreement were deemed to
create a security interest in the Accounts and Related Assets, such security
interest would be deemed to be a perfected security interest of first priority
in favor of Purchaser under applicable law end will be maintained as such
throughout the term of this Agreement.
ARTICLE III
COMMISSIONS AND EXPENSES
3.1 Commissions.
(a) For Purchaser's services hereunder, Purchaser shall receive a
commission with respect to each Account purchased hereunder (the "Base
Commission") equal to three and one-quarter percent (3-1/4%) of the
portion of the Purchase Price of such Account credited to the Seller's
account on the Purchase Date provided, however, that the aggregate minimum
Base Commission (the "Minimum Base Commission") payable by the Sellers
hereunder, regardless of the amount of Accounts, if any, purchased
hereunder, shall be $100,000.
2 (b) In the event that the Average Maturity of the Service Accounts
purchased hereunder at the end of any month exceeds 75 days, then
Purchaser shall receive an additional commission with respect to the
average daily Unpaid Balance for such month of the Service Accounts or
such other Accounts purchased hereunder, as the case may be (the
"Additional Commission"), at a rate of five one hundredths of one percent
(.05%) for each day by which such Average Maturity for such month exceeded
75 days.
(c) The Base Commission shall be due and payable on each applicable
Purchase Date. Any Additional Commission shall be due and payable on the
last day of the month with respect to which it is due. The amount, if any,
equal to the excess of the Minimum Base Commission over the aggregate of
all Base Commissions debited to Sellers' account on or prior to the
Termination Date shall be due and payable on the Termination Date. All
Commissions shall be debited to Sellers' account with Purchaser.
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3.2 Purchaser's Costs and Expenses. Each Seller shall jointly and
severally pay to Purchaser on demand all costs, expenses, filing fees and taxes
paid or payable in connection with the preparation, negotiation, execution,
delivery, recording, administration, collection, liquidation, enforcement and
defense of this Agreement, the other Transaction Documents and all other
documents related hereto or thereto, including any amendments, supplements or
consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including, but not limited to:
(a) costs and expenses of conducting lien searches and filing or recording
(including UCC financing statement filing taxes and fees, documentary taxes, and
intangibles taxes, if applicable); (b) costs and expenses of remitting proceeds
collecting checks and other items of payment, and establishing and maintaining
the Blocked Accounts, together with Purchaser's customary charges and fees with
respect thereto; (c) costs and expenses of enforcing the provisions of this
Agreement and the other Transaction Documents or defending any claims made or
threatened against Purchaser arising out of the transactions contemplated hereby
and thereby (including, without limitation, preparations for and consultations
concerning any such matters); (d) when an Event of Termination has occurred and
is continuing, out-of-pocket expenses and costs incurred by Purchaser during the
course of field examinations of Accounts and Sellers' operations, plus a per
diem charge at the rate of $600 per person per day for Purchaser's examiners in
the field and office; and (e) reasonable fees and disbursements of counsel
(including legal assistants) to Purchaser in connection with any of the
foregoing.
ARTICLE IV
CERTAIN ADDITIONAL AGREEMENTS
WITH RESPECT TO THE ACCOUNTS
4.1 Administration of Accounts. Consistent with Purchaser's ownership of
the Accounts purchased hereunder, Purchaser or Servicer, on its behalf, shall
have the sole right to service, administer and collect such Accounts. Until
Purchaser terminates Servicer's rights and duties by delivery of a Successor
Notice in accordance with Section 6.2 hereof, Servicer shall, on behalf of
Purchaser, take all such actions as may be necessary or appropriate to collect
Accounts purchased hereunder from time to time, all in accordance with
applicable laws, rules and regulations, with reasonable care and diligence, and
in accordance with the Credit and Collection Policy. Servicer shall establish
and maintain, at its expense, such blocked accounts ("Blocked Accounts") as
Purchaser may specify, with such banks as Servicer selects and are reasonably
acceptable to Purchaser, into which Servicer shall promptly deposit or cause to
be deposited all Collections in the identical form in which such payments are
made, whether by cash, check or other manner. The banks at which the Blocked
Accounts are established shall enter into an agreement, in form and substance
reasonably satisfactory to Purchaser, providing that all items received or
deposited in the Blocked Accounts are the property of Purchaser, that the
depository bank has no lien upon, or right to setoff against, the Blocked
Accounts, the items received for deposit therein, or the funds from time to time
on deposit therein, and that the depository bank will wire, or otherwise
transfer, in immediately available funds, on a daily basis, all funds received
or deposited into the Blocked Accounts to such bank account of Purchaser as
Purchaser may from time to time designate for such purpose ("Payment Account").
Servicer and Sellers shall not deposit or otherwise credit, or cause or permit
to be so deposited or credited, to any Blocked Account, or any other account
maintained by Sellers, Purchaser, or Servicer for the
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purpose of receiving Collections on Accounts, any cash or cash proceeds other
than Collections. Each Sellers agrees that all payments made to such Blocked
Accounts or other funds received and collected by Purchaser, whether on the
Accounts or as proceeds of other Related Assets or otherwise shall be the
property of Purchaser. Servicer and all of its affiliates, subsidiaries,
shareholders, directors, employees, and agents shall, acting as trustee for
Purchaser, receive, as Purchaser's property, all Collections which come into
their possession or under their control and, on the same Business Day of receipt
thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to
Purchaser. If any Seller receives any Collections, such Seller will remit such
Collections to Purchaser in kind on the same Business Day of such Seller's
receipt thereof. In no event shall the same be commingled with any Seller's own
funds. Each Seller and Servicer agrees to reimburse Purchaser on demand for any
amounts owed or paid to any bank at which a Blocked Account is established or
any other bank or person involved in the transfer of funds to or from the
Blocked Accounts arising out of Purchaser's payments to or indemnification of
such bank or person. The obligation of each Seller to reimburse Purchaser for
such amounts pursuant to this Section shall survive the termination of this
Agreement.
4.2 Reporting. Servicer shall provide to Purchaser, in form reasonably
satisfactory to Purchaser: (a) on a daily basis, a detailed listing of
Collections; (b) on a weekly basis, a report by invoice of the Unpaid Balance of
Accounts purchased hereunder; (c) on a monthly basis, an aging of Accounts
purchased hereunder; (d) on each Purchase Date, copies of invoices, shipping and
delivery documents and evidence of customer acceptance with respect to Accounts
purchased on such date; (e) upon Purchaser's reasonable request, copies of
customer statements and credit memos, remittance advices and reports, and
deposit slips and bank statements, with respect to the Accounts purchased
hereunder, Collections, and Related Assets; and (f) such other reports as to the
Accounts and Related Assets as Purchaser may request from time to time.
4.3 Accounts Covenants.
(a) Each Seller shall notify Servicer and Purchaser promptly of: (i)
any material delay in such Seller's performance of any of its obligations
to any Account Debtor or the assertion of any claims, offsets, defenses or
counterclaims by any Account Debtor, or any disputes with any Account
Debtor, or any settlement, adjustment or compromise thereof, (ii) all
material adverse information relating to the financial condition of any
Account Debtor and (iii) any event or circumstance which, to such Seller's
knowledge, would cause Purchaser to consider any then existing Accounts
purchased hereunder as no longer constituting Eligible Accounts. No
credit, discount, allowance or extension or agreement for any of the
foregoing, shall be granted to any Account Debtor by Servicer without
Purchaser's consent, except in the ordinary course of business in
accordance with the Credit and Collection Policy when no Event of
Termination has occurred and is continuing. So long as no Event of
Termination has occurred and is continuing, Servicer shall settle, adjust
or compromise any claim, offset, counterclaim or dispute with any Account
Debtor in accordance with Servicer's business judgment and in accordance
with the Credit and Collection Policy. At any time that an Event of
Termination has occurred and is continuing, Purchaser shall, at its
option, have the exclusive right to settle, adjust or compromise any
claim, offset, counterclaim or dispute with Account Debtor for cash,
credit, return of merchandise or otherwise, and
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upon any terms or conditions, or grant any credits, discounts or allowances, and
thereby discharge or release the Account Debtor or any other party or parties in
any way liable for payment thereof without affecting any of its rights against
Sellers.
(b) Purchaser shall have the right at any time or times, and whether
or not a Servicer Transfer Event has occurred, in Purchaser's name or in
the name of a nominee of Purchaser, to verify the validity, amount or any
other matter relating to any Account purchased hereunder or Related Asset,
by mail, telephone, facsimile transmission or otherwise. Unless an Event
of Termination has occurred and is continuing, Purchaser shall not, in
connection with such verification, notify the Account Debtor that the
Account has been purchased hereunder.
(c) Each Seller shall deliver or cause to be delivered to Purchaser,
with appropriate endorsement and assignment, with full recourse to such
Seller, all chattel paper and instruments, if any, which such Seller now
owns or may at any time acquire in connection with any Account purchased
hereunder or Related Asset, promptly (but in any event not more than three
days) after such Purchaser's receipt thereof, except as Purchaser may
otherwise agree.
(d) Purchaser may, at any time or times that an Event of Termination
has occurred and is continuing, (i) notify any or all Account Debtor that
the Accounts have been purchased by Purchaser and Purchaser may direct any
or all Account Debtors to make payment of Accounts directly to Purchaser
or to the Blocked Accounts (and Purchaser shall send copies of such
notifications and directions contemporaneously to Sellers'
Representative), (ii) demand, collect or enforce payment of any Accounts,
and Purchaser shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iii) take whatever other action Purchaser may
reasonably deem necessary or desirable for the protection of its
interests. At any time that an Event of Termination has occurred and is
continuing, at Purchaser's request, all invoices and statements sent to
any Account Debtor shall state that the Accounts and Related Assets have
been purchased by Purchaser and are payable directly and only to
Purchaser, and each Seller shall deliver to Purchaser such originals of
documents evidencing the sale and delivery of goods or the performance of
services giving rise to any accounts as Purchaser may require.
4.4 Application of Collections. Any payment by an Account Debtor in
respect of any indebtedness owed by it to a Seller shall, except as otherwise
specified by such Account Debtor or required by the underlying Contract or law,
be applied, first, as a Collection of the Unpaid Balance of any Account of such
Account Debtor purchased hereunder in the order of the age of such Accounts,
starting with the oldest of such Accounts and, second, to any other indebtedness
of such Account Debtor.
4.5 Power of Attorney. Each Seller hereby irrevocably designates and
appoints Purchaser and Servicer (and all persons designated by Purchaser or
Servicer) as such Seller's true and lawful attorney-in-fact, and authorizes
Purchaser and Servicer, in such Seller's or Purchaser's or Servicer's name, to:
(a) prepare, file and sign such Seller's name on any proof of claim in
bankruptcy or other similar document against an Account Debtor, (b) have access
to any
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lockbox or postal box into which such Seller's mail regarding Accounts purchased
hereunder is deposited, (c) endorse such Seller's name upon any items of payment
or proceeds thereof relating to Accounts purchased hereunder and Related Assets
and deposit the same in the Purchaser's account, (d) endorse such Seller's name
upon any chattel paper, document, instrument, invoice, or similar document or
agreement relating to any Account purchased hereunder or any goods pertaining
thereto or any other Related Asset, (e) sign such Seller's name on any
verification of Accounts and notices thereof to Account Debtors permitted
hereunder and (f) execute in such Seller's name and file any UCC financing
statements or amendments thereto relating to any Account purchased hereunder.
Each Seller hereby releases Purchaser and Servicer and its officers, employees
and designees from any liabilities arising from any act or acts under this power
of attorney and in furtherance thereof, whether of omission or commission,
except as a result of Purchaser's or Servicer's own gross negligence or willful
misconduct as determined pursuant to a final non-appealable order of a court of
competent jurisdiction.
4.6 Access to Premises. From time to time as requested by Purchaser, at
the cost and expense of each Seller, (a) Purchaser or its designee shall have
complete access to all of each Seller's premises during normal business hours
and after reasonable notice to the Sellers' Representative, or at any time and
without notice to any Seller if an Event of Termination has occurred and is
continuing, for the purposes of inspecting, verifying and auditing the Accounts
and Related Assets and all of Sellers' books and records, (b) each Seller shall
promptly furnish to Purchaser such copies of such books and records or extracts
therefrom as Purchaser may reasonably request, and (c) use during normal
business hours such of such Seller's personnel, equipment, supplies and premises
as may be reasonably necessary for the foregoing and if an Event of Termination
exists or has occurred and is continuing for the collection of Accounts and
realization of other Related Assets and Related Property.
ARTICLE V
CONDITIONS TO PURCHASES
5.1 Conditions Precedent to Initial Purchase. Sellers may not request
Purchaser to purchase Accounts hereunder unless Purchaser shall have received,
on or before the Initial Closing Date, the following, each (unless otherwise
indicated) dated the Initial Closing Date or such earlier date satisfactory to
Purchaser, and each in form and substance satisfactory to Purchaser:
(a) A copy of this Agreement duly executed by Sellers and Parent;
(b) A certificate of the Secretary or Assistant Secretary of each
Seller and Parent, certifying (i) the names and true signatures of the
incumbent officers of such Seller or Parent authorized to sign this
Agreement and the other Transaction Documents to be delivered by it (on
which certificate the Purchaser may conclusively rely until such time as
the Purchaser shall receive from a Seller a revised certificate meeting
the requirements of this subsection (b)), (ii) that the copy of the
articles or certificate of incorporation of such Seller or Parent attached
thereto is a complete and correct copy thereof and that the same has not
been amended, modified or supplemented and is in full force and effect as
of the date thereof' (iii) that the copy of the by-laws of such Seller or
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Parent attached thereto is a complete and correct copy thereof and that
such by-laws have not been amended, modified or supplemented and are in
fill force and effect as of the date thereof, and (iv) the resolutions of
such Seller's or Parent's board of directors approving and authorizing the
execution, delivery and performance by such Seller or Parent of this
Agreement and the other Transaction Documents to which it is a party, and
that such resolutions have not been amended, modified or rescinded and are
in full force and effect as of the date thereof;
(c) Evidence of good standing of each Seller and Parent in its
jurisdiction of incorporation and each other jurisdiction in which it is
required to be qualified, within a reasonable time prior to the effective
date of this Agreement;
(d) Proper financing statements (the "Facility Financing
Statements"), describing the Accounts and the Related Assets and other
Related Property and naming Sellers as debtor/seller and Purchaser, as
secured party/purchaser, or other, similar instruments or documents, as
may be reasonably necessary or, in the opinion of the Purchaser, desirable
under the UCC of all reasonably appropriate jurisdictions or any
comparable law to perfect Purchaser interests in all Accounts and Related
Assets;
(e) Evidence that the Accounts and Related Assets, upon the purchase
by Purchaser hereunder, will be free and clear of all security interests
and liens that currently encumber any Seller's assets and property;
(f) An opinion of Silverman, Collura & Chernis, P.C., counsel for
Sellers and Parent, in substantially the form of Exhibit ___;
(g) Evidence (i) of the execution and delivery by each of the
parties thereto of each of the Transaction Documents to be executed and
delivered in connection herewith and (ii) that each of the conditions
precedent to the execution, delivery and effectiveness of the Transaction
Documents has been satisfied;
(h) a Limited Guarantee duly executed by Domenic Gatto, guaranteeing
the payment and performance of Sellers' obligations under this Agreement,
up to a principal amount of $1,000,000, plus interest and expenses of
enforcement; and
(i) Such other documents as Purchaser shall reasonably request.
ARTICLE VI
PROVISIONS REGARDING SERVICER
6.1 Appointment of Servicer. Purchaser hereby appoints Servicer to act on
behalf of Purchaser in accordance with this Agreement. Parent is hereby
designated as, and hereby agrees to perform the duties and obligations of, the
Servicer until it receives a Successor Notice.
6.2 Replacement of Servicer. If an Event of Termination occurs (a
"Servicer Transfer Event"), then Purchaser may give written notice to Parent of
either the designation of a new Servicer or the assumption directly by Purchaser
of all of the Servicer's rights and duties
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hereunder (a "Successor Notice"). Upon receipt of a Successor Notice, Parent
agrees to terminate its activities as Servicer proceed promptly and in good
faith to facilitate the transition of such activities to a new Servicer or
Purchaser.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7. Representations and Warranties of Sellers and Parent. In order to
induce Purchaser to enter into this Agreement and to make purchases hereunder,
each of the Sellers and Parent hereby makes the representations and warranties
set forth in this Article VII.
(a) Power and Authority; Due Authorization. Each Seller and Parent
(i) has all necessary power, authority and legal right (A) to execute and
deliver this Agreement and the other Transaction Documents to which it is
a party, (B) to carry out the terms of the Transaction Documents to which
it is a party, and (C) to sell and assign the Accounts and Related Assets
on the terms and conditions herein provided, and (ii) has duly authorized
by all necessary corporate action the execution, delivery and performance
of this Agreement and the other Transaction Documents and the sales and
assignments described in clause (i)(C) above.
(b) Valid Sale; Binding Obligations. (i) This Agreement constitutes
a valid sale, transfer, and assignment to Purchaser of all Accounts and
all Related Assets sold hereunder, enforceable against creditors of, and
purchasers from, Sellers, and (ii) this Agreement constitutes, and each
other Transaction Document to be signed by a Seller or Parent when duly
executed and delivered will constitute, a legal, valid and binding
obligation of each such Seller or Parent, enforceable in accordance with
its terms, except, in the case of this subsection (b), as enforceability
may be limited by bankruptcy, insolvency, reorganization, or other similar
laws from time to time in effect affecting the enforcement of creditors'
rights generally and by general principles of equity, regardless of
whether such enforceability is considered in a proceeding in equity or at
law.
(c) No Violation. The consummation of the transactions contemplated
by this Agreement and the other Transaction Documents and the fulfillment
of the terms hereof will not (i) conflict with, result in any breach of
any of the terms and provisions of, or constitute (with or without notice
or lapse of time or both) a default under, the articles or certificate of
incorporation or by-laws of any Seller or Parent, or any material
indenture, loan agreement, receivables purchase agreement, mortgage, deed
of trust, or other agreement or instrument to which any Seller or Parent,
is a party or by which it or any of its properties is bound, (ii) result
in the creation or imposition of any Lien upon any properties of any
Seller or Parent pursuant to the terms of any such indenture, loan
agreement, receivables purchase agreement, mortgage, deed of trust, or
other agreement or instrument, other than this Agreement and the other
Transaction Documents, or (iii) violate any law or any order, rule, or
regulation applicable to any Seller or Parent, of any court or of any
federal or state regulator body, administrative agency, or other
governmental instrumentality having jurisdiction over any Seller or
Parent, or any of its properties.
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(d) No Proceedings. There are no proceedings or investigations
pending, or to any Seller's or Parent's knowledge threatened, before any
court, regulatory body, administrative agency, or other tribunal or
governmental instrumentality (i) asserting the invalidity of this
Agreement or any other Transaction Document, (ii) seeking to prevent the
sale and assignment of any Accounts or any Related Assets under this
Agreement or the consummation of any of the other transactions
contemplated by this Agreement or any other Transaction Document, or (iii)
seeking any determination or ruling that would reasonably be expected to
have a material adverse effect on Parent's or any Seller's business,
assets, prospects, or condition (financial or otherwise), or on any
Seller's ability to perform its agreements and obligations under the
Transaction Documents.
(e) Bulk Sales Act. No transaction contemplated hereby requires
compliance with any bulk sales act or similar law.
(f) Government Approvals. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and
performance by each Seller and Parent of this Agreement and each other
Transaction Document to which it is a party, except for (i) the filing of
the UCC financing statements referred to in Article V, and (ii) the filing
of any UCC continuation statements and amendments from time to time
required in relation to any UCC financing statements filed in connection
with this Agreement, all of which, at the time required, shall have been
duly made and shall be in full force and effect.
(g) Quality of Title. (i) Each Account proposed to be purchased
hereunder, together with the related Contract and all purchase orders and
other agreements related to such Account, is owned by the applicable
Seller free and clear of any Lien (other than Liens of the Working Capital
Lender or the Trustee and other than Liens arising solely as the result of
any action taken by Purchaser), (ii) when Purchaser makes a purchase
hereunder, it shall have acquired good and marketable ownership of the
purchased Accounts, the Related Assets, and Collections with respect
thereto, free and clear of any Lien (other than any Lien arising as the
result of any action taken by Purchaser); and (iii) with respect to any
Account purchased hereunder and the Related Assets relating thereto
transferred by a Seller to Purchaser hereunder, Purchaser shall have given
reasonably equivalent value to such Seller for such transfer, and no such
transfer shall have been made on account of an antecedent debt owed by
such Seller to Purchaser or shall be voidable under any Section of the
Bankruptcy Reform Act of 1978 (11 U.S.C. ss. ss: 101 et seq.), as amended
(the "Bankruptcy Code").
(h) Eligible Account. With respect to each Account purchased
hereunder: (i) such Account was on the Purchase Date and continues to be
as to any Unpaid Balance thereof an Eligible Account; and (ii) none of the
transactions giving rise thereto will violate in any material respect any
applicable State or Federal laws or regulations, all documentation
relating thereto will be legally sufficient under such laws and
regulations and all such documentation will be legally enforceable in
accordance with its terms.
(i) Unpaid Balance. With respect to each Account purchased
hereunder: (i) the amounts shown on any invoice delivered to Purchaser or
Servicer or schedule thereof
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or report delivered to Purchaser or Servicer shall be true and complete,
(ii) no payments have been made thereon except payments received by
Purchaser or Servicer pursuant to the terms of this Agreement, (iii) no
credit, discount, allowance, extension or retainage or agreement for any
of the foregoing has been granted to any Account Debtor except as reported
to Purchaser and made in accordance with this Agreement, and (iv) there
shall have been no setoffs, deductions, retainages, contras, defenses,
counterclaims or disputes existing or asserted with respect thereto except
as reported to Purchaser.
(j) Accurate Reports. No information, exhibit, financial statement,
document, book, record or report furnished or to be furnished by or on
behalf of any Seller or Servicer to Purchaser or Servicer in connection
with this Agreement was or will be inaccurate in any material respect as
of the date it was or will be dated or as of the date so furnished, or
contained or (in the case of information or other materials to be
furnished in the future) will contain any material misstatement of fact or
omitted or (in the case of information or other materials to be furnished
in the future) will omit to state a material fact or any fact necessary to
make the statements contained therein not materially misleading.
(k) Offices. The principal place of business and chief executive
office of each Seller are located at the address set forth below its
signature hereto and the offices where each Seller keeps all its books,
records and documents evidencing Accounts, the related Contracts and all
purchase orders and other agreements related to such Accounts are located
at the addresses set forth below its signature hereto.
(l) Servicing Programs. No license or approval is required for
Purchaser's use of any program used by Servicer in the servicing of the
Accounts, other than those which have been obtained and are in full force
and effect.
(m) Solvency. Immediately after giving effect to each sale now or
hereafter made pursuant to this Agreement and the other Transaction
Documents, Parent and the Sellers on a consolidated basis, and each of
Amboy Bus Co., Inc., Atlantic Express of L.A. Inc., Atlantic Express of
Missouri, Inc., Central New York Coach Sales & Service, Inc., Jersey Bus
Sales, Inc., Atlantic Express of New Jersey, Inc., Atlantic Paratrans of
Colorado, Inc., and Atlantic Paratrans of Pennsylvania, Inc. individually,
will be Solvent. For purposes of this Section 6.1(v), "Solvent" means, at
any time:
(i) the fair value and present fair saleable value of such
Person's total assets is, on the date of determination,
greater than such Person's total liabilities (including
contingent and unliquidated liabilities) at such time;
(ii) the fair value and present fair saleable value of such
Person's assets is greater than the amount that will be
required to pay such Person's probable liability on its
existing debts as they become absolute and matured ("debts,"
for this purpose, includes all legal liabilities, whether
matured or unmatured, liquidated or unliquidated, absolute,
fixed, or contingent);
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(iii) such Person does not intend to incur, or believe that it would
incur, debts that would be beyond such Person's ability to pay
as such debts mature;
(iv) such Person does not have unreasonably small capital with
which to engage in its current and in its anticipated
business; and
(v) such Person is "solvent" within the meaning given that term
under applicable laws relating to fraudulent conveyance.
ARTICLE VIII
COVENANTS
8.1 Affirmative Covenants. From the date hereof until the first day
following the Termination Date on which the Purchaser's Total Investment shall
have been reduced to zero, each Seller will:
(a) Compliance with Laws. Etc. Comply in all material respects with
all applicable laws, rules, regulations and orders with respect to the
Accounts and related Contracts.
(b) Keeping of Records and Books of Account. Maintain and implement
administrative and operating procedures (including, without limitation, an
ability to recreate records evidencing Accounts in the event of the
destruction of the originals thereof ), and keep and maintain, all
documents, books, records and other information reasonably necessary or
advisable for the collection of all Accounts purchased hereunder
(including, without limitation, records adequate to permit the daily
identification of each Account purchased hereunder and all Collections of
and adjustments to each such Account).
(c) Performance and Compliance with Receivables and Contracts. At
its expense timely and fully perform and comply with all material
provisions, covenants and Other promises required to be observed by it
under the Contracts related to the Accounts purchased hereunder and all
purchase orders and other agreements related to such Accounts to the same
extent as if the Accounts had not been purchased hereunder, and the
exercise by Purchaser (or any of its assignees) of its rights hereunder
shall not relieve any Seller from such obligations.
(d) Location of Records. Keep its chief place of business and chief
executive office, and the offices where it keeps its records concerning
the Accounts purchased hereunder, all related Contracts and all purchase
orders and other agreements related to such Accounts (and all original
documents relating thereto), at the addresses referred to in Section
6.01(k) or, upon 30 days' prior written notice to Purchaser, at such other
locations in jurisdictions where all action required to perfect
Purchaser's interests hereunder shall have been taken and completed.
Additionally, no Seller will make any of the books, records or documents
that relate to the Accounts purchased hereunder available in any manner to
any third party (including, without limitation, any creditor or
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potential creditor of any Seller) without a disclosure that such assets
have been sold to Purchaser and that Parent's continuing connection to
such Accounts is solely as Servicer therefor.
(e) Credit and Collection Policies. Comply in all material respects
with the Credit and Collection Policy in regard to each Account purchased
hereunder and the related Contract.
(f) Information. Promptly supply Servicer with the information
necessary for Servicer to prepare each report required to be delivered
hereunder.
(g) Use of Proceeds. During the period described in the opening
clause of this Section 8.1 and for such longer period as may be required,
use the proceeds from the sale of Accounts hereunder in the manner
required by the Working Capital Facility and the Indenture.
(h) Further Assurances. At the request of Purchaser or Servicer at
any time and from time to time, at its expense, duly execute and deliver,
or cause to be duly executed and delivered, such further agreements,
documents and instruments, and do or cause to be done such further acts as
may be reasonably necessary or proper to evidence, perfect, maintain,
enforce, and otherwise effectuate the provisions or purposes of this
Agreement or any of the other Transaction Documents. Where permitted by
law, each Seller hereby authorizes Purchaser to execute and file one or
more UCC financing statements signed only by Purchaser.
8.2 Negative Covenants. From the date hereof until the first day following
the Termination Date on which the Purchaser's Total Investment shall have been
reduced to zero, no Seller will:
(a) Accounting of Purchases. Account for or treat (whether in
financial statements or otherwise) the transactions contemplated hereby in
any manner other than as sales of Accounts and the Related Assets by
Sellers to Purchaser.
ARTICLE X
EVENTS OF TERMINATION
9.1 Events of Termination. Each of the following shall be an "Event of
Termination" hereunder:
(a) Servicer or any Seller fails to make an payment hereunder or
fails to deposit or remit any Collections as and when required hereunder
or Servicer or any Seller fails to perform any of the terms, covenants,
conditions or provisions contained in this Agreement or any of the other
Transaction Documents to which it is a party;
(b) any representation, warranty or statement of fact made by any
Seller or Servicer to Purchaser in this Agreement, the other Transaction
Documents or any other
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agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) Domenic Gatto terminates or fails in any material respect to
perform any of the terms, covenants, conditions or provisions of his
guarantee in favor of Purchaser;
(d) any Seller or Servicer dissolves or suspends or discontinues
doing business;
(e) any Seller or Servicer makes an assignment for the benefit of
creditors, makes or sends notice of a bulk transfer or calls a meeting of
its creditors; or any Seller or Servicer becomes insolvent (however
defined or evidenced);
(f) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is fled against any Seller, Servicer, or
Domenic Gatto or all or any part of its or his properties and such
petition or application is not dismissed within thirty (30) days after the
date of its filing, or any Seller, Servicer, or Domenic Gatto shall file
any answer admitting or not contesting such petition or application or
indicates its consents to, acquiescence in or approval of, any such action
or proceeding or the relief requested is granted sooner;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at a law or equity) is filed by any Seller, Servicer, or Domenic
Gatto or for all or any part of its property;
(h) (i) any Event of Default, or event which with notice or the
passage of time or both, would become an Event of Default, under and as
defined in the Indenture or the Working Capital Facility, or any agreement
securing or guaranteeing payment of the Senior Notes or the Working
Capital Facility, or (ii) default by any Seller, Servicer, or Domenic
Gatto under any agreement, document or instrument relating to any other
indebtedness for borrowed money owing to any person other than the holders
of the Senior Notes or the Working Capital Lender, or any capitalized
lease obligations, contingent indebtedness in connection with any
guarantee, letter of credit, indemnity or similar type of instrument in
favor of any person other than the Working Capital Lender or the holders
of the Senior Notes, in any case in an amount in excess of $500,000, which
default continues for more than the applicable cure period, if any, with
respect thereto, or any default by any Seller, Servicer, or Domenic Gatto
under any material contract, lease, license or other obligation to any
Person other than the Working Capital Lender or the holders of the Senior
Notes, which default continues for more than the applicable cure period,
if any, with respect thereto; or
(i) the Working Capital Facility shall expire or terminate.
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ARTICLE X
TERMINATION
10.1 Termination.
(a) Voluntary. Upon at least sixty days prior written notice to
Purchaser, Sellers may declare the Termination Date to have occurred.
(b) Termination Upon Occurrence of Event of Termination. Upon the
occurrence of any Event of Termination (other than an Event of Termination
described in Section 9.1(d), (e), (f), or (g)), the Purchaser may, by
written notice to Servicer and Sellers' Representative, declare the
Termination Date to have occurred. Upon the occurrence of an Event of
Termination described in Section 9.1(d), (e), (f), or (g), the Termination
Date shall occur automatically.
10.2 Remedies. Upon the occurrence of the Termination Date pursuant to
Section 10.1, Purchaser shall have, in addition to all other rights and remedies
under this Agreement or otherwise, all other rights and remedies provided under
the UCC of each applicable jurisdiction and other applicable laws, which rights
shall be cumulative. Without limiting the foregoing, the occurrence of the
Termination Date shall not deny Purchaser any remedy in addition to termination
of the purchase facility hereunder to which Purchaser may be otherwise
appropriately entitled, whether at law or equity.
ARTICLE XI
MISCELLANEOUS
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this Agreement
and the other Transaction Documents and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort equity
or otherwise, shall be governed by the internal laws of the State of New
York (without giving effect to principles of conflicts of law).
(b) Each Seller, Parent, Servicer, and Purchaser irrevocably consent
and submit to the non-exclusive jurisdiction of the Supreme Court of the
State of New York for New York County and the United States District Court
for the Southern District of New York and waive any objection based on
venue or forum non conveniens with respect to any action instituted
therein arising under this Agreement or any of the other Transaction
Documents or in any way connected with or related or incidental to the
dealings of the parties hereto in respect of this Agreement or any of the
other Transaction Documents or the transactions related hereto or thereto,
in each case whether now existing or hereafter arising, and whether in
contract, tort, equity or otherwise, and agree that any dispute with
respect to any such matters shall be heard only in the courts described
above (except that Purchaser shall have the right to bring any action or
proceeding against any Seller, Parent or Servicer or its property in the
courts of any other
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jurisdiction which Seller, Parent, or Servicer deems necessary or
appropriate in order to enforce its rights against any Seller, Parent, or
Servicer or its property).
(c) Each Seller, Parent, and Servicer hereby waives personal service
of any and all process upon it and consents that all such service of
process may be made by certified mail (return receipt requested) directed
to its address set forth on the signature pages hereof and service so made
shall be deemed to be completed five (5) days after the same shall have
been so deposited in the U.S. mails, or, at Purchaser's option, by service
upon such Seller, Parent, or Servicer in any other manner provided under
the rules of any such courts. Purchaser shall send a copy of any such
service to Silverman, Collura & Chernis, P.C., 381 Park Avenue South,
Suite 1601, New York, New York 10016, Attention: Peter R. Silverman, Esq.,
and to Latham & Watkins, 885 Third Avenue, Suite 1000, New York, New York
10022, Attention: Robert A. Zuccaro, but the delivery of such copy shall
not be a condition to the effectiveness of service upon any Seller,
Parent, or Servicer. Within thirty (30) days after such service, such
Seller, Parent, or Servicer shall appear in answer to such process,
failing which such Seller, Parent, or Servicer shall be deemed in default
and judgment may be entered by Purchaser against such Seller, Parent, or
Servicer for the amount of the claim and other relief requested.
(d) EACH SELLER, PARENT, SERVICER, AND PURCHASER HEREBY WAIVES ANY
RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i)
ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR
(ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF
THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER
TRANSACTION DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN
CONTRACT, TORT, EQUITY OR OTHERWISE. EACH SELLER, PARENT, SERVICER, AND
PURCHASER HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT
SELLER, PARENT, SERVICER, OR PURCHASER MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT
OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Purchaser shall not have any liability to any Seller, Parent, or
Servicer (whether in tort, contract, equity or otherwise) for losses
suffered by any Seller, Parent, or Servicer in connection with, arising
out of, or in any way related to the transactions or relationships
contemplated by this Agreement, or any act, omission or event occurring in
connection herewith, unless it is determined by a final and non-appealable
judgment or court order binding on Purchaser, that the losses were the
result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Purchaser shall be entitled to the
benefit of the rebuttable presumption that it acted in good faith and with
the exercise of ordinary care in the performance by it of the terms of
this Agreement.
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11.2 Waiver of Notices. Each Seller, Parent, and Servicer hereby expressly
waives demand, presentment, protest and notice of protest and notice of dishonor
with respect to any and all instruments and chattel paper, included in or
evidencing any of the Accounts and Related Assets, and any and all other demands
and notices of any kind or nature whatsoever with respect to the Accounts and
Related Assets, and this Agreement, except such as are expressly provided for
herein. No notice to or demand on any Seller, Parent, and Servicer which
Purchaser may elect to give shall entitle any Seller, Parent, or Servicer to any
other or further notice or demand in the same, similar or other circumstances.
11.3 Amendments and Waivers. Neither this Agreement 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
Purchaser. Purchaser 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 Purchaser. Any such waiver shall be enforceable only to the extent
specifically set forth therein. A waiver by Purchaser 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 Purchaser would otherwise have on any
future occasion, whether similar in kind or otherwise.
11.4 Waiver of Counterclaims. Each Seller, Parent, and Servicer waives all
rights to interpose any claims, deductions, setoffs or counterclaims of any
nature (other then compulsory counterclaims) in any action or proceeding with
respect to this Agreement, the Accounts, the Related Assets, or any matter
arising therefrom or relating hereto or thereto.
11.5 Indemnification. Each Seller, Parent, and Servicer shall jointly and
severally indemnify and hold Purchaser, and its directors, agents, employees and
counsel, harmless from and against any and all losses, claims, damages,
liabilities, costs or expenses imposed on, incurred by or asserted against any
of them in connection with any litigation, investigation, claim or proceeding
commenced or threatened related to the negotiation, preparation, execution,
delivery, enforcement, performance or administration of this Agreement, any
other Transaction Documents, or any undertaking or proceeding related to any of
the transactions contemplated hereby or any act, omission, event or transaction
related or attendant thereto, including, without limitation, amounts paid in
settlement, court costs, and the reasonable fees and expenses of counsel
(provided, that Sellers, Parent, and Servicer shall not be liable for such
indemnification with respect to any loss that is determined by a final and
non-appealable judgment or court order binding on Purchaser to have resulted
from Purchaser's gross negligence or willful misconduct). To the extent that the
undertaking to indemnify, pay and hold harmless set forth in this Section may be
unenforceable because it violates any law or public policy, each Seller, Parent,
and Servicer shall pay the maximum portion which it is permitted to pay under
applicable law to Purchaser in satisfaction of indemnified matters under this
Section. The foregoing indemnity shall survive the termination of this
Agreement.
11.6 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Purchaser at its address set forth below its signature
hereto and to a Seller, Parent, or Servicer at its chief executive office set
forth below its signature hereto, or to such other address as either party may
designate by written notice to the other in accordance with this provision, and
(b) deemed to have been given or made: if delivered in person, immediately upon
delivery; if by
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telex, telegram or facsimile transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized overnight courier service
with instructions to deliver the next business day, one (1) business day after
sending; and if by certified mail, return receipt requested, five (5) days after
mailing. A copy of any notice given to a Seller shall be sent to Silverman,
Collura & Chernis, P.C., 381 Park Avenue South, Suite 1601, New York, New York
10016, Attention: Peter R. Silverman, Esq. and to Latham & Watkins, 885 Third
Avenue, Suite 1000, New York, New York 10022, Attention: Robert A. Zuccaro. Esq.
11.7 Partial Invalidity. If any provision of this Agreement is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
11.8 Successors. This Agreement, the other Transaction Documents and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Purchaser, Sellers, Servicer, and Parent
and their respective successors and assigns, except that none of Sellers,
Parent, or Servicer may assign any of their rights or obligations under this
Agreement, the other Transaction Documents and any other document referred to
herein or therein without the prior written consent of Purchaser. Purchaser may,
after notice to Sellers, Parent, and Servicer, assign its rights and delegate
its obligations under this Agreement and the other Transaction Documents and
further may assign all or any part of the Accounts and Related Assets or any
other interest herein to another financial institution or other person, in which
event, the assignee shall have, to the extent of such assignment, the same
rights and benefits as it would have if it were the Purchaser hereunder, except
as otherwise provided by the terms of such assignment.
11.9 Entire Agreement. This Agreement, the other Transaction Documents,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.
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IN WITNESS WHEREOF, Purchaser, Parent and each of the Sellers have caused
these presents to be duly executed as of the day and year first above written.
PURCHASER SELLERS
- --------- -------
CONGRESS FINANCIAL CORPORATION AMBOY BUS CO., INC.
By: /s/ Van K. Brown By: /s/ Domenic Gatto
-------------------------------- --------------------------------
Title: Assistant Vice President Title: President
Address: Chief Executive Office:
1113 Avenue of the Americas 7 North Street
New York, New York 10036 Staten Island, New York 10302
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 EXPRESS OF L.A. 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
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
<PAGE>
ATLANTIC EXPRESS OF
PENNSYLVANIA, INC.
By: /s/ Domenic Gatto
--------------------------------
Title: President
Chief Executive Office:
7 North Street
Staten Island, New York 10302
CENTRAL NEW YORK COACH SALES
& SERVICE, INC.
By: /s/ Domenic Gatto
--------------------------------
Title: President
Chief Executive Office:
7 North Street
Staten Island, New York 10302
JERSEY BUS SALES, INC.
By: /s/ Domenic Gatto
--------------------------------
Title: President
Chief Executive Office:
7 North Street
Staten Island, New York 10302
STATEN ISLAND BUS, INC.
By: /s/ Domenic Gatto
--------------------------------
Title: President
Chief Executive Office:
7 North Street
Staten Island, New York 10302
ATLANTIC PARATRANS OF COLORADO, INC.
By: /s/ Domenic Gatto
--------------------------------
Title: President
Chief Executive Office:
7 North Street
Staten Island, New York 10302
ATLANTIC PARATRANS OF
PENNSYLVANIA, INC.
By: /s/ Domenic Gatto
--------------------------------
Title: President
Chief Executive Office:
7 North Street
Staten Island, New York 10302
<PAGE>
ATLANTIC EXPRESS OF NEW JERSEY, INC.
By: /s/ Domenic Gatto
--------------------------------
Title: President
Chief Executive Office:
7 North Street
Staten Island, New York 10302
PARENT, SELLERS' REPRESENTATIVE,
AND INITIAL SERVICER
--------------------------------
ATLANTIC EXPRESS TRANSPORTATION
By: /s/ Domenic Gatto
--------------------------------
Title: President
Chief Executive Office:
7 North Street
Staten Island, New York 10302
<PAGE>
APPENDIX A
DEFINITIONS
"Account" of a Seller shall mean all present and future rights of such
Seller to payment for goods sold or leased or services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance, including the right to payment of interest or finance charges.
"Account Debtor" means any Person obligated in any way on an Account
purchased hereunder.
"Additional Commission" has the meaning given to such term in Section 3.1
hereof.
"Average Maturity" means as of the date of determination, the time period,
expressed in days, equal to the weighted average number of days from the
respective Purchase Dates to Purchaser's receipt of the final collection of the
applicable Accounts purchased hereunder, as calculated by Purchaser.
"Bankruptcy Code" has the meaning given to such term in Section 7.1(g)
hereof.
"Base Commission" has the meaning given to such term in Section 3.1
hereof.
"Blocked Account" has the meaning given to such term in Section 4.1
hereof.
"Business Day" means any day other than a Saturday, Sunday, or other day
on which commercial banks are authorized or required to close under the laws of
the State of New York.
"Collections" means, with respect to any Accounts, all funds which are
received by Purchaser, Sellers, or Servicer from or on behalf of the related
obligors in payment of any amounts owed (including, without limitation, purchase
prices, finance charges, interest and all other charges) in respect of such
Accounts, or applied to such amounts owed by such obligors (including, without
limitation, insurance payments that Purchaser, Sellers or Servicer applies in
the ordinary course of its business to amounts owed in respect of such Accounts
and net proceeds of sale or other disposition of repossessed goods or other
collateral or properly of the obligor or any other Person directly or indirectly
liable for payment of such Accounts and available to be applied thereon).
"Commissions" shall mean Base Commissions (including, without limitation,
the Minimum Base Commission), Additional Commissions or any combination thereof.
"Contract" means a contract or invoice between a Seller and any Person
pursuant to or under which such Person shall be obligated to make payments to
such Seller with respect to Accounts from time to time.
"Credit Balance" means a positive balance in Sellers' account maintained
by Purchaser hereunder, net of such reserves as Purchaser deems necessary in its
sole discretion exercised reasonably and in good faith to allow for possible
reductions in the Unpaid Balance of Accounts
<PAGE>
purchased hereunder for any reason set forth in Section 2.6 or to provide for
the payment of Sellers' liabilities under this Agreement.
"Credit and Collection Policy" means (a) so long as Parent or an affiliate
is the Servicer, Sellers' credit and collection policies and practices relating
to Accounts from time to time in effect' as disclosed to and approved by
Purchaser and (b) after a Servicer Transfer Event with respect to Parent and its
affiliate as Servicer, such credit and collection policies and practices of the
Servicer as are approved by Purchaser.
"Debit Balance" means a negative balance in Sellers' account maintained by
Purchaser hereunder.
"Eligible Accounts" of a Seller shall mean Accounts created by such Seller
which are and continue to be acceptable to Purchaser in its sole discretion
exercised reasonably and in good faith. In general, Purchaser will not consider
Accounts to be Eligible Accounts unless they meet at least the following
criteria:
(a) such Accounts arise from the actual and bona fide sale and delivery of
goods by such Seller or rendition of services by such Seller in the ordinary
course of its business which transactions are completed in accordance with all
those terms and provisions contained in any Contracts related thereto with which
such Seller must comply in order for the Account Debtor to be obligated to pay
such Accounts;
(b) such Accounts (i) are not by their teems payable more than 30 days
after the invoice date and (ii) are not, as of the applicable Purchase Date,
unpaid more than sixty (60) days after the date of the original invoice for
them;
(c) such Accounts comply with the representations and warranties contained
in Section 7.1(g), (h), and (i) of this Agreement;
(d) such Accounts do not arise from sales on consignment, guaranteed sale,
sale and return, sale on approval, or other terms under which payment by the
Account Debtor may be conditional or contingent;
(e) the chief executive office of the Account Debtor with respect to such
Accounts is located in the United States of America, or, if not so located, at
Purchaser's option, if either: (i) the Account Debtor has delivered to such
Seller an irrevocable letter of credit issued or confirmed by a bank reasonably
satisfactory to Purchaser, sufficient to cover such Account, in form and
substance reasonably satisfactory to Purchaser and, if required by Purchaser,
the original of such letter of credit has been delivered to Purchaser or
Purchaser's agent and the issuer thereof notified of the assignment of the
proceeds of such letter of credit to Purchaser, or (ii) such Account is subject
to credit insurance payable to Purchaser issued by an insurer and on terms and
in an amount reasonably acceptable to Purchaser, or (iii) such Account is
otherwise acceptable in all respects to Purchaser (subject to such purchase
price formula with respect thereto as Purchaser may determine);
(f) such Accounts do not consist of progress billings, bill and hold
invoices or retainage invoices;
2
<PAGE>
(g) the Account Debtor with respect to such Accounts has not asserted a
counterclaim, defense or dispute and does not have, and does not engage in
transactions which may give rise to, any right of setoff against such Accounts;
(h) there are no facts, events or occurrences which would impair the
validity, enforceability or collectability of such Accounts or reduce the amount
payable or delay payment thereunder;
(i) such Accounts, at the time of their purchase by Purchaser, are not
subject to any Liens except in favor of the Working Capital Lender and the
Trustee and are transferred to Purchaser free and clear of such Liens;
(j) neither the Account Debtor nor any officer or employee of the Account
Debtor with respect to such Accounts is an officer, employee or agent of or
affiliated with any Seller, Parent or Servicer directly or indirectly by virtue
of family membership, ownership, control, management or otherwise;
(k) the Account Debtors with respect to such Accounts are not any foreign
government, the United States of America, any State, political subdivision,
department, agency or instrumentality thereof, unless, if the Account Debtor is
the United States of America, any State, political subdivision, department,
agency or instrumentality thereof, the applicable Seller has complied with any
Federal, State or local law, compliance with which is required in order for
Purchaser to acquire ownership of Accounts owed by such Account Debtor,
enforceable and perfected against such Account Debtor and third parties;
(l) there are no proceedings or actions which are threatened or pending
against the Account Debtor with respect to such Accounts which might result in
any material adverse change in any such Account Debtor's financial condition;
(m) after giving effect to the purchase of such Accounts, the then Unpaid
Balance of Accounts of a single Account Debtor or its Affiliates purchased
hereunder does not exceed $2,000,000 (or $3,500,000 in the case of Accounts owed
by the New York City Board of Education);
(n) such Accounts are not owed by an Account Debtor who has Accounts
unpaid more than ninety (90) days after the date of the original invoice for
them which constitute more than fifty (50%) percent of the total Accounts of
such Account Debtor with all Sellers;
(o) such Accounts are owed by Account Debtors whose total indebtedness to
all Sellers does not exceed the credit limit with respect to such Account
Debtors as determined by Purchaser from time to time in its reasonable judgment
(but the portion of the Accounts not in excess of such credit limit may still be
deemed Eligible Accounts);
(p) such Accounts are owed by Account Debtors deemed creditworthy at all
times by Purchaser, as determined in good faith by Purchaser; and
(q) the purchase of such Accounts by Purchaser hereunder does not violate
or conflict with any Contract or applicable law.
3
<PAGE>
General criteria for Eligible Accounts may be established and revised from
time to time by Purchaser in its sole discretion. Purchaser shall give the
Sellers' Representative notice of any new or revised criteria as promptly as
practicable after establishing or revising such criteria.
"Event of Bankruptcy" means any event described in Section 9.1(f) or (g)
hereof.
"Event of Termination" has the meaning given to such term in Section 9.1
hereof.
"Excess Collections" means, with respect to an Account purchased
hereunder, the amount, if any, by which the cumulative Collections in respect of
such Account after the Purchase Date therefor exceeds the portion of the
Purchase Price therefor credited to Sellers' account on the Purchase Date.
"Indenture" means the Indenture dated as of February 4, 1997, among
Parent, the subsidiaries of Parent as guarantors, and The Bank of New York, as
Trustee for the holders of the Senior Notes, as amended by the First
Supplemental Indenture thereto dated as of August 14, 1997, the Second
Supplemental Indenture thereto dated as of December 12, 1997, the Third
Supplemental Indenture thereto dated as of October 28, 1998 and the Fourth
Supplemental Indenture thereto dated as of April 28, 1999, pursuant to which
Parent issued the Senior Notes, as the same may be further amended, modified,
supplemented, extended, renewed, restated or replaced.
"Initial Closing Date" means the first Purchase Date hereunder.
"Liens" means, any lien (statutory or other), security interest,
assignment, mortgage, charge, pledge, hypothecation, deposit arrangement,
encumbrance or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any conditional sale or
other title retention agreement, any financing lease involving substantially the
same economic effect as any of the foregoing, and the filing of any financing
statement under the UCC or any comparable law of any jurisdiction).
"Minimum Base Commission" has the meaning given to such term in Section
3.1 hereof.
"Net Amount" of an Account means the gross amount of such Account less (a)
sales, excise or similar taxes included in the amount thereof and (b) returns,
discounts, claims, credits, allowances and retainages of any nature at any time
issued, owing, granted, outstanding, available or claimed with respect thereto.
"Payment Account" has the meaning given to such term in Section 4.1
hereof.
"Person" or "person" means any individual, sole individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Internal Revenue Code of
1986, as amended), limited liability company, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity or
any government or any agency or instrumentality or political subdivision
thereof.
4
<PAGE>
"Prime Rate" shall mean the rate from time to time publicly announced by
First Union National Bank or its successors, as its prime rate, whether or not
such announced rate is the best rate available at such bank.
"Purchase Date" means any date on which Purchaser purchases Accounts
hereunder.
"Purchase Price" means the amount determined in accordance with Section
2.4 as the purchase price for an Account purchased hereunder.
"Related Assets" means (a) all rights to, but not any obligations under,
all related Contracts and Related Security with respect to any Accounts
purchased hereunder, (b) all books and records evidencing or otherwise relating
to any Accounts purchased hereunder, (c) all Collections in respect of, all
monies due or to become due with respect to, and other proceeds of, any Accounts
purchased hereunder or any other Related Assets, (d) all rights in respect of
Blocked Accounts and other accounts to which Collections are sent or deposited,
and all funds and investments therein; and (e) all proceeds of any of the
foregoing.
"Related Security" means, with respect to any Account purchased hereunder,
all of Sellers' right, title and interest in and to: (a) all Contracts that
relate to such Account; (b) all goods (including returned goods), if any,
relating to the sale which gave rise to such Account; (c) all other security
interests or liens and property subject thereto from time to time purporting to
secure payment of such Account, whether pursuant to the Contract related to such
Account or otherwise; (d) all UCC financing statements covering any collateral
securing payment of such Account; and (e) all guarantees and other agreements or
arrangements of whatever character from time to time supporting or securing
payment of such Account whether pursuant to the Contract related to such Account
or otherwise.
"Remaining Deferring Purchase Price" means, at any time, the Purchase
Price of an Account that has not yet been credited to Sellers' account
maintained by Purchaser hereunder.
"Sellers' Representative" means Parent or any Seller designated from time
to time as the Sellers' Representative by written notice from all of Sellers and
Parent to Purchaser and Servicer (if other than Parent or a Seller).
"Senior Notes" means Parent's 103/4% Senior Secured Notes due 2004, in
the aggregate principal amount of $150,000,000, together with any notes with
terms substantially identical thereto offered in exchange therefor pursuant to a
registration statement filed in accordance with the Registration Rights
Agreement (as defined in the Indenture).
"Service Accounts" means Accounts arising from the provision of
transportation or ancillary services by a Seller.
"Servicer" means Parent or any successor to Parent as Servicer designated
in accordance with this Agreement.
"Servicer Transfer Event" has the meaning given to such term in Section
6.2 hereof.
"Successor Notice" has the meaning given to such term in Section 6.2
hereof.
5
<PAGE>
"Solvent" has the meaning given to such term in Section 7.1(m) hereof.
"Termination Date" means the earlier of (a) October 1, 1999 or (b) the
date that the Termination Date shall occur pursuant to Section 10.1.
"Total Investment" means at any time an amount equal to (a) the aggregate
of amounts paid by Purchaser as the Purchase Price of Accounts on and after the
Initial Closing Date, minus (b) the aggregate amount of Collections received and
transferred to Purchaser's account on and after the Initial Closing Date.
"Transaction Documents" means this Agreement, any Blocked Account
agreements, any UCC financing, continuation, amendment or termination statement
fled pursuant to any of the foregoing agreements, and any and all other
instruments, certificates, agreements, reports or documents delivered to
Servicer or Purchaser by any Seller or Servicer under or in connection with any
of the foregoing agreements, as any of the foregoing may be amended,
supplemented, amended and restated, or otherwise modified from time to time.
"Trustee" means the trustee for the holders of the Senior Notes under the
Indenture.
"UCC" means the Uniform Commercial Code as from time to time in effect in
the applicable jurisdiction or jurisdictions.
"Unpaid Balance" of an Account means at any time the unpaid amount
thereof, excluding late payment charges, delinquency charges, and extension or
collection fees.
"Working Capital Facility" means the credit facility for revolving loans
and letters of credit provided by Working Capital Lender.
"Working Capital Lender" means Congress Financial Corporation and its
successors and assigns as lender to Sellers.
6
Subsidiaries of Atlantic Express Transportation Corp.
1 Amboy Bus Co., Inc.
2 Atlantic-Chittenango Real Property Corp.
3 Atlantic-Conn Transit, Inc.
4 Atlantic Express Coachways, Inc.
5 Atlantic Express of LA, Inc.
6 Atlantic Express of Missouri, Inc.
7 Atlantic Express of New Jersey, Inc.
8 Atlantic Express of Pennsylvania, Inc.
9 Atlantic-Hudson, Inc.
10 Atlantic Medford Inc.
11 Atlantic North Casualty Company
12 Atlantic Paratrans, Inc.
13 Atlantic Paratrans of Colorado, Inc.
14 Atlantic Paratrans of Kentucky, Inc.
15 Atlantic Paratrans of Pennsylvania, Inc.
16 Block 7932, Inc.
17 Brookfield Transit, Inc.
18 Central New York Coach Sales & Service, Inc.
19 Courtesy Bus Co., Inc.
20 GVD Leasing, Inc.
21 180 Jamaica Corp.
22 Jersey Bus Sales, Inc.
23 Jersey Business Land Co., Inc.
24 K Corr, Inc.
25 Merit Transportation Corp.
26 Metro Affiliates, Inc.
27 Metropolitan Escort Service, Inc.
28 Midway Leasing, Inc.
29 Raybern Bus Service, Inc.
30 Raybern Capital Corp.
31 Raybern Equity Corp.
32 Staten Island Bus, Inc.
33 Temporary Transit Service, Inc.
34 201 West Sotello Realty, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 10-K at June
30, 1999 and is qualified in its entirety by reference to such financial
statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 855,983
<SECURITIES> 9,711,380
<RECEIVABLES> 50,982,830
<ALLOWANCES> 1,640,000
<INVENTORY> 15,215,018
<CURRENT-ASSETS> 74,603,986
<PP&E> 217,139,649
<DEPRECIATION> 98,000,822
<TOTAL-ASSETS> 231,511,939
<CURRENT-LIABILITIES> 46,639,915
<BONDS> 181,332,620
0
0
<COMMON> 250,000
<OTHER-SE> 20,689,905
<TOTAL-LIABILITY-AND-EQUITY> 231,511,939
<SALES> 81,739,086
<TOTAL-REVENUES> 321,523,213
<CGS> 73,845,585
<TOTAL-COSTS> 291,507,616
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 120,000
<INTEREST-EXPENSE> 20,322,279
<INCOME-PRETAX> (2,885,686)
<INCOME-TAX> (1,848,981)
<INCOME-CONTINUING> (4,108,847)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,259,866)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
