<PAGE>
OFFER TO PURCHASE AND CONSENT SOLICITATION STATEMENT
ATLANTIC EXPRESS TRANSPORTATION CORP.
OFFER TO PURCHASE FOR CASH
UP TO $30,000,000 OF ITS OUTSTANDING
10 3/4% SENIOR SECURED NOTES DUE 2004
AND
SOLICITATION OF CONSENTS IN RESPECT THEREOF
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THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER 21, 2000,
UNLESS EXTENDED (THE "EXPIRATION DATE"). THE SOLICITATION WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON THE CONSENT DATE (AS DEFINED HEREIN). TENDERED
SECURITIES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE.
CONSENTS MAY BE REVOKED AT ANY TIME ON OR PRIOR TO THE CONSENT DATE.
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Atlantic Express Transportation Corp., a New York corporation (the
"COMPANY"), hereby offers, upon the terms and subject to the conditions set
forth in this Offer to Purchase and Consent Solicitation Statement (this
"STATEMENT") and in the related Consent and Letter of Transmittal (the
"CONSENT AND LETTER OF TRANSMITTAL" and, together with this Statement, the
"OFFER"), to purchase for cash up to $30,000,000 aggregate principal amount of
its outstanding 10 3/4% Senior Secured Notes due 2004 (CUSIP No. 04853 EA C3)
(the "SECURITIES") for $1,000 in cash per $1,000 face amount of Securities
validly tendered (and not withdrawn) on or prior to the Expiration Date (the
"PURCHASE PRICE"), plus interest at the per annum rate of 10 3/4%, from and
including August 1, 2000, up to, but not including, the Acceptance Date (as
defined herein) (the "INTEREST" and, together with the Purchase Price, the
"TENDER PAYMENT"). The aggregate principal amount of all Securities
outstanding as of the date of the Offer is $150,000,000. In addition, in
connection with the Solicitation (as defined herein) of Consents (as defined
herein) the Company will pay a consent fee of $5 for each $1,000 in principal
amount of Securities (the "CONSENT PAYMENT") as to which Consents have been
validly delivered (and not revoked) on or prior to the Consent Date (as
defined herein).
THE OFFER, PAYMENT OF THE TENDER PAYMENT AND PAYMENT OF THE CONSENT
PAYMENT ARE CONDITIONED UPON, AMONG OTHER THINGS, THE SATISFACTION OF THE
CONSENT CONDITION (AS DEFINED HEREIN), THE FINANCING CONDITION (AS DEFINED
HEREIN) AND THE GENERAL CONDITIONS (AS DEFINED HEREIN).
In the event that the Company receives valid tenders greater than
$30,000,000 aggregate principal amount of Securities, the Company shall
purchase $30,000,000 of the Securities, upon the terms and subject to the
conditions of the Offer, by prorating the amount of Securities purchased from
each Holder (as defined herein), based on the ratio of the number of
Securities tendered by such Holder to the total number of Securities tendered
by all Holders. See "Terms of the Offer and the Solicitation."
THE DATE OF THIS OFFER TO PURCHASE AND CONSENT SOLICITATION STATEMENT
IS NOVEMBER 23, 2000
<PAGE>
In conjunction with the Offer, the Company (i) hereby
solicits (the "SOLICITATION") consents (the "CONSENTS") to the execution and
delivery of a supplemental indenture (the "SUPPLEMENTAL INDENTURE") that would
have the effect of amending the Indenture pursuant to which the Securities
were issued (collectively, the "PROPOSALS") and (ii) subject to the terms and
conditions set forth in the Offer, hereby offers to pay the Consent Payment to
each registered holder of Securities (a "HOLDER" and, collectively, "HOLDERS")
who validly delivers (without revoking) Consents to the Proposals on or prior
to 5:00 p.m., New York City time, on the "CONSENT DATE," which means the
earlier of (x) the first business day on which the Company receives Consents
from the Holders of at least a majority of the Outstanding Amount (as defined
herein) of the Securities then Outstanding (as defined herein) (the "REQUISITE
CONSENTS") and certifies to the Trustee that such Requisite Consents have been
obtained or (y) December 21, 2000, unless terminated or extended by the
Company in its sole discretion.
Holders who tender their Securities in the Offer must
deliver a corresponding Consent to the Proposals. The completion, execution
and delivery of a Consent and Letter of Transmittal by a Holder tendering
Securities pursuant to the Offer will be deemed to constitute the Consent of
such tendering Holder to the Proposals with respect to such Securities. If a
Holder's (i) Securities are not validly tendered and the related Consents are
not validly delivered or (ii) Consents without related tenders are not validly
delivered, in each case, pursuant to the Offer and the Solicitation on or
prior to the Consent Date, or such Holder's (x) Securities are withdrawn and
related Consents are revoked and not properly retendered and redelivered or
(y) Consents without related tenders are revoked and not properly redelivered,
in each case, on or prior to the Consent Date, such Holder will not receive a
Consent Payment even though the Proposals may be effective as to each of such
Holder's Securities that are not purchased. Holders who desire to deliver
Consents pursuant to the Solicitation without tendering some or all of their
Securities are required to deliver (and not revoke) their Consents with
respect to such Securities to the Depositary on or prior to the Consent Date.
The Company will pay, if the Requisite Consents (as defined
herein) have been received by the Company and all other conditions to the
Offer have been met, (i) the Tender Payment to Holders who validly tender (and
do not withdraw) Securities on or prior to the Expiration Date, subject to
proration if the Offer is oversubscribed, and (ii) the Consent Payment to
Holders who validly deliver their Consents (and do not revoke such delivery)
on or prior to the Consent Date, even if validly tendered Securities of any
such Holder are not accepted for payment by the Company due to proration or
otherwise. If the Expiration Date is extended, Holders who validly tender
their Securities after the Consent Date (and do not validly withdraw such
tender) will be entitled to receive only the Tender Payment, subject to
proration if the Offer is oversubscribed. Payment of the Tender Payment or the
Consent Payment, as the case may be, shall be made promptly (the "PAYMENT
DATE") following the date that the Company accepts for payment (i) in the case
of Tender Payments, all Securities that are validly tendered (and not
withdrawn) on or prior to the Expiration Date, subject to proration if the
Offer is oversubscribed, or (ii) in the case of Consent Payments, all Consents
that are validly delivered (and not revoked) on or prior to the Consent Date
(in each case, the date of such acceptance being hereinafter referred to as
the "ACCEPTANCE DATE"); PROVIDED THAT, Holders whose validly tendered
Securities are not accepted for Tender Payment due to proration or otherwise
shall be entitled to a Consent Payment for their related Consents.
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IN THE EVENT THAT THE OFFER AND THE SOLICITATION ARE
WITHDRAWN OR ARE OTHERWISE NOT CONSUMMATED, NEITHER THE TENDER PAYMENT NOR THE
CONSENT PAYMENT WILL BE PAID OR BECOME PAYABLE TO HOLDERS WHO HAVE TENDERED
THEIR SECURITIES AND DELIVERED THEIR CONSENTS IN CONNECTION WITH THE OFFER AND
THE SOLICITATION. SEE "CONDITIONS TO THE OFFER AND SOLICITATION."
CERTAIN OFFER AND SOLICITATION MATTERS
In connection with the Offer and the Solicitation, the
Company proposes to receive a capital contribution (the "Contribution") from
its parent, Atlantic Express Transportation Group, Inc. ("AETG") of (i) all of
the issued and outstanding shares of capital stock of Atlantic Transit, Corp.
("ATC") and (ii) $10.0 million of additional equity. ATC and its subsidiaries
are engaged in the school bus transportation and related businesses similar to
those of the Company and are principally active in the states of Arizona,
California, Illinois, Massachusetts, New Jersey, New York, South Carolina and
Vermont. ATC is currently a wholly-owned subsidiary of AETG. ATC and its
subsidiaries are not currently required to be and are not parties to the
Indenture under which the Securities were issued and are not currently
required to be and are not guarantors ("GUARANTORS") of the Securities. As a
result of the Contribution, ATC and its subsidiaries (i) would become
subsidiaries of the Company and (ii) would also become Guarantors of the
Securities. In addition, the stock of ATC and its subsidiaries would be
pledged to secure the Securities. In connection with the Contribution, the
Company proposes to establish a new $125.0 million credit facility (the "New
Credit Facility") and to repay all of the debt currently outstanding under (i)
the Company's existing $30.0 million credit facility (the "REVOLVING CREDIT
FACILITY") and (ii) ATC's existing credit facility, both of which would be
terminated. The Contribution and the related transactions, including the
consummation of the New Credit Facility and initial borrowings thereunder to
repay existing credit facilities and to fund the Tender Payment and the
Consent Payment, are hereinafter referred to as the "Financing."
The New Credit Facility would be secured by first priority
security interests in all present and future assets of the Company, including
all accounts, general intangibles, contract rights, inventory, equipment,
vehicles, fixtures and real property, except for the stock of the Company's
direct and indirect subsidiaries which are required to be pledged to secure
the Securities. As required by the Indenture, the Securities would be secured
by a second priority security interest in the same collateral that secures the
New Credit Facility.
The Company reserves the right to acquire such untendered
Securities or Securities not otherwise accepted for repayment in the Offer due
to proration or otherwise, from time to time in the future through open market
purchases, privately negotiated transactions, tender offers, exchange offers
or otherwise, upon such terms and at such prices as it may determine. See
"Purpose of the Offer and the Solicitation." The Company's obligation to
accept Securities for payment is conditioned on the consummation of the
Financing, other important conditions and, if the Offer is oversubscribed,
proration. See "The New Credit Facility," and "Conditions to the Offer and the
Solicitation."
The Securities are governed by the Indenture (the
"INDENTURE"), dated February 4, 1997, as amended on August 14, 1997, December
12, 1997, October 28, 1998 and October 29,
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1999, among the Company, the Guarantors named therein, and The Bank of New
York, as trustee (the "TRUSTEE"). In order to provide the Company with
financial and operational flexibility, the Supplemental Indenture would, if
the Offer is consummated, eliminate, add or amend certain covenants and other
provisions in the Indenture. See "Certain Considerations," "The Proposals" and
Annex A.
The Company and the Trustee intend to execute the
Supplemental Indenture on or promptly following the Consent Date, subject to
having received Consents from the Holders of at least a majority of the
Outstanding Amount (as defined herein) of the Securities then Outstanding (as
defined herein) (the "REQUISITE CONSENTS"). The Proposals set forth in the
Supplemental Indenture will not become effective until the requisite amount of
validly tendered Securities are accepted for payment by the Company on the
Acceptance Date. In such event, the Proposals will be deemed effective as of
the time immediately prior to such acceptance for payment, and the Company
will thereafter be obligated to make all payments on the Payment Date for (i)
Securities validly tendered and related Consents delivered, subject to
proration if the Offer is oversubscribed, and (ii) Consents validly delivered
without related tenders; PROVIDED THAT, the Company shall be obligated to make
Consent Payments for all Securities validly tendered that are not accepted for
tender by the Company due to proration or otherwise. In accordance with the
Indenture, no Consent may be revoked once the Supplemental Indenture has been
executed. The delivery of a Consent by a Holder is a consent to all of the
Proposals. See "Certain Considerations," "The Proposals" and Annex A.
In determining whether the Requisite Consents have been
received, the term "Outstanding Amount" means $150,000,000, which was the
principal amount of the Securities outstanding on November 22, 2000 (the
"RECORD DATE"). In addition, the term "Outstanding" means, as of the date of
determination, all Securities authenticated and delivered under the Indenture,
except (i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation and (ii) Securities replaced, paid or repurchased
pursuant to the Indenture, unless the Trustee receives proof satisfactory to
it that the replaced, paid or repurchased Security is held by, in each case, a
bona fide purchaser; PROVIDED, HOWEVER, that in determining whether the
Requisite Consents have been received and the Consent Condition has been
satisfied, Securities owned by the Company or any subsidiary or affiliate of
the Company shall be disregarded and deemed not to be Outstanding.
HOLDERS WHO DESIRE TO TENDER SECURITIES AND DELIVER CONSENTS
PURSUANT TO THE OFFER AND THE SOLICITATION AND RECEIVE THE TENDER PAYMENT AND
CONSENT PAYMENT ARE REQUIRED TO TENDER (AND NOT WITHDRAW) THEIR SECURITIES AND
DELIVER (AND NOT REVOKE) THEIR CONSENTS TO THE BANK OF NEW YORK, AS DEPOSITARY
(THE "DEPOSITARY") ON OR PRIOR TO THE CONSENT DATE. HOLDERS WHO DESIRE TO
DELIVER CONSENTS PURSUANT TO THE SOLICITATION WITHOUT TENDERING SOME OR ALL OF
THEIR SECURITIES ARE REQUIRED TO DELIVER (AND NOT REVOKE) THEIR CONSENTS WITH
RESPECT TO SUCH SECURITIES TO THE DEPOSITARY ON OR PRIOR TO THE CONSENT DATE.
THE COMPLETION, EXECUTION AND DELIVERY OF THE CONSENT AND LETTER OF
TRANSMITTAL BY A HOLDER IN CONNECTION WITH THE OFFER WILL BE DEEMED TO
CONSTITUTE THE CONSENT OF THE TENDERING HOLDER TO THE PROPOSALS. HOLDERS MAY
NOT TENDER SECURITIES WITHOUT DELIVERING THE RELATED CONSENTS, THOUGH HOLDERS
MAY DELIVER CONSENTS WITHOUT TENDERING THE RELATED SECURITIES. TENDERED
SECURITIES CANNOT BE WITHDRAWN AT ANY TIME SUBSEQUENT TO THE
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EXPIRATION DATE AND DELIVERED CONSENTS CANNOT BE REVOKED AT ANY TIME
SUBSEQUENT TO THE CONSENT DATE. EVEN IF THE EXPIRATION DATE IS EXTENDED,
HOLDERS WHO VALIDLY TENDER THEIR SECURITIES SUBSEQUENT TO THE CONSENT DATE AND
ON OR PRIOR TO THE EXPIRATION DATE WILL RECEIVE THE TENDER PAYMENT, BUT WILL
NOT BE ENTITLED TO RECEIVE THE CONSENT PAYMENT.
IF THE REQUISITE CONSENTS ARE RECEIVED AND THE OFFER IS
CONSUMMATED, THE PROPOSALS WILL BE BINDING ON ALL NON-TENDERING AND
NON-CONSENTING HOLDERS. THEREFORE, CONSUMMATION OF THE OFFER AND ADOPTION OF
THE PROPOSALS MAY HAVE ADVERSE CONSEQUENCES FOR HOLDERS WHO ELECT NOT TO
TENDER THEIR SECURITIES IN THE OFFER, NOT TO CONSENT TO THE SOLICITATION OR
WHOSE SECURITIES ARE NOT OTHERWISE ACCEPTED FOR PAYMENT IN THE OFFER DUE TO
PRORATION OR OTHERWISE. SEE "CERTAIN CONSIDERATIONS" AND "MARKET AND TRADING
INFORMATION." ALSO SEE "THE PROPOSALS" FOR A DESCRIPTION OF THE EFFECTS THAT
THE PROPOSALS WOULD HAVE IF ADOPTED.
If, prior to the Expiration Date, the Company increases or
decreases the percentage of Securities being sought, or increases or decreases
the Tender Payment or Consent Payment, any such changes in such percentage or
consideration would be applicable to all Holders whose Securities are accepted
for payment pursuant to the Offer or who validly deliver Consents, as the case
may be. In addition, in any of the foregoing events, if at the time notice of
any such change is first published, sent or given to Holders, the Offer or the
Solicitation is scheduled to expire at any time prior to the tenth business
day from and including the date that such notice is first published, sent or
given, the Offer or the Solicitation, as the case may be, would be extended at
least until the expiration of such ten business day period.
See "Certain Considerations" and "Certain U.S. Federal
Income Tax Consequences" for discussions of certain factors that should be
considered in evaluating the Offer and the Solicitation.
Subject to applicable securities laws and the terms set
forth in the Offer, the Company reserves the right (i) to terminate the Offer
or the Solicitation, (ii) to waive all the unsatisfied conditions to the Offer
or the Solicitation, (iii) to extend the Offer or the Solicitation, or (iv) to
amend the Offer or the Solicitation in any respect.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF THE COMPANY
OR ITS AFFILIATES NOT CONTAINED IN THIS STATEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE INFORMATION AGENT. NEITHER THE DELIVERY OF THIS
STATEMENT NOR ANY PURCHASE HEREUNDER NOR THE ACCEPTANCE OF ANY CONSENT SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE
HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN ANY ATTACHMENTS
HERETO OR IN THE AFFAIRS OF THE COMPANY OR ANY OF ITS AFFILIATES SINCE THE
DATE HEREOF.
In no event may tendered Securities be withdrawn after the
Expiration Date or delivered Consents be revoked after the Consent Date,
unless the Offer and the Solicitation are
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terminated by the Company without any Securities being purchased pursuant to
the Offer or as otherwise required by law or as provided herein.
NONE OF THE COMPANY, THE BOARD OF DIRECTORS OF THE COMPANY,
THE TRUSTEE, THE DEPOSITARY OR THE INFORMATION AGENT MAKES ANY RECOMMENDATION
AS TO WHETHER OR NOT HOLDERS SHOULD TENDER THEIR SECURITIES AND DELIVER
CONSENTS TO THE PROPOSALS. EACH HOLDER MUST MAKE HIS OR HER OWN DECISION
CONCERNING THESE MATTERS.
IMPORTANT
A Holder desiring to (i) tender Securities and deliver
Consents to the Proposals or (ii) deliver Consents to the Proposals without
tendering some or all of its Securities, in each case, should complete and
sign the Consent and Letter of Transmittal (or a copy thereof) in accordance
with the instructions (the "INSTRUCTIONS") in the Consent and Letter of
Transmittal, have the signature thereon guaranteed if required by Instruction
1 of the Consent and Letter of Transmittal and deliver it, together with any
other required documents, to the Depositary, which will act as agent for
tendering or consenting Holders, as applicable, for the purpose of receiving
payment from the Company and transmitting such payment to tendering or
consenting Holders, as applicable, at its address set forth on the back cover
of this Statement and either (i) deliver certificates representing such
Securities to the Depositary, pursuant to the procedures for physical delivery
set forth in "Procedures for Tendering Securities and Delivering Consents" or
(ii) cause such Securities to be transferred into the Depositary's account at
DTC (as defined herein) pursuant to the procedures for book-entry delivery set
forth in "Procedures for Tendering Securities and Delivering Consents," with a
Book-Entry Confirmation (as defined herein) with respect to such Securities
received by the Depositary. To be valid, among other things, tenders must be
received by the Depositary on or prior to the Expiration Date and Consents
must be received by the Depositary on or prior to the Consent Date. Any
eligible Holder who desires to tender Securities and whose Securities are not
immediately available, or who cannot complete the procedures for book-entry
transfer on a timely basis, may tender such Securities by following the
procedures for guaranteed delivery set forth in "Procedures for Tendering
Securities and Delivering Consents."
Beneficial owners whose Securities are held of record in the
name of a broker, dealer, commercial bank, trust company or other nominee must
instruct such registered Holder to tender Securities and deliver Consents on
the beneficial owner's behalf. A Letter of Instructions is included in the
materials provided along with this Statement which may be used by a beneficial
owner to instruct the registered Holder to (i) tender Securities and deliver
Consents or (ii) deliver Consents. See "Procedures for Tendering Securities
and Delivering Consents."
The Depositary and the Depository Trust Company ("DTC") have
confirmed that the Offer is eligible for the DTC Automated Tender Offer
Program ("ATOP"). Accordingly, DTC participants may electronically transmit
their acceptance of (i) the Offer (including the related Consents) or (ii) the
Solicitation (without tendering), in each case, by causing DTC to (i) transfer
Securities or (ii) deliver Consents, as applicable, to the Depositary in
accordance with DTC's ATOP procedures. DTC will then send an Agent's Message
(as defined in "PROCEDURES FOR TENDERING SECURITIES AND DELIVERING CONSENTS")
to the Depositary. Alternatively, pursuant to authority granted by DTC, any
DTC participant that has Securities credited to its DTC account at
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any time (and thereby held of record by DTC's nominee) may directly provide
(i) its acceptance of the Offer and a Consent to the Proposals or (ii) its
Consent to the Proposals, as applicable, as though it were the registered
Holder by so completing, executing and delivering the Consent and Letter of
Transmittal. See "Procedures for Tendering Securities and Delivering
Consents."
THIS STATEMENT AND THE CONSENT AND LETTER OF TRANSMITTAL
CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER OR THE SOLICITATION.
THIS STATEMENT CONSTITUTES NEITHER AN OFFER TO PURCHASE
SECURITIES NOR A SOLICITATION OF CONSENTS IN ANY JURISDICTION IN WHICH, OR TO
OR FROM ANY PERSON TO OR FROM WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION UNDER APPLICABLE SECURITIES OR BLUE SKY LAWS. THE OFFER AND THE
SOLICITATION MADE HEREBY ARE NOT BEING MADE TO, AND NO SECURITIES OR CONSENTS
ARE BEING SOLICITED FROM, HOLDERS OF SECURITIES IN ANY JURISDICTION IN WHICH
IT IS UNLAWFUL TO MAKE SUCH SOLICITATION OR GRANT SUCH CONSENT.
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
This Statement includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act which represent the Company's expectations or beliefs concerning
future events that involve risks and uncertainties. All statements other than
statements of historical facts included in this Statement are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. All subsequent written and
oral forward-looking statements attributable to the Company or persons acting
on its behalf are expressly qualified in their entirety by the statements and
disclosures herein to the effect that actual results may differ materially
from the Company's expectations.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY...........................................................................................................1
TRANSACTION SUMMARY...............................................................................................5
TERMS OF THE OFFER AND THE SOLICITATION...........................................................................7
CERTAIN CONSIDERATIONS...........................................................................................10
PURPOSE OF THE OFFER AND THE SOLICITATION........................................................................11
THE NEW CREDIT FACILITY..........................................................................................12
CAPITALIZATION...................................................................................................13
THE PROPOSALS....................................................................................................14
MARKET AND TRADING INFORMATION...................................................................................18
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SECURITIES; ACCEPTANCE OF AND PAYMENT FOR CONSENTS........................18
PROCEDURES FOR TENDERING SECURITIES AND DELIVERING CONSENTS......................................................19
WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS.................................................................23
SOURCE AND AMOUNT OF FUNDS.......................................................................................25
CONDITIONS TO THE OFFER AND THE SOLICITATION.....................................................................25
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES.....................................................................27
INFORMATION AGENT; DEPOSITARY; FEES AND EXPENSES.................................................................29
AVAILABLE INFORMATION............................................................................................30
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..................................................................31
MISCELLANEOUS....................................................................................................31
INDEX TO FINANCIAL STATEMENTS...................................................................................F-1
ANNEX A - PROPOSED AMENDMENTS TO THE INDENTURE..................................................................A-1
</TABLE>
vii
<PAGE>
TO THE HOLDERS OF ATLANTIC EXPRESS TRANSPORTATION CORP.
10 3/4% SENIOR SECURED NOTES DUE 2004:
This Statement and the related Consent and Letter of
Transmittal contain important information that should be read carefully before
any decision is made with respect to the Offer and the Solicitation.
SUMMARY
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE COMPLETE.
HOLDERS ARE URGED TO READ THE MORE DETAILED INFORMATION SET FORTH ELSEWHERE
AND INCORPORATED BY REFERENCE IN THIS STATEMENT. EACH OF THE CAPITALIZED TERMS
USED IN THIS SUMMARY AND NOT DEFINED HEREIN HAS THE MEANING SET FORTH
ELSEWHERE IN THIS STATEMENT.
The Company hereby offers to purchase up to $30,000,000
aggregate principal amount of its outstanding 10 3/4% Senior Secured Notes due
2004 (CUSIP No. 04853 EA C3) (the "Securities") and solicits Consents to the
Proposals to the Indenture, dated as of February 4, 1997, as amended by the
First Supplemental Indenture, dated as of August 14, 1997, the Second
Supplemental Indenture, dated as of December 12, 1997, the Third Supplemental
Indenture, dated as of October 28, 1998 and the Fourth Supplemental Indenture,
dated as of April 28, 1999 (as amended, the "Indenture"), among the Company,
the Guarantors (as defined therein) and The Bank of New York, as Trustee (the
"Trustee"). Promptly after receipt of the Requisite Consent, the Company will
cause a supplemental indenture to the Indenture (the "Supplemental Indenture")
to be executed which will give effect to the Proposals (subject to certain
conditions).
The following is a summary of certain Offer and Solicitation
terms:
Tender Payment.................................... For each $1,000 in
principal amount of
Securities, a cash payment
equal to $1,000 (the
"Purchase Price") plus
interest at the per annum
rate of 10 3/4%, from and
including August 1, 2000,
up to, but not including,
the Acceptance Date (the
"Interest" and, together
with the Purchase Price,
the "Tender Payment").
Consent Payment................................... For each $1,000 in
principal amount of
Securities, a cash
payment equal to $5
(the "Consent Payment").
No accrued interest will
be paid on the Consent
Payment.
Record Date....................................... November 22, 2000.
Expiration Date................................... The Offer will be open
until 5:00 pm, New York
City time, on December
21, 2000 unless terminated
or extended by the
Company in its sole
discretion. Holders
must validly tender their
acceptance to the
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<PAGE>
Offer on or before the
Expiration Date in order
to receive the Tender
Payment.
The Company expressly
reserves the right for
any reason (i) to
abandon, terminate or
amend the Offer at any
time prior to the
Expiration Date by giving
oral or written notice
thereof to the Depository
and (ii) not to extend
the Offer beyond the last
previously announced
Expiration Date.
Consent Date...................................... The Solicitation will
be open until 5:00 p.m.,
New York City time, on the
earlier of (i) the first
business day on which the
Company receives the
Requisite Consent and
certifies to the Trustee
that such Requisite
Consents have been
obtained, or (ii)
December 21, 2000 (such
time and date are herein
referred to as the
"Consent Date"), unless
terminated or extended by
the Company in its sole
discretion. Holders must
provide their Consents
to the Proposals on or
before the Consent Date
to be entitled to receive
the Consent Payment.
The Company expressly
reserves the right for
any reason (i) to
abandon, terminate or
amend the Solicitation at
any time prior to the
Consent Date by giving
oral or written notice
thereof to the
Information Agent and
(ii) not to extend the
Solicitation beyond the
last previously announced
Consent Date.
Eligibility for Tender Payment.................... Holders whose tenders are
properly received (and
not withdrawn) on or
before the Expiration Date
will be eligible to
receive the Tender Payment
promptly after the
consummation of the
Financing if the
conditions for payment
described herein shall
have been satisfied
or waived, subject to
proration. Any subsequent
transferees of Securities
of such Holders, and any
Holders who do not timely
make (or who withdraw) a
valid tender (and their
transferees), will not be
entitled to receive the
Tender Payment.
Eligibility for Consent Payment................... Holders whose Consents
are properly received (and
not revoked) on or before
the Consent Date will be
eligible to receive the
Consent Payment promptly
after the consummation of
the Financing if the
conditions for payment
described herein shall
have
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<PAGE>
been satisfied or waived.
Any subsequent transferees
of Securities of such
Holders, and any Holders
who do not timely grant
(or who revoke) a valid
Consent (and their
transferees), will not be
entitled to receive the
Consent Payment even if
the Proposals become
effective with respect to
the Securities held
thereby and, as a result,
become binding thereon.
Requisite Consent................................. Holders must grant (and
not revoke) valid Consents
in respect of a majority
in aggregate principal
amount of all Outstanding
Securities to approve the
Proposals. As of the date
of this Statement, the
aggregate outstanding
principal amount of the
Securities was
$150,000,000 million.
Conditions to the Offer and
the Solicitation ................................. The Offer, payment of the
Tender Payment and payment
of the Consent Payment are
conditioned upon, among
other things, (i) receipt
of the Requisite Consents
from the Holders with
respect to the Proposals
and execution of the
Supplemental Indenture
(the "Consent Condition"),
(ii) receipt of the
Contribution and
completion of the related
transactions, including
the consummation of the
New Credit Facility and
initial borrowings
thereunder to repay
existing credit facilities
and to fund the Tender
Payment and the Consent
Payment (the "Financing
Condition") and (iii) the
General Conditions.
Proposed Amendments............................... If the Proposals become
effective, Sections
entitled "Limitation on
Acquisitions" and "Annual
Leverage Test" will be
added to the Indenture,
Sections entitled
"Limitation on Restricted
Payments," "Limitation on
Incurrence of
Indebtedness" and
"Limitation on
Transactions with
Affiliates" will be
revised, the definition of
"Revolving Credit
Facility" will be revised
and certain waivers will
be effected.
Consequences to
Non-Consenting Holders............................ If the Requisite Consent
is obtained, and the
Consent Payment is paid,
non-consenting Holders
will be bound by the
Proposals but will not be
entitled to receive the
Consent Payment.
3
<PAGE>
Additional Collateral............................. As required by the
Indenture. the Securities
would be secured by a
second priority security
interest in the same
collateral that secures
the New Credit Facility,
including all present and
future vehicles of the
Company. See "The New
Credit Facility."
Procedure for Tender of Securities
and Delivery of Consents ......................... Valid tenders and Consents
must be delivered to the
Depositary on or before
the Expiration Date and
the Consent Date, as
applicable. DTC is
expected to grant an
omnibus proxy authorizing
the DTC Participants to
tender Securities and
deliver Consents. Only
registered owners of
Securities as of the
Record Date or their duly
designated proxies,
including, for the
purposes of this Offer and
Solicitation, DTC
Participants, are eligible
to tender the Securities
and consent to the
Proposals and receive the
Tender Payment and the
Consent Payment, as
applicable. Therefore, a
beneficial owner of an
interest in Securities
held in an account of a
DTC Participant who wishes
to tender a Security or
deliver a Consent must
properly instruct such DTC
Participant to cause a
valid tender or a Consent
to be given, as
applicable, in respect of
such Securities. See
"Procedures for Tendering
Securities and Delivering
Consents."
Revocation of Tenders and Consents................ Withdrawal of tenders and
revocation of Consents may
be made at any time prior
to the Expiration Date or
Consent Date, as
applicable, but only by
the Holder that previously
made such tender or
granted such Consent (or
a duly designated proxy
of such Holder), as the
case may be. See
"Withdrawal of Tenders
and Revocation of
Consents."
U.S. Federal Income Tax Consequences.............. For a discussion of
certain U.S. federal
income tax consequences of
the Solicitation to
beneficial owners of
Securities, see "Certain
U.S. Federal Income Tax
Consequences."
4
<PAGE>
TRANSACTION SUMMARY
BACKGROUND
The Company's growth has been constrained due in part to
limited liquidity under its existing credit facility and the covenants in the
Indenture which restrict the Company's ability to incur debt and grant related
liens. As a result, the Company has been unable to pursue certain business
opportunities and instead, such opportunities have been pursued by ATC. The
Company believes that the consummation of the Financing will provide the
Company with enhanced liquidity, greater financial flexibility and additional
business opportunities.
The Company proposes to receive a capital contribution from
its parent, AETG, of (i) all of the issued of outstanding shares of capital
stock of ATC and (ii) $10.0 million of additional equity. As a result of the
Contribution, ATC and its subsidiaries (i) would become subsidiaries of the
Company and (ii) would also become Guarantors of the Securities. In addition,
the stock of ATC and its subsidiaries would be pledged to secure the
Securities. In connection with the Contribution, the Company proposes to
establish a new $125.0 million credit facility and to repay all of the debt
currently outstanding under (i) the Company's existing Revolving Credit
Facility and (ii) ATC's existing credit facility, both of which would be
terminated.
SOURCES AND USES OF FUNDS
The table below sets forth the sources and uses of funds for
the Financing assuming consummation on September 30, 2000. As part of the
Financing, AETG will contribute all of the issued and outstanding shares of
capital stock of ATC to the Company and $10.0 million of additional equity.
Proceeds from the New Credit Facility would be used to purchase Securities in
the Offer, to refinance the existing credit facilities of the Company and ATC,
to fund the Company's capital expenditures for fiscal 2001 and to pay expenses
of the Offer and Solicitation. If the Financing were consummated on September
30, 2000, the Company would have had $28.3 million of revolving credit
remaining under the New Credit Facility, subject to borrowing conditions. The
amount actually available under the New Credit Facility on the Acceptance Date
may be lower than such amount, depending upon the then outstanding balances
under the Company's existing Revolving Credit Facility and ATC's existing
credit facility, but the Company currently expects to have approximately $20
million or more available, subject to borrowing conditions, if the Acceptance
Date occurs on December 21, 2000.
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
(IN MILLIONS)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New Credit Facility...................... $ 96.7 Repay Revolving Credit Facility ..........$ 28.5
Purchase Securities in the Offer ......... 30.0
New Equity(1)............................ 34.7 Repay ATC Debt ........................... 38.2
ATC Invested Equity ...................... 24.7
Expansion Capital Expenditures............ 5.5
Fees and Expenses(2)...................... 4.5
--------- Total --------
Total Sources.......................... $ 131.4 Uses............................. $ 131.4
========= ========
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
5
<PAGE>
----------------------------
(FOOTNOTES FROM PRECEDING PAGE)
(1) Includes the contribution of $24.7 million of invested equity at ATC
plus an additional $10.0 million equity contribution.
(2) Includes the Consent Payment.
UNAUDITED SELECTED HISTORICAL AND ADJUSTED FINANCIAL INFORMATION
The table below sets forth selected unaudited historical and
adjusted financial information (a) for the Company for the twelve months ended
September 30, 2000, (b) for ATC for the twelve months ended September 30,
2000, and (c) for the combined company assuming the Financing was completed as
of September 30, 2000 in the case of balance sheet data and October 1, 1999 in
the case of statement of operations data. The information is based on
adjustments to the unaudited historical consolidated financial information of
the Company and ATC to give effect to the Financing. The adjustments are for
illustrative purposes only and reflect management's current estimate of new
business resulting from anticipated new contracts and anticipated demographic
growth during the twelve months ending September 30, 2001.
It is important that the unaudited selected historical and
adjusted financial information be read in conjunction with the Company's and
ATC's unaudited historical condensed statements of operations and balance
sheets appearing elsewhere in this Statement. The unaudited selected
historical and adjusted financial information should not be relied upon as an
indication of the results of operations or financial position that would have
been achieved if the Financing had taken place earlier or of the results of
operations or financial position of the Company after consummation of the
Financing.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------------------------------
AETC ATC COMBINED ADJUSTMENTS ADJUSTED
-------- ------ ---------- -------------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Historical EBITDA................... $ 32.6 $ 8.7 $ 41.3 $ -- $ 41.3
Adjustments......................... (3.7)(1) 1.5(2) (2.2) 3.6(3) 1.4
---------- ---------- ---------- ---------- ----------
Adjusted EBITDA..................... $ 28.9 $ 10.2 $ 39.1 $ 3.6 $ 42.6
========== ========== ========== ========== ==========
Cash Interest Expense............... $ 21.1 $ 3.5(4) $ 24.6 $ (1.0)(5) $ 23.6
Total Debt.......................... 189.7 38.2 227.9 -- 227.9
Total Debt/Adjusted EBITDA.......... 6.6x 3.7x 5.8x 5.3x
Adjusted EBITDA/Cash Interest....... 1.4x 2.9x 1.6x 1.8x
</TABLE>
-------------------
(1) EBITDA has been reduced to eliminate an extraordinary litigation
settlement and other non-recurring items.
(2) EBITDA has been increased to reflect full-year operations of acquired
subsidiaries and new contracts.
(3) Represents anticipated EBITDA on new contracts and demographic growth
for the year ending September 30, 2001.
(4) Adjusted to reflect full year of interest on debt incurred in
connection with subsidiaries purchased after October 1, 1999 and
advances made in relation to new contracts.
(5) Reflects decrease in interest expense due to difference in rates
between Senior Secured Notes and New Credit Facility and reduction in
interest expense assuming no additional sales of accounts receivable.
6
<PAGE>
TERMS OF THE OFFER AND THE SOLICITATION
The Company will pay the Tender Payment for Securities
validly tendered (and not withdrawn) pursuant to the Offer on or prior to the
Expiration Date and the Company will pay the Consent Payment for Consents
validly delivered (and not revoked) pursuant to the Solicitation on or prior
to the Consent Date.
Upon the terms and subject to the conditions of the Offer
(including the terms and conditions of any extension or amendment of the
Offer), including the prior execution of the Supplemental Indenture, the
Company will accept for payment on the Acceptance Date up to $30,000,000 of
the Securities that are validly tendered (and not withdrawn) on or prior to
the Expiration Date. Payments for Securities and Consents will be made on the
Payment Date. Each tendering Holder whose Securities are accepted for payment
pursuant to the Offer will receive the same consideration therefor, per $1,000
principal amount thereof plus interest, as all other Holders of the Securities
whose tenders thereof are so accepted; provided that, that any Holder who
validly tenders Securities subsequent to the Consent Date will not be entitled
to receive the Consent Payment.
The Company will purchase up to $30,000,000 of the
Securities validly tendered on or prior to the Expiration Date and not
properly withdrawn, upon the terms and subject to the conditions of the Offer.
All Securities not purchased pursuant to the Offer, including Securities not
purchased because of proration, will be returned to the tendering Holders at
the Company's expense, as promptly as practicable following the Expiration
Date.
If the aggregate principal amount of the Securities validly
tendered and not withdrawn on or prior to the Expiration Date is greater than
or equal to $30,000,000, the Company will, upon the terms and subject to the
conditions of the Offer, purchase $30,000,000 of the Securities so tendered.
In the event that proration of tendered Securities is
required, the Company will determine the final proration factor as promptly as
practicable after the Expiration Date. Proration for each Holder tendering
Securities shall be based on the ratio of the number of Securities tendered by
such Holder to the total number of Securities tendered by all Holders. This
ratio will be applied to Holders tendering Securities to determine the number
of Securities that will be purchased from each such Holder pursuant to the
Offer. Although the Company does not expect to be able to announce the final
results of such proration until approximately five business days after the
Expiration Date, it will announce preliminary results of proration by press
release as promptly as practicable after the Expiration Date. Holders can
obtain such preliminary information from the Information Agent and may be able
to obtain such information from their brokers.
As described in the Section entitled "Certain U.S. Federal
Income Tax Consequences," the number of Securities that the Company will
purchase from a Holder may affect the United States federal income tax
consequences to such Holder of such purchase and therefore may be relevant to
a Holder's decision whether to tender Securities. The Consent and
7
<PAGE>
Letter of Transmittal affords each tendering shareholder the opportunity to
designate the order of priority in which Securities tendered are to be
purchased in the event of proration.
This Offer will be mailed to holders of record of Securities
on the Record Date and will be furnished to brokers, banks and similar persons
whose names, or the names of whose nominees, appear on the Company's list of
Holders or, if applicable, who are listed as participants in a clearing
agency's security position listing for subsequent transmittal to beneficial
owners of Securities.
Upon the terms and subject to the conditions of the
Solicitation (including, if the Solicitation is extended or amended, the terms
and conditions of any such extension or amendment), the Company is also
soliciting Consents from Holders with respect to the Proposals. Holders who
desire to receive the Tender Payment and Consent Payment are required to
tender (and not withdraw) their Securities AND deliver their consents to the
Proposals ON OR PRIOR TO THE EARLIER, IF APPLICABLE, OF THE EXPIRATION DATE OR
THE CONSENT DATE. Holders who do not desire to receive the Tender Payment and
only desire to receive the Consent Payment for some or all of their Securities
are required to deliver their Consents to the Proposals on or prior to the
Consent Date. The completion, execution and delivery of the Consent and Letter
of Transmittal by a Holder in connection with the Offer and the Solicitation
will be deemed to constitute the consent of the tendering Holder to the
Proposals. Holders may not tender Securities without delivering the related
Consents, though Holders may deliver Consents without tendering the related
Securities. Tendered Securities cannot be withdrawn at any time subsequent to
the Expiration Date and delivered Consents cannot be revoked at any time
subsequent to the Consent Date. If the Expiration Date is extended, Holders
who validly tender their Securities and deliver Consents subsequent to the
Consent Date, and on or prior to the Expiration Date, will receive the Tender
Payment but will not be entitled to receive the Consent Payment.
The Proposals require the receipt of the Requisite Consents,
defined as Consents to the Proposals from the Holders of at least a majority
of the Outstanding Amount. In such event, the Proposals will be deemed
effective as of the time immediately prior to such acceptance for payment, and
the Company will thereafter be obligated on the Payment Date to make all
payments for (i) Securities validly tendered, subject to proration if the
Offer is oversubscribed, and (ii) Consents validly delivered without related
tenders; PROVIDED THAT, the Company shall also be obligated to make Consent
Payments on all validly tendered Securities that are not accepted for Tender
Payment by the Company due to proration or otherwise. The delivery of a
Consent by a Holder is a consent to all of the Proposals. See "Certain
Considerations," "The Proposals" and Annex A.
If the Requisite Consents are received and the Offer is
consummated, the Proposals will be binding on all non-tendering and
non-consenting Holders. Therefore, consummation of the Offer and the
Solicitation and adoption of the Proposals may have material adverse
consequences for Holders who elect not to tender their Securities in the
Offer, who elect not to consent to the Solicitation or whose Securities are
not otherwise accepted for payment in the Offer due to proration or otherwise.
See "Certain Considerations," "Market and Trading Information" and "The
Proposals."
8
<PAGE>
If, prior to the Expiration Date, the Company increases or
decreases the percentage of Securities being sought, or increases or decreases
the Tender Payment or Consent Payment, any such changes in such percentage or
consideration would be applicable to all Holders whose Securities are accepted
for payment pursuant to the Offer or who validly delivers a Consent, as the
case may be. In addition, in any of the foregoing events, if at the time
notice of any such change is first published, sent or given to Holders, the
Offer or the Solicitation is scheduled to expire at any time prior to the
tenth business day from and including the date that such notice is first
published, sent or given, the Offer or the Solicitation, as the case may be,
would be extended at least until the expiration of such ten business day
period.
The Offer and the Solicitation are conditioned upon, among
other things, the satisfaction of the Consent Condition, the Financing
Condition and the General Conditions. See "Conditions to the Offer and the
Solicitation." If any condition to the Offer and the Solicitation is not
satisfied or waived by the Company on or prior to the Expiration Date, the
Company reserves the right (but shall not be obligated), subject to applicable
law, (i) to terminate the Offer and the Solicitation and not accept for
payment and purchase the tendered Securities and return all tendered
Securities to tendering Holders, (ii) to waive all the unsatisfied conditions
and accept for payment and purchase all Securities that are validly tendered
prior to the Expiration Date (and not validly withdrawn), (iii) to extend the
Offer and the Solicitation and, subject to the right, if applicable, of
Holders to withdraw Securities as provided in "Withdrawal of Tenders and
Revocation of Consents," retain the Securities that have been tendered during
the period or periods for which the Offer and the Solicitation are extended or
(iv) to amend the Offer and the Solicitation. See "Conditions to the Offer and
the Solicitation."
The Company expressly reserves the right, at any time or
from time to time, regardless of whether or not any of the events set forth in
"Conditions to the Offer and the Solicitation" shall have occurred or shall
have been determined by the Company to have occurred, subject to applicable
law, (i) to extend the period of time during which the Offer and the
Solicitation are open and thereby delay acceptance for payment of, and the
payment for, any of the Securities, by giving oral (promptly confirmed in
writing) or written notice of such extension to the Depositary and (ii) to
amend the Offer and the Solicitation in any respect by giving oral (promptly
confirmed in writing) or written notice of such amendment to the Depositary.
The rights reserved by the Company in this paragraph are in addition to the
Company's rights to terminate the Offer and the Solicitation as described in
"Conditions to the Offer and the Solicitation."
There can be no assurance that the Company will exercise its
right to extend the Offer or the Solicitation. Any extension, waiver,
amendment or termination will be followed as promptly as practicable by public
announcement thereof, with the announcement in the case of an extension to be
issued no later than 9:00 a.m., New York City time, on the first business day
after the previously scheduled Expiration Date. Without limiting the manner in
which the Company may choose to make any public announcement, the Company
shall have no obligation to publish, advertise or otherwise communicate any
such public announcement other than by issuing a release to the Dow Jones News
Service.
If the Company extends the Offer or if, for any reason, the
acceptance for payment of, or the payment for (whether before or after the
Company's acceptance for payment
9
<PAGE>
of Securities), Securities is delayed or if the Company is unable to accept
for payment or pay for Securities pursuant to the Offer, then, without
prejudice to the Company's rights under the Offer, the Depositary may retain
tendered Securities on behalf of the Company, and such Securities may not be
withdrawn except to the extent tendering Holders are entitled to withdrawal
rights as described in "Withdrawal of Tenders and Revocation of Consents."
However, the ability of the Company to delay the payment for Securities that
the Company has accepted for payment is limited by Rule 14e-1(c) under the
Exchange Act, which requires that a bidder pay the consideration offered or
return the securities deposited by or on behalf of holders of securities
promptly after the termination or withdrawal of such bidder's offer.
Each tendering Holder whose Securities are accepted for
payment pursuant to the Offer will receive the same consideration therefor,
per $1,000 principal amount thereof plus Interest, as all other Holders whose
tenders thereof are so accepted; provided that, that even if the Expiration
Date is extended, any Holder who validly tenders Securities subsequent to the
Consent Date will not be entitled to receive the Consent Payment. In addition,
if the Offer or the Solicitation is amended on or prior to the Expiration Date
in a manner determined by the Company to constitute a material adverse change
to Holders, the Company will promptly disclose such amendment and, if
necessary, extend the Offer or the Solicitation for a period deemed by the
Company to be adequate to permit Holders to tender or withdraw tendered
Securities and deliver or revoke their Consents. See "Withdrawal of Tenders
and Revocation of Consents."
CERTAIN CONSIDERATIONS
In deciding whether to participate in the Offer and the
Solicitation, each Holder should consider carefully, in addition to the other
information contained herein, the following:
CONSENT PAYMENT
On the Payment Date, the Company will pay (i) each tendering
Holder who validly consented to the Proposals and (ii) each Holder who validly
delivered Consents without tendering the related Securities, in each case, on
or prior to the Consent Date, a Consent Payment equal to 0.5% of the principal
amount ($5 per $1,000 in principal amount) of such Holder's Securities for
which Consents have been validly delivered and not validly revoked on or prior
to the Consent Date. If a Holder's Securities are not validly tendered and the
corresponding Consents are not validly delivered pursuant to the Offer and the
Solicitation on or prior to the Consent Date, or such Holder's Securities and
Consents are withdrawn and revoked and not properly retendered and redelivered
on or prior to the Consent Date, such Holder will not receive a Consent
Payment even though the Proposals will, if the Offer is consummated, be
effective as to such Holder's Securities that are not purchased in the Offer
or as to which Consents were not granted. If a Holder's Consents are not
validly delivered pursuant to the Solicitation on or prior to the Consent
Date, or such Holder's Consents are revoked and not properly redelivered on or
prior to the Consent Date, such Holder will not be entitled to receive a
Consent Payment even though the Proposals will, if the Offer is consummated,
be effective as to such Holder's Consents that are not validly delivered
pursuant to the Solicitation.
10
<PAGE>
EFFECTS OF THE PROPOSALS
Securities not purchased pursuant to the Offer will remain
outstanding. If the Offer is consummated, certain covenants and provisions
contained in the Indenture will be eliminated (or, in certain cases, added or
amended) and will be binding on all Securities which remain outstanding.
MARKET AND TRADING INFORMATION
Depending on, among other things, the amount of Securities
that remains outstanding after the Offer, the liquidity, market value and
price volatility of such Securities may be adversely affected by the
consummation of the Offer and the Solicitation. See "Market and Trading
Information."
From time to time in the future, the Company or its
affiliates may acquire Securities that remain Outstanding, whether or not the
Offer is consummated, through open market purchases, privately negotiated
transactions, tender offers, exchange offers or otherwise, upon such terms and
at such prices as they may determine, which may be more or less than the sum
of the Tender Payment and Consent Payment and could be for cash or other
consideration. There can be no assurance as to which, if any, of these
alternatives (or combinations thereof) the Company or its affiliates will
pursue.
CERTAIN TERMS OF THE SECURITIES
As of the date of the Offer, the aggregate principal amount
of all Securities outstanding is $150,000,000. The Securities are not
redeemable at the option of the Company until February 1, 2001, at which date
the Securities are redeemable in whole or in part at an initial redemption
price of 105.375% (declining annually as set forth in the Indenture) of the
principal amount thereof, plus accrued and unpaid interest thereon to the
applicable redemption date.
PURPOSE OF THE OFFER AND THE SOLICITATION
The principal purpose of the Offer is to acquire up to
$30,000,000 aggregate principal amount of the Outstanding Securities. The
purpose of the Solicitation is to allow the Company to consummate the
Financing.
Under Section 4.7(a) of the Indenture, the Company is
prohibited from purchasing, redeeming or otherwise acquiring or retiring for
value any "Equity Interests" of the Company, any "Subsidiary" or any other
"Affiliate" of the Company (each as defined in the Indenture). To the extent
the Financing, and in particular the Contribution, might be deemed to come
within the restrictions of Section 4.7 of the Indenture, the Company is
requesting a waiver of compliance with this covenant in connection with the
consummation of the Financing.
Under Section 4.9(b) of the Indenture, the Company is
permitted to incur indebtedness under the Revolving Credit Facility in an
amount not to exceed $30.0 million without regard to the Interest Coverage
Ratio (as defined in the Indenture) requirements set forth in Section 4.9(a).
The New Credit Facility would provide the Company with a maximum of
11
<PAGE>
$125.0 million of borrowings, subject to borrowing conditions. As a result of
the New Credit Facility, the Company proposes to amend Section 4.9(b) and
related provisions of the Indenture to increase the amount of debt that may be
incurred without regard to the Interest Coverage Ratio to $125.0 million from
$30.0 million.
Under Section 4.11 of the Indenture, the Company is
prohibited from, among other things, entering into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (as defined in the Indenture, an "Affiliate Transaction"), subject
to certain exceptions. One relevant exception permits the Company to engage
in Affiliate Transactions involving $5.0 million or more if, among other
things, the Company delivers to the Trustee an opinion as to the fairness of
such transaction to the Company from a financial point of view issued by an
investment bank of national standing. The Company will not be obtaining such
an opinion in connection with the Financing. To the extent the Financing, and
in particular the Contribution, might be deemed to constitute an Affiliate
Transaction under the Indenture, the Company is requesting a waiver of
compliance with this covenant in connection with the consummation of the
Financing.
THE NEW CREDIT FACILITY
The Offer and the Solicitation are part of a proposal to
establish the New Credit Facility and to repay all of the debt currently
outstanding under (i) the Revolving Credit Facility and (ii) ATC's existing
credit facility, both of which would be terminated. As of September 30, 2000,
there was a total of approximately $66.7 million outstanding under the
Revolving Credit Facility and ATC's existing credit facility. Borrowings under
the New Credit Facility would also be used to fund the Tender Payment and the
Consent Payment, as well as expenses of the Offer and Solicitation. The
remaining portion of the New Credit Facility is expected to be available
subject to borrowing conditions.
As proposed, the New Credit Facility would consist of a
$125.0 million revolving credit facility. The New Credit Facility would be
secured by first priority security interests in all present and future assets
of the Company, including all accounts, general intangibles, contract rights,
inventory, equipment, vehicles, fixtures and real property, except for the
stock of the Company's direct and indirect subsidiaries which are required to
be pledged to secure the Securities. As required by the Indenture, the
Securities would be secured by a second priority security interest in the same
collateral.
There can be no assurance that the Company will be able to
enter into the New Credit Facility as currently contemplated.
The execution of the New Credit Facility is subject to
customary conditions, completion of the Contribution, receipt of the Requisite
Consents by the Company and the execution of the Supplemental Indenture. The
New Credit Facility is expected to close no later than December 21, 2000. No
assurance can be given that these conditions will be met and that the New
Credit Facility will be executed.
12
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated
capitalization of the Company as of September 30, 2000, and such
capitalization as adjusted to give pro forma effect to the Financing, as if it
had occurred on September 30, 2000.
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
---------------------------------------------
HISTORICAL AS ADJUSTED
------------------- ---------------------
(IN MILLIONS)
<S> <C> <C>
Total Debt:
Credit Facility(1).................................. $ 28.5 $ 96.7
10 3/4% Senior Secured Notes due 2004(2)............ 150.0 120.0
Other debt.......................................... 11.2 11.2
----------------- -----------------
Total Debt...................................... $ 189.7 $ 227.9
================= =================
Invested Equity.......................................... $ 75.9 $ 110.6
================= =================
</TABLE>
-----------
(1) Up to $125.0 million will be available to the Company, subject to
borrowing conditions.
(2) Assumes that $30.0 million principal amount of outstanding Securities
are tendered and accepted in the Offer.
13
<PAGE>
THE PROPOSALS
THE FOLLOWING STATEMENTS ARE SUMMARIES OF THE SUBSTANCE OR
GENERAL EFFECT OF CERTAIN PROVISIONS OF THE INDENTURE, AND THE PROPOSALS AND
ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE INDENTURE AND ANNEX A TO
THIS STATEMENT, WHICH ARE INCORPORATED BY REFERENCE HEREIN. IN ADDITION TO THE
AMENDMENTS DESCRIBED BELOW, CERTAIN CONFORMING AND RELATED CHANGES WOULD BE
MADE TO THE INDENTURE AS MAY BE APPROPRIATE TO IMPLEMENT THE PROPOSALS. COPIES
OF THE INDENTURE AND SUPPLEMENTAL INDENTURE ARE AVAILABLE FROM THE TRUSTEE OR
THE COMPANY UPON REQUEST. CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN HAVE
THE MEANINGS GIVEN TO THEM IN THE INDENTURE.
GENERAL
None of the maturity date, payment provisions or redemption
provisions of the Securities will be amended as a result of the Proposals.
However, as described below, the interest rate payable on the Securities could
increase by 0.50% per annum as a result of the Proposals if the Company does
not meet a new annual leverage test. The guarantee to the Indenture will
continue to be the obligation of the Guarantors. In addition, ATC and its
subsidiaries will become Guarantors of the Securities and their stock will be
pledged to secure the Securities.
If the Requisite Consent is obtained, non-consenting holders
of Securities will be bound by the Proposals but will not be entitled to
receive the Consent Payment. The Proposals will be effected (and will become
operative) by execution of the Supplemental Indenture by the Company, the
Guarantors and the Trustee. If the Contribution is not consummated, the New
Credit Facility is not executed and the Consent Payment is not paid, the
Supplemental Indenture will be of no force or effect.
The Proposals constitute a single proposal and a Holder who
(i) tenders and consents or (ii) consents, without tendering, must consent to
the Proposals in their entirety and may not consent selectively with respect
to certain of the Proposals. If the Requisite Consents are received and the
Proposals become effective, the Proposals will be binding on all non-tendering
or non-consenting Holders. The completion, execution and delivery of the
Consent and Letter of Transmittal by a Holder in connection with the Offer and
the Solicitation will be deemed to constitute the consent of the tendering
Holder to the Proposals.
Upon receipt of the Requisite Consents with respect to the
Proposals and execution of the Supplemental Indenture, the Consent Condition
will be deemed satisfied. See "Conditions to the Offer and the Solicitation."
SECTION 4.7 "LIMITATION ON RESTRICTED PAYMENTS"
The "Limitation on Restricted Payments" covenant in Section
4.7 of the Indenture limits, among other things, the Company's ability to
"purchase, redeem or otherwise acquire
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retire for value" any equity security of any affiliate of the Company. The
Financing might be deemed to come within the scope of this covenant. For
example, as part of the Contribution, the Company may be deemed to "otherwise
acquire" the equity securities of ATC, which is an affiliate of the Company.
The Proposals would waive compliance with the "Limitation on Restricted
Payments" covenant in Section 4.7 of the Indenture to the extent necessary in
connection with the consummation of the Financing.
In addition, under the "Limitation on Restricted Payments"
covenant in Section 4.7(a) of the Indenture, the Company is currently
generally permitted to make Restricted Payments if, at the time of such
Restricted Payment,
(1) no Default or Event of Default exists or would
occur as a consequence thereof;
(2) after giving effect thereto, the Company could
incur additional Indebtedness in accordance with
the Interest Coverage Ratio test in Section 4.9(a)
of the Indenture; and
(3) such Restricted Payment (and any prior such
Restricted Payments) do not exceed the sum of (x)
50% of the Company's Consolidated Net Income for
specified periods plus (y) cash proceeds from sales
of qualifying equity securities plus (z) certain
other amounts.
The proposals would eliminate the foregoing provisions of Section 4.7(a) so
that the Company would no longer be permitted to make Restricted Payments
based on 50% of its accumulated Consolidated Net Income, equity proceeds and
other amounts.
SECTION 4.9 "LIMITATION ON INCURRENCE OF INDEBTEDNESS"
EXISTING PROVISION
"(b) The limitations of Section 4.9(a) shall not prohibit
the incurrence of: (i) Indebtedness under the Revolving Credit Facility,
provided, that the aggregate principal amount of Indebtedness so incurred on
any date, together with all other Indebtedness incurred pursuant to this
clause (i) and outstanding on such date, shall not exceed $30.0 million, less
any repayments thereunder pursuant to Section 4.10 hereof,".
PROPOSED AMENDMENT
The Proposals would increase the limit of Indebtedness that
may be incurred under the Revolving Credit Facility from $30.0 million to
$125.0 million.
SECTION 4.11 "LIMITATION ON TRANSACTIONS WITH AFFILIATES"
EXISTING PROVISION
The Company shall not, and shall not permit any of the
Restricted Subsidiaries to, directly or indirectly, sell, lease, transfer or
otherwise dispose of any of its properties or assets to,
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or purchase any property or assets from, or enter into any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "AFFILIATE TRANSACTION"), except
for (i) Affiliate Transactions, which together with all Affiliate Transactions
that are part of a common plan, have an aggregate value of not more than $1.0
million; PROVIDED, that such transactions are conducted in good faith and on
terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable
transaction at such time on an arm's-length basis from a Person that is not an
Affiliate of the Company or such Restricted Subsidiary, (ii) Affiliate
Transactions, which together with all Affiliate Transactions that are part of
a common plan, have an aggregate value of not more than $5.0 million;
PROVIDED, that a majority of the disinterested members of the Board of
Directors of the Company determine that such transactions are conducted in
good faith and on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person
that is not an Affiliate of the Company or such Restricted Subsidiary, (iii)
Affiliate Transactions for which the Company delivers to the Trustee an
opinion as to the fairness to the Company or such Restricted Subsidiary from a
financial point of view, issued by an investment banking firm of national
standing and (iv) Permitted Affiliate Transactions and other Restricted
Payments permitted by the provisions described in Section 4.7 hereof
PROPOSED AMENDMENT
The Proposals would waive compliance with the "Limitation on
Transactions with Affiliates" covenant in Section 4.11 of the Indenture to the
extent necessary in connection with the consummation of the Financing,
including any requirement that the Company deliver an opinion as to the
fairness to the Company of the Financing from a financial point of view,
issued by an investment banking firm of national standing.
The Proposals would add a provision to Section 4.11 that
would require that in the case of any Asset Sale with an aggregate value of
more than $1.0 million that is also an Affiliate Transaction subject to
Section 4.11 of the Indenture, (1) the Company must deliver to the Trustee
opinions as to the fairness to the Company from a financial point of view of
such Asset Sale, issued by two investment banking firms of national standing
that each have a net worth of at least $200.0 million and (2) the aggregate
value of all such transactions in any fiscal year does not exceed 10% of the
Company's consolidated total assets as shown on the Company's audited
consolidated balance sheet as most recently delivered to the Trustee in
accordance with Section 4.3 of the Indenture.
NEW SECTION 4.19 "LIMITATION ON ACQUISITIONS"
The Proposals would add a new Section 4.19 to the Indenture
that would prohibit the Company from making acquisitions in any fiscal year if
the debt portion of aggregate purchase prices for all such acquisitions in
such year exceeded $5.0 million. Any unused capacity under the covenant in a
given year would be available for use in subsequent years in addition to the
$5.0 million initially available for such subsequent year.
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NEW SECTION 4.20 "ANNUAL LEVERAGE TEST"
The Proposals would add a new Section 4.20 to the Indenture
which would require the Company to pay 0.50% per annum of additional interest
if the Company fails to meet a new annual ratio test. The new annual ratio
test will measure, as of the last day of a fiscal year, the ratio of the
Company's (1) consolidated Indebtedness to (2) Consolidated EBITDA plus new
equity raised or capital contributions received during such year. For purposes
of this annual ratio test, new equity raised and capital contributions
received for such fiscal year shall include, at the Company's election,
amounts received during the 90 days following the end of such year (provided
that the Company must designate whether amounts received during such 90 day
period shall be credited to the calculation either for the immediately
preceding fiscal year or the fiscal year in which they are received but not
both). For purposes of such test for the year ending June 30, 2001, $2.0
million of the Contribution would be recognized in calculating the ratio, plus
any other new equity raised or capital contributions received by the Company
following the execution of the Supplemental Indenture and prior to June 30,
2001, or within 90 days thereafter (subject to the Company making the
previously referred to election and designation). The annual ratio test would
be 5.35x for fiscal 2001, 5.20x for fiscal 2002, and 5.00x for fiscal 2003.
The additional interest, if payable, would accrue from the
Interest Payment Date immediately preceding the determination that such
additional interest is required. The Company has 15 Business Days following
its submission of its annual financial statements to the Trustee to determine
whether it meets the annual ratio test for such year.
DEFINITION OF "REVOLVING CREDIT FACILITY"
PROPOSED AMENDMENT. The Proposals would amend the existing
definition of "Revolving Credit Facility" so that the term "Revolving Credit
Facility" would mean the New Credit Facility. As amended, "Revolving Credit
Facility" would mean that certain credit facility dated December , 2000 by and
between Congress Financial Corporation, as lender, the Company and those
Subsidiaries of the Company named therein, as borrowers, and the Restricted
Subsidiaries, as guarantors, in the amount of up to $125.0 million as the same
may be amended, modified, renewed, refunded, replaced or refinanced from time
to time, including (i) any related notes, letters of credit, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced
or refinanced from time to time, and (ii) any notes, guarantees, collateral
documents, instruments and agreements executed in connection with such
amendment, modification, renewal, refunding, replacement or refinancing.
OMNIBUS CONSENT
In addition to the amendments described above, the Company
is requesting that the holders of the Securities consent to such additional
amendments and waivers to the Indenture and, as necessary, to the Security
Documents (as defined in the Indenture) not inconsistent with the foregoing
that may be required to consummate the Financing, including but not limited to
certain conforming and related changes to the Indenture as appropriate in
light of those amendments.
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MARKET AND TRADING INFORMATION
Although the Company believes that the trading activity for
the Securities is currently limited, to the extent that Securities are
tendered and accepted in the Offer, the trading market for the Securities that
remain outstanding thereafter will become even more limited. A debt security
with a smaller outstanding principal amount available for trading (a smaller
"FLOAT") may command a lower price than would a comparable debt security with
a greater float. Therefore, the market price for Securities not tendered or
not purchased may be affected adversely to the extent that the number of
Securities tendered and purchased pursuant to the Offer reduces the float of
Securities. The reduced float may also tend to make the trading price more
volatile. In addition, upon the effectiveness of the Supplemental Indenture,
certain covenants will be eliminated or modified, which may adversely affect
the market price for Securities. There can be no assurance that any trading
market will exist for the Securities following the Offer. The extent of the
public market for the Securities following consummation of the Offer would
depend upon the number of Holders that remain at such time, the interest in
maintaining a market in the Securities on the part of securities firms and
upon other factors.
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SECURITIES;
ACCEPTANCE OF AND PAYMENT FOR CONSENTS
Upon the terms and subject to the conditions of the Offer
(including, if the Offer is extended or amended, the terms and conditions of
any such extension or amendment), including the prior execution of the
Supplemental Indenture, the Company will accept for payment and will pay for
all Securities validly tendered (and not withdrawn) pursuant to the Offer on
or prior to the Expiration Date, such acceptance to be made on the Acceptance
Date and such payment to be made on the Payment Date. All determinations
concerning the satisfaction of such terms and conditions will be within the
Company's sole discretion, whose determinations will be final and binding. See
"Conditions to the Offer and the Solicitation." The Company expressly reserves
the right, in the Company's sole discretion, to delay acceptance for payment
of, or payment for, the Securities, subject to Rule 14e-1(c) under the
Exchange Act, which requires that a bidder pay the consideration offered or
return the securities deposited by or on behalf of holders of securities
promptly after the termination or withdrawal of a tender offer, if any of the
conditions of the Offer shall not have been satisfied or validly waived or in
order to comply, in whole or in part, with any applicable law.
In all cases, payments for Securities tendered and accepted
for payment pursuant to the Offer will be made only after timely receipt by
the Depositary of (i) certificates representing Securities or confirmation of
a book-entry transfer of such Securities into the Depositary's account at DTC
pursuant to the procedures set forth in "Procedures for Tendering Securities
and Delivering Consents," (ii) a Consent and Letter of Transmittal (or a copy
thereof), properly completed and duly executed, with any required signature
guarantees (or an Agent's Message in connection with a book-entry transfer)
and (iii) any other documents required by the Consent and Letter of
Transmittal.
For purposes of the Offer, validly tendered Securities will
be deemed to have been accepted for payment if, as and when the Company gives
oral (promptly confirmed in writing) or written notice thereof to the
Depositary, subject to proration. The Company will pay for
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<PAGE>
Securities so accepted on the Payment Date by depositing the aggregate sum of
the Tender Payment and the related Consent Payments with the Depositary or its
designee, which will act as agent for tendering Holders for the purpose of
receiving payments from the Company and transmitting such payments to
tendering Holders. Tenders of Securities will be accepted only in principal
amounts of $1,000 or integral multiples thereof.
For purposes of the Solicitation, Consents received by the
Depositary will be deemed to have been accepted, if, as and when the Company
gives written notice to the Trustee of the receipt by the Depositary of the
Requisite Consents, and the Supplemental Indenture is executed. The Consent
Payment will not, however, be made until the Payment Date and subject to
acceptance of tendered Securities pursuant to the Offer.
If any tendered Securities are not purchased pursuant to the
Offer for any reason, such Securities not purchased will be returned, without
expense to the tendering Holder (or, in the case of Securities tendered by
book-entry transfer into the Depositary's account at DTC, such Securities will
be credited to the account maintained at DTC from which such Securities were
delivered), as promptly as practicable after the expiration or termination of
the Offer.
Holders who tender Securities will not be obligated to pay
brokerage fees or commissions or, except as set forth in Instruction 7 of the
Consent and Letter of Transmittal, transfer taxes on the purchase of
Securities pursuant to the Offer.
The Company reserves the right to transfer or assign, in
whole at any time or in part from time to time, to one or more of its
affiliates, the right to purchase Securities tendered pursuant to the Offer,
but any such transfer or assignment will not relieve the Company of its
obligations under the Offer or prejudice the rights of tendering Holders to
receive payments for Securities validly tendered and accepted for payment
pursuant to the Offer.
It is a condition precedent to the Company's obligation to
accept Securities for payment pursuant to the Offer that the Supplemental
Indenture be executed. See "Conditions to the Offer and the Solicitation."
PROCEDURES FOR TENDERING SECURITIES AND DELIVERING CONSENTS
THE TENDER OF SECURITIES PURSUANT TO THE OFFER AND IN
ACCORDANCE WITH THE PROCEDURES DESCRIBED BELOW WILL CONSTITUTE THE DELIVERY OF
A CONSENT WITH RESPECT TO SUCH SECURITIES EVEN IF ALL OF SUCH SECURITIES ARE
NOT ACCEPTED FOR PAYMENT BY THE COMPANY DUE TO PRORATION OR OTHERWISE. HOLDERS
WHO DESIRE TO TENDER THEIR SECURITIES PURSUANT TO THE OFFER AND RECEIVE THE
TENDER PAYMENT ARE REQUIRED TO DELIVER CONSENTS TO THE PROPOSALS. HOLDERS WHO
DESIRE TO DELIVER CONSENTS TO THE PROPOSALS PURSUANT TO THE SOLICITATION
WITHOUT TENDERING SOME OR ALL OF THEIR SECURITIES ARE REQUIRED TO DELIVER
CONSENTS TO THE PROPOSALS. HOLDERS MAY NOT TENDER THEIR SECURITIES WITHOUT
VALIDLY DELIVERING CONSENTS PURSUANT TO THE SOLICITATION, THOUGH HOLDERS MAY
DELIVER CONSENTS WITHOUT TENDERING SECURITIES PURSUANT TO THE OFFER.
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SECURITIES, A CONSENT AND LETTER OF TRANSMITTAL AND ANY
OTHER REQUIRED DOCUMENTATION SHOULD ONLY BE SENT AS INSTRUCTED BELOW AND NOT
TO THE COMPANY, THE TRUSTEE OR THE INFORMATION AGENT.
TENDER OF SECURITIES AND DELIVERY OF CONSENTS
The valid tender by a Holder pursuant to one of the
procedures set forth below will constitute a binding agreement between such
Holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Consent and Letter of Transmittal. Only
registered Holders are authorized to tender their Securities and consent to
the Proposals. The procedures by which Securities may be tendered and Consents
given by beneficial owners that are not Holders will depend upon the manner in
which the Securities are held. Holders who wish to (i) tender Securities or
(ii) deliver Consents without tendering some or all of their Securities, in
each case, and who wish to retain the benefit of the Consent Payment or wish
to provide such benefit to a transferee should (x) validly tender their
Securities and deliver the related Consents or (y) deliver the Consents, as
applicable, designating the transferee as payee in the boxes marked A and/or B
"Special Issuance/Delivery Instructions," as applicable, contained in the
Consent and Letter of Transmittal.
TENDER OF SECURITIES HELD IN PHYSICAL FORM
To effectively tender Securities held in physical form
pursuant to the Offer, a Consent and Letter of Transmittal (or a copy
thereof), properly completed and duly executed, and any other documents
required by the Consent and Letter of Transmittal, must be received by the
Depositary at its address set forth on the back cover of this Statement (or
delivery of Securities may be effected through the deposit of Securities with
DTC and making book-entry delivery as set forth below) on or prior to the
Consent Date (to receive the Consent Payment) or the Expiration Date (to
receive only the Tender Payment), as the case may be; PROVIDED, HOWEVER, that
the tendering Holder may instead comply with the guaranteed delivery
procedures set forth below.
TENDER OF SECURITIES HELD THROUGH A CUSTODIAN
To effectively tender Securities that are held of record by
a custodian, bank, depositary, broker, trust company or other nominee, the
beneficial owner thereof must instruct such Holder to tender the Securities on
the beneficial owner's behalf. A Letter of Instructions is included in the
solicitation materials provided with this Statement that may be used by a
beneficial owner in this process to assist in causing the tender to be
effected. Any beneficial owner of Securities held of record by DTC or its
nominee, through authority granted by DTC, may direct the DTC participant
through which such beneficial owner's Securities are held in DTC to execute,
on such beneficial owner's behalf, a consent with respect to Securities
beneficially owned by such beneficial owner on the day of execution.
TENDER OF SECURITIES HELD THROUGH DTC
To effectively tender Securities that are held through DTC,
DTC participants should transmit their acceptance through ATOP, which the
Company believes will be available
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for this purpose, and DTC will then edit and verify the acceptance and send an
Agent's Message (as defined herein) to the Depositary for its acceptance.
Delivery of tendered Securities must be made to the Depositary pursuant to the
book-entry delivery procedures set forth below or the tendering DTC
participant must comply with the guaranteed delivery procedures set forth
below.
The method of delivery of Securities and Consents and
Letters of Transmittal, any required signature guarantees and all other
required documents, including delivery through DTC and any acceptance of an
Agent's Message transmitted through ATOP, is at the election and risk of the
person tendering Securities and delivering a Consent and Letter of Transmittal
and, except as otherwise provided in the Consent and Letter of Transmittal,
delivery will be deemed made only when actually received by the Depositary. If
delivery is by mail, it is suggested that the Holder use properly insured,
registered mail with return receipt requested, and that the mailing be made
sufficiently in advance of the Consent Date or Expiration Date, as the case
may be, to permit delivery to the Depositary prior to such date.
Except as provided below, unless the Securities being
tendered are deposited with the Depositary on or prior to the Consent Date or
the Expiration Date, as the case may be (accompanied by a properly completed
and duly executed Consent and Letter of Transmittal or a Notice of Guaranteed
Delivery), the Company may, at its option, treat such tender as defective for
purposes of the right to receive the Consent Payment or Tender Payment,
respectively. Payment for the Securities will be made only against deposit of
the tendered Securities and delivery of all other required documents.
BOOK-ENTRY DELIVERY PROCEDURES
The Depositary will establish accounts with respect to the
Securities at DTC for purposes of the Offer within two business days after the
date of this Statement, and any financial institution that is a participant in
DTC may make book-entry delivery of the Securities by causing DTC to transfer
such Securities into the Depositary's account in accordance with DTC's
procedures for such transfer. However, although delivery of Securities may be
effective through book-entry transfer into the Depositary's account at DTC,
the Consent and Letter of Transmittal (or a copy thereof), with any required
signature guarantees or an Agent's Message in connection with a book-entry
transfer, and any other required documents, must, in any case, be transmitted
to and received by the Depositary at one or more of its addresses set forth on
the back cover of this Statement on or prior to the Consent Date or the
Expiration Date, as the case may be, or the guaranteed delivery procedure
described below must be followed. Delivery of documents to DTC does not
constitute delivery to the Depositary. The confirmation of a book-entry
transfer into the Depositary's account at DTC as described above is referred
to herein as a "Book-Entry Confirmation."
The term "AGENT'S MESSAGE" means a message transmitted by
DTC to, and received by the Depositary and forming a part of the Book-Entry
Confirmation, which states that DTC has received an express acknowledgment
from each participant in DTC tendering the Securities and that such
participants have received the Consent and Letter of Transmittal and agree to
be bound by the terms of the Consent and Letter of Transmittal and the Company
may enforce such agreement against such participants.
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SIGNATURE GUARANTEES
Signatures on all Consents and Letters of Transmittal must
be guaranteed by a recognized participant (each, a "MEDALLION SIGNATURE
GUARANTOR") in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or the Stock Exchange Medallion
Program, unless the Securities tendered thereby are tendered (i) by a
registered Holder (or by a participant in DTC whose name appears on a security
position listing as the owner of such Securities) who has not completed either
the box entitled "Special Delivery Instructions" or "Special Payment or
Issuance Instructions" on the Consent and Letter of Transmittal, or (ii) for
the account of a member firm of a registered national securities exchange, a
member of the National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office or correspondent in the United States
(each of the foregoing being referred to as an "ELIGIBLE INSTITUTION"). See
Instruction 1 of the Consent and Letter of Transmittal. If the Securities are
registered in the name of a person other than the signer of the Consent and
Letter of Transmittal or if Securities not accepted for payment or not
tendered are to be returned to a person other than the registered Holder, then
the signature on the Consent and Letter of Transmittal accompanying the
tendered Securities must be guaranteed by a Medallion Signature Guarantor as
described above. See Instructions 1 and 5 of the Consent and Letter of
Transmittal.
GUARANTEED DELIVERY
If a Holder desires to (i) tender Securities and deliver
Consents pursuant to the Offer and the Solicitation or (ii) deliver Consents
pursuant to the Solicitation without tendering some or all of its Securities,
in each case as applicable, and time will not permit the Consent and Letter of
Transmittal, certificates representing the Securities and all other required
documents to reach the Depositary, or the procedures for book-entry transfer
cannot be completed, on or prior to the Consent Date or the Expiration Date,
as the case may be, such Holder may nevertheless deliver its Consents, and
such Securities may nevertheless be tendered, with the effect that such
delivery and/or tender will be deemed to have been received on or prior to the
Consent Date or the Expiration Date, respectively, if all the following
conditions are satisfied, where applicable:
(i) the tender is made by or through an
Eligible Institution;
(ii) a properly completed and duty executed Notice
of Guaranteed Delivery, substantially in the form provided
by the Company herewith, or an Agent's Message with respect
to guaranteed delivery that is accepted by the Company, is
received by the Depositary on or prior to the Consent Date
or Expiration Date, as the case may be, as provided below;
and
(iii) the tendered Securities, in proper form for
transfer (or a Book-Entry Confirmation of the transfer of
such Securities into the Depositary's account at DTC as
described above), together with a Consent and Letter of
Transmittal (or a copy thereof), properly completed and duly
executed, with any required signature guarantees and any
other documents required by the Consent and Letter of
Transmittal, or a properly transmitted Agent's Message in
the case
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of a book-entry transfer, are received by the Depositary
within three business days after the date of execution of
the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be sent by
hand-delivery, telegram, fax transmission, mail or an Agent's Message to the
Depositary and must include a guarantee by an Eligible Institution in the form
set forth in the Notice of Guaranteed Delivery.
Failure to complete the guaranteed delivery procedure
outlined above will not, of itself, affect the validity of, or effect a
revocation of, any Consent and Letter of Transmittal properly executed by a
Holder of Securities who attempted to use the guaranteed delivery procedures.
Notwithstanding any other provision hereof, payment of the
Tender Payment or Consent Payment for Securities (i) tendered and accepted for
payment pursuant to the Offer and the Solicitation or (ii) delivered and
accepted for payment pursuant to the Solicitation will, in all cases, be made
only after timely receipt (i.e., on or prior to the Consent Date if the Holder
is to receive the Consent Payment and on or prior to the Expiration Date if
the Holder is to receive the Tender Payment) by the Depositary of the tendered
Securities (or Book-Entry Confirmation of the transfer of such Securities into
the Depositary's account at DTC as described above), or delivered Securities,
as the case may be, and a Consent and Letter of Transmittal (or a copy
thereof) with respect to such Securities, properly completed and duly
executed, with any required signature guarantees and any other documents
required by the Consent and Letter of Transmittal, or a properly transmitted
Agent's Message.
DETERMINATION OF VALIDITY
All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of any Securities tendered or
Consents delivered pursuant to any of the procedures described herein will be
determined by the Company, in its sole discretion, which determination shall
be final and binding. The Company reserves the absolute right to reject any or
all tenders of Securities or deliveries of Consents determined by it not to be
in proper form or, in the case of Securities, if the acceptance for payment
of, or payment for, such Securities may, in the opinion of the Company's
counsel, be unlawful. The Company also reserves the absolute right, in its
sole discretion, to waive any defect or irregularity in any tender of
Securities or delivery of Consents of any particular Holder, whether or not
similar defects or irregularities are waived in the case of other Holders.
None of the Company, the Depositary, the Information Agent, the Trustee or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or deliveries or will incur any liability for
failure to give any such notification of any defects or irregularities in
tenders or deliveries or will incur any liability for failure to give any such
notification. The Company's interpretation of the terms and conditions of the
Offer and the Solicitation (including the Consent and Letter of Transmittal
and the Instructions thereto) will be final and binding.
WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS
WITHDRAWAL RIGHTS
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Securities tendered pursuant to the Offer may be withdrawn
at any time on or prior to the Expiration Date; however, Holders who have
delivered Consents pursuant to the Solicitation with respect to such withdrawn
Securities will not be entitled to receive the Consent Payment.
For a withdrawal of a tender to be effective, a written or
facsimile transmission notice of withdrawal must be timely received by the
Depositary at one of its addresses specified on the back cover of this
Statement on or prior to the Expiration Date. Any such notice of withdrawal
must (i) specify the name of the person who tendered the Securities to be
withdrawn, (ii) contain the description of the Securities to be withdrawn and
identify the certificate number or numbers shown on the particular
certificates evidencing such Securities (unless such Securities were tendered
by book-entry transfer) and the aggregate principal amount represented by,
such Securities and (iii) be signed by the Holder of such Securities in the
same manner as the original signature on the Consent and Letter of Transmittal
by which such Securities were tendered (including, any required signature
guarantee), if any, or be accompanied by documents of transfer satisfactory to
the Company and the Trustee to register the transfer of such Securities into
the name of the person withdrawing the tender. If the Securities to be
withdrawn have been delivered or otherwise identified to the Depositary, a
signed notice of withdrawal is effective immediately upon written or facsimile
transmission notice of withdrawal even if physical release is not yet
effected. In addition, such notice must specify, in the case of Securities
tendered by delivery of certificates for such Securities, the name of the
registered Holder (if different from that of the tendering Holder) and, in the
case of Securities tendered by book-entry transfer, the name and number of the
account at DTC to be credited with the withdrawn Securities. All questions as
to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, in its sole discretion, which
determination shall be final and binding on all parties. Neither the Company,
the Depositary, the Information Agent, the Trustee nor any other person will
be under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liabilities for failure to give any such
notification.
Withdrawals may not be rescinded, and any Securities
withdrawn from the Offer will be deemed not to have been validly tendered for
purposes of the Offer. Unless the Securities so withdrawn are validly
retendered in compliance with the terms of the Offer and the Solicitation, no
Tender Payment or Consent Payment will be made pursuant to the Offer with
respect to such Securities. Any Securities so withdrawn will be returned to
the registered Holder thereof without cost to such registered Holder as soon
as practicable after withdrawal. Properly withdrawn Securities may be
retendered by following one of the procedures described above under
"Procedures for Tendering Securities and Delivering Consents" at any time on
or prior to the Expiration Date, provided that no Consent Payment will be made
with respect to such Securities unless such payments are otherwise payable
pursuant to the terms hereof.
The withdrawal of Securities after the Consent Date will not
constitute a revocation of any Consent to the Proposals previously given or
deemed given.
REVOCATION OF CONSENTS
Any Holder of Securities who has consented to the Proposals
may effectively revoke such Consent by filing a written notice of revocation
with the Depositary at one of its
24
<PAGE>
addresses set forth on the back cover of this Statement prior to the execution
of the Supplemental Indenture. The Depositary shall deliver promptly to the
Trustee any notice of revocation received by it. A notice of revocation, to be
effective, must be signed by the Holder of such Securities and must contain
the description of the Securities to which it relates, the certificate number
or numbers of such Securities (if available) or information sufficient to
enable the Depositary to identify such Securities, and the aggregate principal
amount represented by such Securities. A Holder who has delivered a revocation
may thereafter deliver a new Consent by following one of the described
procedures for delivering a Consent at any time on or prior to the Consent
Date. A withdrawal of Securities tendered pursuant to the Offer will not
constitute a revocation of any Consent given with respect to such Securities
unless the procedures for revocation of Consents described herein are followed
however, the Consent Payment will not be paid with respect to such Securities.
In addition to the foregoing, in order for a Holder to revoke a Consent, such
Holder must withdraw any related tendered Securities. A purported notice of
revocation which is not received by the Trustee in a timely fashion and
accepted by the Trustee as a valid revocation will not be effective to revoke
a Consent previously given.
No Consent Payment will be made with respect to any
Securities if the Holder (i) validly revokes, prior to the execution of the
Supplemental Indenture, the Consent as to which a Consent Payment would
otherwise have been made and does not redeliver such Consent on or prior to
the Consent Date or (ii) validly withdraws such Holder's tender of the related
Securities on or prior to the Expiration Date. Prior to the execution of the
Supplemental Indenture, the Company intends to consult with the Depositary to
determine whether the Depositary has received any revocation of Consents. The
Company reserves the right to contest the validity of any such revocations.
All question as to the validity, form and eligibility
(including time of receipt) of any notice of revocation will be determined by
the Company, in its sole discretion, which determination will be final and
binding on all parties. Neither the Company, the Depositary, the Information
Agent, the Trustee nor any other person will be under any duty to give
notification of any defects or irregularities in any notice of revocation or
incur any liabilities for failure to give any such notification.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by the Company to
purchase all the Securities (and pay the related Consent Payments) pursuant to
the Offer and to pay related fees and expenses is estimated to be
approximately $34.5 million (assuming $30,000,000 aggregate principal amount
of Securities are tendered, Consent Payments are made in respect of 100% of
the Outstanding Securities and the Payment Date occurs on December 21, 2000).
Such funds are expected to be obtained through the Financing, including the
New Credit Facility, and cash on hand.
CONDITIONS TO THE OFFER AND THE SOLICITATION
Notwithstanding any other provision of the Offer and the
Solicitation and in addition to (and not in limitation of) the Company's
rights to extend and amend the Offer and the Solicitation at any time, in its
sole discretion, the Company shall not be required to accept for
25
<PAGE>
payment, or pay for, and may delay the acceptance for payment of, or payment
for, any Securities tendered or Consents delivered, in each event subject to
Rule 14e-1(c) under the Exchange Act, and may terminate the Offer if any of
the Consent Condition, the Financing Condition or the General Conditions (each
as defined below) shall not have been satisfied with respect to the Offer on
or prior to the Expiration Date.
The "Consent Condition" with respect to the Securities shall
mean (i) receipt of the Requisite Consents from the Holders of Securities with
respect to the Proposals and (ii) execution of the Supplemental Indenture
providing for the Proposals.
See "Terms of the Offer and the Solicitation," "The Proposals" and Annex A.
The "FINANCING CONDITION" shall mean the consummation of the
Financing. See "--Certain Offer and Solicitation Matters."
The "GENERAL CONDITIONS" shall mean the conditions set forth
below in paragraphs (i) through (v). The General Conditions shall be deemed to
have been satisfied, unless any of the following conditions shall occur on or
after the date of this Statement and prior to the Expiration Date:
(i) there shall have occurred (a) any general
suspension of trading in, or limitation on prices for,
securities in the financial markets of the United States,
(b) a significant change in the price of the Securities in
the United States securities or financial markets, (c) a
material impairment in the trading market for debt
securities, (d) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United
States (whether or not mandatory), (e) any limitation
(whether or not mandatory) by any government or
governmental, administrative or regulatory authority,
domestic, foreign or international, on the extension of
credit by banks or other lending institutions, (f) a
commencement of a war, armed hostilities or other national
or international crisis directly or indirectly involving the
United States or (g) of any of the foregoing existing on the
date hereof, a material acceleration or worsening thereof;
(ii) an order, statute, rule, regulation, executive
order, stay, decree, judgment or injunction shall have been
proposed, enacted, entered, issued, promulgated, enforced or
deemed applicable by any court or governmental,
administrative or regulatory authority that, in the sole
judgment of the Company, would or might prohibit, prevent,
restrict or delay consummation of, or materially impair the
contemplated benefits to the Company, or any of its
affiliates of, the Offer, the Solicitation or the Financing,
or that is, or is reasonably likely to be, in the sole
judgment of the Company, materially adverse to the business,
operations, properties, condition (financial or otherwise),
assets, liabilities or prospects of the Company or any of
its affiliates;
(iii) there shall have been instituted or
threatened or be pending any action or proceeding before or
by any court, governmental, administrative or regulatory
authority, or by any other person, in connection with the
Offer, the Solicitation or the Financing, that is, or is
reasonably likely to be, in the sole
26
<PAGE>
judgment of the Company, materially adverse to the business,
operations, properties, condition (financial or otherwise),
assets, liabilities or prospects of the Company or any of
its affiliates;
(iv) either the Trustee or the Company shall have
taken any action, or failed to take any action, which action
or failure could, in the sole judgment of the Company,
adversely affect the consummation of the Offer, the
Solicitation or the Financing, or the Trustee's or the
Company's ability to effect the Proposals, or shall have
taken any action that challenges the validity or
effectiveness of, or shall have objected in any respect to,
the procedures used by the Company in soliciting the
Consents (including the form thereof) or in making the Offer
or the Solicitation, the acceptance of the tendered
Securities and the delivered Consents or the making of
payments for the Securities and the Consents; or
(v) there shall have occurred, or be likely to
occur, any event affecting the business or financial affairs
of the Company or its affiliates that, in the sole judgment
of the Company, would or might prohibit, prevent, restrict
or delay consummation of the Offer, the Solicitation or the
Financing.
The foregoing conditions are for the sole benefit of the
Company and may be asserted by the Company regardless of the circumstances
giving rise to any such condition (including any action or inaction by the
Company) and may be waived by the Company, in whole or in part, at any time
and from time to time, in the sole discretion of the Company. The Company does
not intend to waive the Consent Condition or the Financing Condition. The
failure by the Company at any time to exercise any of the foregoing rights
will not be deemed a waiver of any other right, and each right will be deemed
an ongoing right which may be asserted at any time and from time to time.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain U.S. federal
income tax consequences expected to result to a Holder from (i) the sale of
Securities to the Company pursuant to the Offer, and (ii) the retention of
Securities and the adoption of the Proposals. It is intended only as a
descriptive summary and does not purport to be a complete technical analysis
or listing of all potential tax effects to Holders from the transactions. This
summary is based upon current provisions of the United States Internal Revenue
Code of 1986, as amended (the "CODE"), applicable Treasury Regulations (the
"REGULATIONS"), and the public administrative and judicial interpretations of
the Code and Regulations, all of which are subject to change, possibly on a
retroactive basis. This summary is also based on the information included in
this Statement and related documents. The tax treatment of a Holder of
Securities may vary depending upon such Holder's particular situation, and
certain Holders (such as insurance companies, tax-exempt organizations, mutual
funds, retirement plans, financial institutions, brokers, dealers, and foreign
taxpayers) might be subject to special rules not discussed below. This
discussion is directed to Holders who are United States persons and beneficial
owners of the Securities and assumes that the Securities are held as capital
assets (generally property held for investment). No information is provided
herein with respect to foreign, state or local tax laws or estate and gift tax
considerations. There is no assurance that the Internal Revenue Service (the
"SERVICE") will not
27
<PAGE>
take a different position concerning the tax consequences of the transactions.
EACH HOLDER IS URGED AND EXPECTED TO CONSULT ITS TAX ADVISOR REGARDING
FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES OF TENDERING THE
SECURITIES PURSUANT TO THE OFFER OR RETAINING THE SECURITIES, ESPECIALLY IN
LIGHT OF THE HOLDER'S PARTICULAR CIRCUMSTANCES.
HOLDERS WHO ARE UNITED STATES PERSONS
The following discussion addresses the U.S. federal income
tax considerations applicable to a Holder who or which is (i) a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized under the laws of the United States or any political
subdivision thereof, or an estate the income of which is includible in gross
income for the United States federal income tax purposes regardless of source,
or (ii) a trust which is subject to primary supervision by a court within the
United States and with respect to which one or more U.S. persons have the
authority to control all substantial decisions (a "U.S. PERSON").
SALE OF SECURITIES. The receipt of cash by a Holder in
exchange for Securities will be a taxable transaction for U.S. federal income
tax purposes. In general, subject to discussions below regarding Consent
Payments, a Holder who receives cash in exchange for Securities pursuant to
the Offer will recognize gain or loss for U.S. federal income tax purposes
equal to the difference between (i) the amount of cash received (other than
cash attributable to accrued interest not previously taken into account, which
will be taxable as ordinary income) in exchange for such Securities and (ii)
such Holder's adjusted tax basis in such Securities. In general, a Holder's
adjusted tax basis for Securities will generally equal the price paid by such
Holder for the Securities as increased by the accruals of market discount, if
any, that the Holder has previously elected to include in gross income on an
annual basis, and decreased by the amount of any payments received with
respect to the Securities (excluding payments of stated interest). Any gain or
loss recognized on a sale of Securities pursuant to the Offer should be
capital gain or loss, subject to the market discount rules discussed below,
and will be long-term capital gain or loss if the Holder has held the
Securities for the applicable holding period.
MARKET DISCOUNT. A Security has "market discount" if its
stated redemption price exceeds its tax basis in the hands of the Holder
immediately after its acquisition, unless a statutorily defined DE MINIMIS
exception applies. Gain recognized by a Holder with respect to the Securities
with market discount will generally be treated as ordinary income to the
extent of the market discount accrued during such Holder's period of
ownership. This rule will not apply to a Holder who had previously elected to
include market discount in income as it accrued for U.S. federal income tax
purposes.
ADOPTION OF PROPOSALS. Although the matter is not entirely
free from doubt, adoption of the Proposals, alone or together with the receipt
of the Consent Payment, should not constitute an exchange of the Securities
for new obligations ("Deemed New Securities") pursuant to section 1001 of the
Code and, accordingly, should not be a taxable event to the Holders of
Securities. There is no assurance, however, that the Service will not take a
different position, and Holders are urged to consult their own tax advisor as
to the tax treatment of the adoption of the Proposals and the receipt of the
Consent Payment. For example, if the adoption
28
<PAGE>
of the Proposals were viewed as an deemed exchange of Securities for the
Deemed New Securities, among other things, the Holders may be required to
recognize gain or loss.
CONSENT PAYMENTS. The treatment of the Consent Payments,
whether paid to a tendering Holder or non-tendering Holder, is subject to
uncertainty under applicable law. The Service may treat the Consent Payments
as a fee paid for consenting to the Proposals. If such treatment applies, the
Consent Payments will be subject to tax as ordinary income and, with respect
to tendering Holders, will not be taken into account in the calculation of
gain or loss described above.
BACKUP WITHHOLDING. To prevent backup federal income tax
withholding equal to 31% of the amount of the Consent Payment paid to a
Holder, each Holder receiving a Consent Payment must notify the Company and
its agent of such Holder's correct taxpayer identification number and provide
certain other information by properly completing a Form W-9 or a Substitute
Form W-9. The amount of any backup withholding from a payment to a Holder
generally will be allowed as a credit against such Holder's U.S. federal
income tax liability and may entitle such Holder to a refund, provided that
the required information is furnished to the Service.
HOLDERS WHO ARE NOT UNITED STATES PERSONS
The following discussions address the U.S. federal income
tax considerations applicable to a Holder who is not a U.S. person (a
"NON-U.S. HOLDER").
Although not clear, the Company intends to withhold the U.S.
federal income tax at a rate of 30% from a Consent Payment paid to a non-U.S.
Holder, unless (i) the non-U.S. Holder is engaged in the conduct of a trade or
business in the United States to which the receipt of the Consent Payment is
effectively connected and provides a properly executed Form W-8ECI, or (ii) a
United States tax treaty either eliminates or reduces such withholding tax
with respect to the Consent Payment paid to the non-U.S. Holder and the
non-U.S. Holder provides a properly executed Form W-8BEN (claiming exemption
under an applicable treaty). If such withholding results in an overpayment of
taxes, a refund or credit may be obtainable, provided that the required
information is furnished to the Service.
In addition, although not clear, the Company intends to
apply U.S. information and backup withholding (at a rate of 31%) unless a
non-U.S. Holder is an exempt recipient or provides a certificate (Form W-8BEN)
as to its non-U.S. status.
INFORMATION AGENT; DEPOSITARY; FEES AND EXPENSES
AETG and the Company have engaged Jefferies & Company, Inc.
to act as the exclusive information agent (the "INFORMATION AGENT") in
connection with the Offer and Solicitation. In its capacity, the Information
Agent may contact Holders regarding the Offer and the Solicitation and may
request brokers, dealers and other nominees to forward this Statement and
related materials to beneficial owners of Securities. Any Holder that has
questions concerning the terms of the Offer or the Solicitation may contact
the Information Agent at its address and telephone number set forth on the
back cover of this Statement. Holders of
29
<PAGE>
Securities may also contact their broker, dealer, commercial bank or trust
company for assistance concerning the Offer or the Solicitation.
The Company has agreed to pay the Information Agent
reasonable and customary fees for its services and to reimburse the
Information Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company has further agreed to indemnify the Information Agent
against certain liabilities, including certain liabilities under the federal
securities laws. At any given time, the Information Agent may trade the
Securities or other debt or equity securities of the Company for its own
accounts or for the accounts of customers, and, accordingly, may hold a long
or short position in the Securities or such other securities. In addition, the
Information Agent has provided in the past certain investment banking and
financial advisory services to the Company and certain of its affiliates for
which it has received customary compensation and may do so in the future.
The Company will pay the Depositary reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company has agreed to indemnify the
Depositary for certain liabilities and expenses. The Company will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Statement
and related documents to the beneficial owners of Securities.
The Consent and Letter of Transmittal and all correspondence
in connection with the Offer or the Solicitation should be sent or delivered
by each Holder or a beneficial owner's broker, dealer, commercial bank, trust
company or other nominee to the Depositary at the address and telephone number
set forth on the back cover of this Statement.
Questions and requests for assistance may be directed to the
Information Agent at its address and toll-free or collect telephone numbers,
set forth on the back cover of this Statement.
AVAILABLE INFORMATION
The Company is subject to the informational (reporting)
requirements of the Securities Exchange Act of 1934 (the "EXCHANGE ACT"), and
in accordance therewith files reports and other information with the
Securities and Exchange Commission (the "COMMISSION"). Such reports and other
information filed by the Company with the Commission pursuant to the
informational requirements of the Exchange Act may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the following Regional
Offices of the Commission: Chicago Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 14th Floor, Seven World Trade Center, New York, New York 10048. Copies
of such materials can be obtained at prescribed rates from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 or through the World Wide Web
(http://www.sec.gov).
30
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the
Company with the Commission, are incorporated by reference into this
Statement.
1. The Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 2000; and
2. The Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000.
All documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15 (d) of the Exchange Act subsequent to the date of this
Statement and prior to the termination of the Offer and the Solicitation shall
be deemed to be incorporated by reference in this Statement and to be a part
hereof from the date of filing of such documents. Any statement contained
herein or in any document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superceded for the purposes
of this Statement to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supercedes such statement. Any
such statement so modified or superceded shall not be deemed to constitute a
part of this Statement, except as so modified or superceded. The Company will
provide without charge to each person to whom a copy of this Statement is
delivered, including any beneficial owner of Securities, upon written or oral
request of such person, a copy of any or all of the information that has been
incorporated by reference in this Statement (excluding exhibits to such
information which are not specifically incorporated by reference into such
information). Requests for such documents should be directed to the Company at
its principal executive offices, 7 North Street, Staten Island, New York
10302, Attention: Chief Financial Officer or to the Information Agent at the
address and telephone number set forth on the back cover of this Statement.
MISCELLANEOUS
The Company is not aware of any jurisdiction in which the
making of the Offer and the Solicitation is not in compliance with applicable
law. If the Company becomes aware of any jurisdiction in which the making of
the Offer and the Solicitation would not be in compliance with applicable law,
the Company will make a good faith effort to comply with any such law. If,
after such good faith effort, the Company cannot comply with any such law, the
Offer and the Solicitation will not be made to (nor will the tender of
Securities and deliveries of Consents be accepted from or on behalf of) the
Holders residing in such jurisdiction.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF THE COMPANY
OR ITS AFFILIATES NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS STATEMENT
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE INFORMATION AGENT.
ATLANTIC EXPRESS TRANSPORTATION CORP.
November 23, 2000
31
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
ATLANTIC EXPRESS TRANSPORTATION CORP.
Audited Consolidated Financial Statements.............................F-2
Unaudited Consolidated Financial Statements...........................F-26
ATLANTIC TRANSIT, CORP.
Audited Consolidated Financial Statements.............................F-35
Unaudited Consolidated Financial Statements...........................F-47
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 sheets of Atlantic
Express Transportation Corp. and subsidiaries as of June 30, 1999 and 2000, and
the related consolidated statements of operations, stockholder's equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Atlantic
Express Transportation Corp. and subsidiaries as of June 30, 1999 and 2000, and
the consolidated results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States.
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, 2000, 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 29, 2000
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 statements of operations, changes in
stockholder's equity, and cash flows of Atlantic Express Transportation Corp.
for the year ended June 30, 1998. We have also audited the financial statement
schedule listed in the accompanying index for the year ended June 30, 1998.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
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 and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Atlantic
Express Transportation Corp. for the year ended June 30, 1998 in conformity with
generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material
respects, the information set forth therein.
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,
---------------------------
1999 2000
------------ ------------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents................................. $ 855,983 $ 2,502,575
Current portion of marketable securities.................. 3,842,000 1,461,000
Accounts receivable, net of allowance for doubtful
accounts of $1,640,000 and $1,709,000 in 1999 and 2000,
respectively............................................ 48,468,255 50,962,057
Inventories............................................... 15,215,018 10,279,483
Notes receivable.......................................... 31,964 15,901
Prepaid expenses and other current assets................. 6,190,766 6,165,109
------------ ------------
Total current assets.................................. 74,603,986 71,386,125
------------ ------------
Property, plant and equipment, at cost, less accumulated
depreciation.............................................. 119,138,827 124,934,071
------------ ------------
Other assets:
Goodwill, net............................................. 12,143,514 11,817,606
Investments............................................... 35,000 35,000
Marketable securities..................................... 5,869,380 6,691,661
Deferred lease expense.................................... 148,155 --
Transportation contract rights, net....................... 3,408,096 3,329,311
Deferred financing and organization costs, net............ 8,018,053 6,248,073
Due from parent company................................... 831,117 816,117
Notes receivable.......................................... 11,494 --
Deposits and other noncurrent assets...................... 3,248,336 3,205,594
Deferred tax assets....................................... 3,935,981 5,268,606
Covenant not to compete, net.............................. 120,000 80,000
------------ ------------
Total other assets.................................... 37,769,126 37,491,968
------------ ------------
$231,511,939 $233,812,164
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current:
Current portion of long-term debt......................... $ 21,411,180 $ 1,907,563
Accounts payable.......................................... 2,453,411 1,952,700
Accrued compensation...................................... 7,392,071 6,516,830
Current portion of insurance reserve...................... 4,500,000 3,200,000
Accrued interest.......................................... 6,890,810 7,017,741
Other accrued expenses and current liabilities............ 3,992,443 9,254,623
------------ ------------
Total current liabilities............................. 46,639,915 29,849,457
------------ ------------
Long-term debt, net of current portion...................... 159,921,440 178,270,878
------------ ------------
Premium on bond issuance.................................... 987,150 771,750
------------ ------------
Other long-term liabilities................................. 3,023,529 1,802,517
------------ ------------
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................................ 15,898,517 22,048,517
Retained earnings (accumulated deficit)................... 3,865,438 (29,254)
Accumulated other comprehensive income.................... 925,950 848,299
------------ ------------
Total stockholder's equity............................ 20,939,905 23,117,562
------------ ------------
$231,511,939 $233,812,164
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------------------
1998 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Transportation Operations........................ $203,073,256 $239,784,127 $268,402,709
Bus Sales Operations............................. 58,844,938 81,739,086 85,078,295
------------ ------------ ------------
Total revenues..................................... 261,918,194 321,523,213 353,481,004
------------ ------------ ------------
Costs and expenses:
Cost of operations- Transportation Operations.... 166,120,186 195,760,472 223,558,726
Cost of operations- Bus Sales Operations......... 51,268,341 73,845,585 77,454,772
General and administrative....................... 21,337,867 21,901,559 20,339,351
Depreciation and amortization.................... 11,378,390 12,354,728 13,915,400
------------ ------------ ------------
Total operating costs and expenses................. 250,104,784 303,862,344 335,268,249
------------ ------------ ------------
Income from operations......................... 11,813,410 17,660,869 18,212,755
Interest expense, net.............................. (17,751,883) (20,322,279) (22,290,373)
Other income (expense)............................. 207,686 (224,276) (487,552)
------------ ------------ ------------
Loss before other nonrecurring items, benefit
from income taxes and cumulative effect of a
change in accounting principle............... (5,730,787) (2,885,686) (4,565,170)
Nonrecurring items:
Write-down of note receivable from
affiliates................................... 4,614,597 -- --
Recapitalization expense....................... -- 1,223,161 --
------------ ------------ ------------
Loss before benefit from income taxes and
cumulative effect of a change in accounting
principle.................................... (10,345,384) (4,108,847) (4,565,170)
Benefit from income taxes.......................... 3,224,453 1,848,981 1,086,752
------------ ------------ ------------
Loss before cumulative effect of a change in
accounting principle......................... (7,120,931) (2,259,866) (3,478,418)
Cumulative effect of a change in accounting
principle, net of benefit from income taxes of
$245,875......................................... -- -- (300,511)
------------ ------------ ------------
Net loss....................................... $ (7,120,931) $ (2,259,866) $ (3,778,929)
============ ============ ============
</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, 1998, 1999 AND 2000
<TABLE>
<CAPTION>
RETAINED ACCUMULATED
EARNINGS OTHER
COMMON STOCK ADDITIONAL (ACCUMULATED COMPREHENSIVE COMPREHENSIVE
NO PAR VALUE PAID-IN CAPITAL DEFICIT) INCOME INCOME (LOSS) TOTAL
-------------- --------------- ------------ ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
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) (7,120,931)
Distributions to parent
company....................... -- -- (557,955) -- -- (557,955)
Unrealized gain on marketable
securities.................... -- -- -- 234,261 234,261 234,261
-----------
Comprehensive loss.............. -- -- -- -- $(6,886,670) --
-------- ----------- ----------- -------- =========== -----------
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) (2,259,866)
Distributions to parent
company....................... -- -- (229,049) -- -- (229,049)
Unrealized gain on marketable
securities.................... -- -- -- 549,657 549,657 549,657
-----------
Comprehensive loss.............. -- -- -- -- $(1,710,209) --
-------- ----------- ----------- -------- =========== -----------
BALANCE, JUNE 30, 1999.......... 250,000 15,898,517 3,865,438 925,950 20,939,905
Contribution from parent
company....................... -- 6,150,000 -- -- $ -- 6,150,000
Net loss........................ -- -- (3,778,929) -- (3,778,929) (3,778,929)
Distributions to parent
company....................... -- -- (115,763) -- -- (115,763)
Unrealized loss on marketable
securities.................... -- -- -- (77,651) (77,651) (77,651)
-----------
Comprehensive loss.............. -- -- -- -- $(3,856,580) --
-------- ----------- ----------- -------- =========== -----------
BALANCE, JUNE 30, 2000.......... $250,000 $22,048,517 $ (29,254) $848,299 $23,117,562
======== =========== =========== ======== ===========
</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,
----------------------------------------
1998 1999 2000
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(7,120,931) $ (2,259,866) $(3,778,929)
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) (1,220,620)
Deferred income taxes............................. (2,487,000) (1,848,981) (1,332,625)
Depreciation...................................... 10,040,403 10,611,931 12,959,447
Amortization...................................... 2,808,394 2,431,548 2,539,608
Write-off of doubtful accounts receivable......... 973,810 -- 51,000
Reserve for doubtful accounts receivable.......... 1,270,000 120,000 120,000
Interest accrued on note receivable............... (326,287) -- --
Write down of note receivable from affiliates..... 4,614,597 -- --
Recapitalization expense.......................... -- 1,223,161 --
Transfer from restricted cash..................... 2,314,408 -- --
Decrease (increase) in:
Accounts receivable............................. (3,572,192) (11,278,249) (2,664,802)
Inventories..................................... (132,564) (4,452,179) 4,935,535
Prepaid expenses and other current assets....... (339,873) (498,156) 25,657
Deferred lease expense.......................... 154,097 185,960 148,155
Deposits and other noncurrent assets............ (5,882) (1,854,035) 42,742
Increase (decrease) in:
Accounts payable................................ (237,588) 202,796 (500,711)
Accrued expenses and other current
liabilities................................... 6,635,557 3,479,585 3,213,870
Other long-term liabilities..................... 2,644,117 (2,617,606) (1,221,012)
----------- ------------ -----------
Net cash provided by (used in) operating
activities.................................... 16,557,668 (7,828,229) 13,317,315
=========== ============ ===========
</TABLE>
F-7
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------
1998 1999 2000
------------ ------------ ------------
<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 -- 1,366,466
Additions to property, plant and equipment........ (21,318,994) (23,808,346) (18,896,005)
Purchase of transportation contract rights........ (1,660) (80,532) (49,667)
Due from affiliates............................... (697,925) (158,528) 15,000
Notes receivable.................................. (314,515) 1,673,967 27,557
Marketable securities and investments............. (1,789,879) 184,352 2,701,688
------------ ------------ ------------
Net cash used in investing activities........... (44,558,556) (22,189,087) (14,834,961)
------------ ------------ ------------
Cash flows from financing activities:
Capital contributed from parent company........... -- -- 6,150,000
Proceeds of additional borrowings................. 42,864,754 18,564,608 --
Principal payments on borrowings.................. (13,532,291) (1,213,037) (2,794,651)
Deferred financing and organization costs......... (3,819,973) (21,760) (75,348)
Other............................................. (557,954) (229,049) (115,763)
------------ ------------ ------------
Net cash provided by financing activities....... 24,954,536 17,100,762 3,164,238
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents....................................... (3,046,352) (12,916,554) 1,646,592
Cash and cash equivalents, beginning of year........ 16,818,889 13,772,537 855,983
------------ ------------ ------------
Cash and cash equivalents, end of year.............. $ 13,772,537 $ 855,983 $ 2,502,575
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest........................................ $ 15,485,695 $ 18,936,487 $ 20,182,403
Income taxes.................................... 408,542 187,292 153,434
============ ============ ============
Supplemental schedule of noncash investing and
financing activities:
Loans incurred for purchase of property, plant and
equipment....................................... $ 6,368,900 $ 6,055,359 $ 1,225,152
Liability incurred for contract rights............ -- -- 415,320
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. BUSINESS
Atlantic Express Transportation Corp. ("AETC" or the "Company"), a wholly
owned subsidiary of Atlantic Express Transportation Group, Inc. ("AETG"), is one
of the largest providers of school bus transportation in the United States,
providing services to various municipalities in New York City, Nassau County,
Suffolk County, Westchester County, Connecticut, Pennsylvania, Missouri,
California and New Jersey. In addition to its school bus transportation
operations, 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 sales of school buses and commercial vehicles in New Jersey and various
counties in New York.
2. 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
the straight-line method over the lives of the related assets. The useful lives
of property, plant and equipment for purposes of computing depreciation are as
follows:
<TABLE>
<CAPTION>
YEARS
---------------
<S> <C>
Building and improvements................................... 15-31.5
Transportation equipment.................................... 5-15
Other....................................................... 3-7
</TABLE>
MARKETABLE SECURITIES
In accordance with Financial Accounting Standards Board Statement No. 115,
AETC determines the classification of securities as held-to-maturity or
available-for-sale at the time of purchase, and reevaluates such designation as
of each balance sheet date. Securities are classified as held-to-maturity when
AETC has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at cost, adjusted for amortization of
premiums and discounts to maturity. Marketable securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with unrealized gains and losses, reported
as a separate component of stockholder's equity. The cost of securities sold is
based on the specific identification method.
F-9
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1999 and 2000 was $2,589,848 and
$3,111,186, 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, 1999 and 2000 was $4,703,403 and $6,791,040,
respectively.
INSURANCE RESERVES
Insurance reserves of $7,523,529 and $5,001,336 as of June 30, 1999 and
2000, 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. On December 29, 1999, the Company
re-instated its self-insurance program for auto liability claims for the first
$250,000 of any one occurrence through Atlantic North Casualty Company
("Atlantic North") its wholly owned captive insurance subsidiary. For this
policy, Atlantic North's total maximum claims liability ($4.6 million) is fully
funded by premiums charged to operating subsidiaries. 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
F-10
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. 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, and
accounts payable approximated fair value as of June 30, 1999 and 2000 due to
either their 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. The fair value of the
Company's 10 3/4% Senior Secured Notes is approximately $133 million as compared
to the book carrying value of $150 million. The fair value is calculated using
the quoted market price on June 30, 2000. Although fair value is less than
carrying value, settlement at the fair value may not be possible.
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. No write-downs have been necessary through June 30, 2000.
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. On July 1, 1999,
the Company adopted SOP 98-5 "Reporting on the Costs of Start-Up Activities",
and recorded a $0.3 million charge the for cumulative effect of a change in
accounting principle, net of, benefit from income taxes, for the year ended
June 30, 2000.
3. 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
F-11
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITION OF AETG (CONTINUED)
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.
4. RETAINAGE
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, 1999 and 2000 retainage of
$3,906,908 and $4,774,817, 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
years ended June 30, 1999 and 2000.
5. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
Parts and fuel..................................... $ 3,919,018 $ 5,339,198
Buses held for sale................................ 11,296,000 4,940,285
----------- -----------
$15,215,018 $10,279,483
=========== ===========
</TABLE>
On August 11, 1999, after receiving a fairness opinion issued by an
investment bank of national standing, Central New York Coach Sales and
Service, Inc. and Jersey Bus Sales, Inc., both wholly owned subsidiaries of the
Company (collectively "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 from fifteen to thirty 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 purchase of any such vehicles. During the year ended
June 30, 2000, total payments made by Central were $29,281,254. In addition, as
of June 30, 2000, Central was obligated to purchase $11,189,109 of vehicles from
ABD.
As of June 30, 2000, $866,916 of deposits is classified as prepaid expenses.
6. CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents is $658,001 and $1,739,235 at
June 30, 1999 and 2000, respectively, which represents cash equivalents of a
captive insurance company subsidiary which are only available for use by that
subsidiary.
F-12
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1999 2000
------------ ------------
<S> <C> <C>
Land............................................. $ 9,824,758 $ 9,824,758
Building and improvements........................ 23,332,818 24,026,731
Transportation equipment......................... 162,802,019 174,995,208
Machinery and equipment.......................... 17,711,814 22,019,888
Furniture and fixtures........................... 3,468,240 3,774,107
------------ ------------
217,139,649 234,640,692
Less: Accumulated depreciation................... 98,000,822 109,706,621
------------ ------------
$119,138,827 $124,934,071
============ ============
</TABLE>
8. MARKETABLE SECURITIES
The amortized cost and estimated fair value of the marketable securities are
as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000
-------------------------------------
GROSS
UNREALIZED
COST GAIN (LOSS) FAIR VALUE
---------- ----------- ----------
<S> <C> <C> <C>
Available-for-sale:
Equity securities....................... $4,657,718 $936,390 $5,594,108
U.S. Treasury and other government debt
securities............................ 2,646,644 (88,091) 2,558,553
---------- -------- ----------
Total marketable securities........... $7,304,362 $848,299 $8,152,661
========== ======== ==========
</TABLE>
<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
========== ======== ==========
</TABLE>
The above marketable securities are held by a captive insurance subsidiary
and are available for use only by that company. At June 30, 2000 marketable
securities of approximately $6.0 million are pledged as collateral for
$3.4 million of letters of credit issued by the captive insurance company.
While all of the marketable securities are available for use in the ordinary
course of business of the captive insurance company subsidiary, $1,461,000 has
been classified as current in accordance with that subsidiary's cash on hand and
expected payments of claims in the next fiscal year.
F-13
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. MARKETABLE SECURITIES (CONTINUED)
Contractual maturity dates of the above securities are as follows:
<TABLE>
<CAPTION>
COST FAIR VALUE
---------- ----------
<S> <C> <C>
2001................................................. $ 150,877 $ 149,695
2002................................................. 387,421 381,394
2004-2008............................................ 685,839 653,284
2013-2029............................................ 1,422,507 1,374,180
No maturity date (equity securities)................. 4,657,718 5,594,108
---------- ----------
$7,304,362 $8,152,661
========== ==========
</TABLE>
Net realized gains on marketable securities for the years ended June 30,
1998, 1999 and 2000 amounted to $675,000, $1,213,000 and $1,221,000
respectively, and are included in revenues of the captive insurance company.
9. DEBT
The following represents the debt outstanding at June 30, 1999 and 2000.
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1999 2000
------------ ------------
<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)...................................... 681,463 650,694
8% mortgage on real estate located in Bordentown, New
Jersey, due July 1, 2002 (b).............................. 1,376,853 1,314,686
Revolving line of credit (c)................................ 20,029,362 18,744,362
Various notes payable primarily secured by transportation
equipment, with interest rates ranging from 8%-9.3%....... 9,244,942 9,468,699
------------ ------------
181,332,620 180,178,441
Less: Current portion....................................... 21,411,180 1,907,563
------------ ------------
$159,921,440 $178,270,878
============ ============
</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
F-14
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. DEBT (CONTINUED)
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"), AETC purchased from Mr. Denney, a former
shareholder of Central, the real properties 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.
In November 1999, the revolving credit facility, scheduled to expire
February 3, 2000, was extended for an additional two years until
February 3, 2002. The interest rate per annum applicable to the revolving
credit facility is either the prime rate, as announced by CoreStates Bank
N.A., (8.0% and 9.5% at June 30, 1999 and 2000, respectively) plus 0.75% and
0.50% as of June 30, 1999 and 2000, respectively, or, at AETC's option, the
adjusted Eurodollar rate (as defined) plus 2.7% and 2.5% as of June 30, 1999
and 2000, respectively. AETC is required to pay certain fees in connection
with the revolving credit facility including but not limited to an unused
line fee of 0.375% on the undrawn portion of the first $22 million of the
revolving credit commitment.
The revolving credit facility contains negative covenants similar to those
contained in the senior notes referred to in (A) and customary events of
default.
Aggregate yearly maturities of long-term debt as of June 30, 2000, are as
follows:
<TABLE>
<CAPTION>
TOTAL
------------
<S> <C>
2001........................................................ $ 1,907,563
2002........................................................ 21,342,920
2003........................................................ 3,067,526
2004........................................................ 151,786,245
2005........................................................ 1,191,773
Thereafter.................................................. 882,414
------------
Total................................................. $180,178,441
============
</TABLE>
F-15
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
The provisions (benefits) for income taxes consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal.............................. $ (900,000) $ -- $ --
State and local...................... 163,000 -- --
----------- ----------- -----------
(737,000) -- --
Deferred taxes......................... (2,487,000) (1,848,981) (1,332,625)
----------- ----------- -----------
$(3,224,000) $(1,848,981) $(1,332,625)
=========== =========== ===========
</TABLE>
Deferred tax assets/(liabilities) are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1999 2000
------------ ------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful receivables............. $ 737,939 $ 769,050
Loss and tax credit carryforwards.............. 21,256,033 30,976,365
Contract rights and other...................... 770,754 1,019,555
------------ ------------
22,764,726 32,764,970
------------ ------------
Deferred tax liabilities:
Depreciation................................... (18,351,223) (26,750,255)
Goodwill amortization.......................... (477,522) (746,109)
------------ ------------
(18,828,745) (27,496,364)
------------ ------------
Deferred tax assets (net)........................ $ 3,935,981 $ 5,268,606
============ ============
</TABLE>
The actual tax expense (benefit) differs from the tax expense computed by
applying the U.S. corporate rate of 34% as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Tax benefit at statutory rate.......................... $(3,517,000) $(1,397,008) $(1,737,929)
Write-down of note receivable from affiliate........... 1,569,000 -- --
State and local tax benefit............................ (1,293,000) (451,973) (562,271)
Valuation reserve for tax credit carryforward
amounts.............................................. -- -- 967,575
Other.................................................. 17,000 -- --
----------- ----------- -----------
Actual tax benefit..................................... $(3,224,000) $(1,848,981) $(1,332,625)
=========== =========== ===========
</TABLE>
For tax purposes, the Company had available, at June 30, 2000, net operating
loss ("NOL") carryforwards for regular federal and state income tax purposes of
approximately $66 million, which expire during the years 2011 through 2020. In
conjunction with the Alternate Minimum Tax ("AMT")
F-16
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
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, 1999 and 2000, 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, the inclusion with the consolidated return of its
parent and the expected timing of temporary difference reversal.
11. NONRECURRING 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 3) 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).
12. RELATED PARTY TRANSACTIONS
AETC had amounts due from AETG of $831,117 and $816,117 at June 30, 1999 and
2000, respectively. During the years ended June 30, 1999 and 2000, AETC received
management fee income from affiliated companies of $44,010 and $459,900,
respectively, and paid advisory fees to an affiliate of the major stockholder of
$328,333 and $458,000, respectively. No management fees or advisory fees were
charged or received from related parties for the year ended June 30, 1998. AETC
incurred rent expense of $228,000 for each of the years ended June 30, 1998 and
1999 and $232,200 for the year ended June 30, 2000 in connection with leases of
real property from affiliate companies.
F-17
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
LEASES
Minimum rental commitments as of June 30, 2000 for noncancellable equipment
and real property operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1999
--------------------------------------------
TRANSPORTATION
AND OTHER
REAL PROPERTY EQUIPMENT TOTAL
------------- -------------- -----------
<S> <C> <C> <C>
2001.................................. $ 2,606,672 $1,886,376 $ 4,493,048
2002.................................. 1,811,614 1,684,228 3,495,842
2003.................................. 1,468,228 1,148,105 2,616,333
2004.................................. 1,203,281 441,024 1,644,305
2005.................................. 916,619 353,199 1,269,818
Thereafter............................ 3,430,443 134,380 3,564,823
----------- ---------- -----------
$11,436,857 $5,647,312 $17,084,169
=========== ========== ===========
</TABLE>
During the year ended June 30, 2000, 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 $4,932,881,
$5,034,230 and $4,913,801 for the years ended June 30, 1998, 1999 and 2000,
respectively.
LITIGATION
In April 2000, AETG and the Company settled their litigation with National
Express Group, PLC. In connection therewith, the Company has recorded a credit
of $4.8 million to general and administrative expenses during the year ended
June 30, 2000.
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 or results of operations of AETC.
OUTSTANDING LETTERS OF CREDIT
Letters of credit totaling approximately $3,690,000 and $3,620,000
(including $3.4 million issued by the captive insurance company) (see Note 8)
were outstanding as of June 30, 1999 and 2000, 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, 2000, AETC has provided performance bonds aggregating approximately
$60 million.
F-18
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. 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 $96,000, $164,000 and $282,000 for the years ended June 30, 1998,
1999 and 2000, respectively.
AETC has a qualified Profit Sharing Plan for eligible employees (primarily
drivers, mechanics and escorts not covered by union deferred compensation
plans). AETC's contributions are based upon hours worked. Participants are not
allowed to make deferred contributions. AETC's contribution was approximately
$150,000, $108,000 and $95,000 for the years ended June 30, 1998, 1999 and 2000,
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 the Deferred Compensation Plan. AETC's
contribution was approximately $100,000 for the years ended June 30, 1998, 1999,
respectively and $130,000 for the year ended June 30, 2000.
15. MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK
For the years ended June 30, 1998, 1999 and 2000 revenues derived from the
New York Board of Education were approximately 42.9%, 39.5% and 39.4% of total
Transportation Operations revenues, respectively. As of June 30, 1999 and 2000,
AETC had accounts receivable including retainage from this customer of
$12,173,087and $13,893,354, respectively.
At June 30, 1999 and 2000, substantially all cash and cash equivalents were
on deposit with one major financial institution.
16. 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.
17. SUBSEQUENT EVENT
In September 2000, the New York City Board of Education (the "Board")
extended all of the Company's contracts with the Board for an additional five
years ending June 30, 2005. These contracts represented approximately 39.4% of
the Transportation Operations revenues for the fiscal year ended June 30, 2000.
F-19
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SEGMENT INFORMATION
AETC's business is comprised of Transportation Operations and Bus Sales
Operations conducted in various states throughout the U.S. The summarized
segment information, as of and for the years ended June 30, 2000, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 2000
-------------------------------------------
TRANSPORTATION BUS SALES
OPERATIONS OPERATIONS TOTAL
-------------- ----------- ------------
<S> <C> <C> <C>
Revenues............................................ $268,402,709 $85,078,295 $353,481,004
Cost of operations.................................. 223,558,726 77,454,772 301,013,498
Income from operations.............................. 15,380,385 2,832,370 18,212,755
Loss before non-recurring items, benefit from income
taxes and cumulative effect of a change in
accounting principle.............................. (4,367,179) (197,991) (4,565,170)
Total assets........................................ 199,372,247 34,439,917 233,812,164
Capital Expenditures................................ 19,774,321 346,836 20,121,157
Depreciation and amortization....................... 13,060,602 854,798 13,915,400
</TABLE>
<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.................................. 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, benefit
from income taxes and cumulative effect of a
change in accounting principle.................... (3,779,985) 894,299 (2,885,686)
Total assets........................................ 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
</TABLE>
<TABLE>
<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.................................. 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-20
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. SUPPLEMENTAL FINANCIAL INFORMATION
The following are condensed consolidating financial statements as of
June 30, 2000, 1999 and 1998 regarding AETC (on a stand-alone basis and on a
consolidated basis) and Guarantors and Non-Guarantors of the Senior Secured
Notes (see Note 9(a)).
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2000
<TABLE>
<CAPTION>
ATLANTIC
EXPRESS NON-
TRANSPORTATION GUARANTOR GUARANTOR ELIMINATION
CORP. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Current assets........... $ 5,460,699 $ 62,668,334 $ 3,257,092 $ -- $ 71,386,125
Investment in
affiliates............. 55,601,639 -- -- (55,601,639) --
Total assets............. 216,113,405 206,708,073 10,209,264 (199,218,578) 233,812,164
Current liabilities...... 6,949,572 19,691,884 3,208,001 -- 29,849,457
Total liabilities........ 182,396,073 168,566,252 5,819,797 (146,087,520) 210,694,602
Stockholder's equity..... 33,717,332 38,141,821 4,389,467 (53,131,058) 23,117,562
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
ATLANTIC
EXPRESS NON-
TRANSPORTATION GUARANTOR GUARANTOR ELIMINATION
CORP. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues............. $ -- $352,028,432 $ 3,452,288 $ (1,999,716) $353,481,004
Income from operations... 3,345,000 14,066,602 801,153 -- 18,212,755
Income (loss) before
nonrecurring items,
benefit from income
taxes and cumulative
effect of a change in
accounting principle... 3,345,000 (8,711,323) 801,153 -- (4,565,170)
Cumulative effect of a
change in accounting
principle, net of
benefit from income
taxes.................. -- (300,511) -- -- (300,511)
Net income (loss) of
subsidiaries........... (4,651,104) -- -- 4,651,104 --
Net income (loss)........ (3,778,929) (5,091,738) 440,634 4,651,104 (3,778,929)
</TABLE>
F-21
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 2000
<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............. $ (3,422,794) $ 18,360,797 $(1,620,688) $ -- $ 13,317,315
Net cash provided by
(used in) investing
activities............. (852,309) (16,684,340) 2,701,688 -- (14,834,961)
Net cash provided by
(used in) financing
activities............. 4,749,237 (1,584,999) -- -- 3,164,238
Increase in cash and cash
equivalents............ 474,134 91,458 1,081,000 -- 1,646,592
Cash and cash
equivalents, beginning
of period.............. (324,134) 522,117 658,000 -- 855,983
------------ ------------ ----------- ------------- ------------
Cash and cash
equivalents, end of
period................. 150,000 613,575 1,739,000 -- $ 2,502,575
</TABLE>
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>
F-22
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
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,
benefit from income
taxes and cumulative
effect of a change in
accounting principle... (1,367,762) (2,425,273) 937,349 -- (2,885,686)
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-23
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
ATLANTIC
EXPRESS NON-
TRANSPORTATION GUARANTOR GUARANTOR ELIMINATION
CORP. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues............. $ -- $261,060,717 $ 6,865,533 $ (6,008,056) $261,918,194
Income (loss) from
operations............. -- 11,937,838 (124,428) -- 11,813,410
Income (loss) before non-
recurring items,
benefit from income
taxes and cumulative
effect of a change in
accounting principle... -- (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-24
<PAGE>
[this page intentionally blank]
F-25
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
2000 2000
------------ -------------
(AUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents................................. $ 2,502,575 $ 1,805,052
Current portion of marketable securities.................. 1,461,000 3,090,000
Accounts receivable, net of allowance for doubtful
accounts................................................ 50,962,057 48,449,167
Inventories............................................... 10,279,483 9,873,251
Notes receivable.......................................... 15,901 --
Prepaid expenses and other current assets................. 6,165,109 6,014,972
------------ ------------
Total current assets.................................. 71,386,125 69,232,442
------------ ------------
Property, plant and equipment, less accumulated
depreciation.............................................. 124,934,071 133,091,360
------------ ------------
Other assets:
Goodwill, net............................................. 11,817,606 11,736,129
Investments............................................... 35,000 35,000
Marketable securities..................................... 6,691,661 5,518,686
Transportation contract rights, net....................... 3,329,311 3,238,284
Deferred financing and organization costs, net............ 6,248,073 5,896,305
Due from parent company................................... 816,117 785,838
Deposits and other noncurrent assets...................... 3,205,594 3,127,850
Deferred tax assets....................................... 5,268,606 9,065,521
Covenant not to compete, net.............................. 80,000 70,000
------------ ------------
Total other assets.................................... 37,491,968 39,473,613
------------ ------------
$233,812,164 $241,797,415
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current:
Current portion of long-term debt......................... $ 1,907,563 $ 2,990,270
Accounts payable.......................................... 1,952,700 3,452,806
Accrued compensation...................................... 6,516,830 7,241,948
Current portion of insurance reserve...................... 3,200,000 3,950,000
Accrued interest.......................................... 7,017,741 3,213,381
Other accrued expenses and current liabilities............ 9,254,623 14,482,708
------------ ------------
Total current liabilities............................. 29,849,457 35,331,113
------------ ------------
Long-term debt, net of current portion...................... 178,270,878 186,718,345
------------ ------------
Premium on bond issuance.................................... 771,750 717,900
------------ ------------
Other long-term liabilities................................. 1,802,517 1,061,361
------------ ------------
Commitments and contingencies
Stockholder's equity:
Common stock, no par value -- shares authorized 200;
issued and outstanding 100.............................. 250,000 250,000
Additional paid-in capital................................ 22,048,517 22,048,517
Accumulated earnings (deficit)............................ (29,254) (4,669,930)
Accumulated other comprehensive income.................... 848,299 340,109
------------ ------------
Total stockholder's equity............................ 23,117,562 17,968,696
------------ ------------
$233,812,164 $241,797,415
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues:
Transportation Operations................................. $43,785,012 $50,479,581
Bus Sales Operations...................................... 38,599,199 39,062,804
----------- -----------
Total revenues.............................................. 82,384,211 89,542,385
----------- -----------
Costs and expenses:
Cost of Operations -- Transportation Operations........... 40,468,547 46,310,958
Cost of Operations -- Bus Sales Operations................ 34,628,461 35,716,353
General and administrative................................ 5,910,604 5,704,989
Depreciation and amortization............................. 3,440,581 4,167,761
----------- -----------
Total operating costs and expenses.......................... 84,448,193 91,900,061
----------- -----------
Loss from operations.................................... (2,063,982) (2,357,676)
Interest expense (net)...................................... (5,617,233) (5,968,414)
Other expense............................................... (314,501) (111,501)
----------- -----------
Loss before other items and benefit from income taxes... (7,995,716) (8,437,591)
Cumulative effect of a change in accounting principle, net
of benefit from income taxes of $245,875.................. (300,511) --
----------- -----------
Loss before benefit from income taxes................... (8,296,227) (8,437,591)
Benefit from income taxes................................... 3,598,070 3,796,915
----------- -----------
Net loss.................................................... $(4,698,157) $(4,640,676)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL ACCUMULATED OTHER
COMMON STOCK PAID-IN EARNINGS COMPREHENSIVE COMPREHENSIVE
NO PAR VALUE CAPITAL (DEFICIT) INCOME INCOME (LOSS) TOTAL
-------------- ----------- ------------ -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 2000............. 250,000 22,048,517 (29,254) 848,299 23,117,562
Net loss........................... -- -- (4,640,676) -- (4,640,676) (4,640,676)
Unrealized loss on marketable
securities....................... -- -- -- (508,190) (508,190) (508,190)
-----------
Comprehensive loss................. -- -- -- -- $(5,148,866) --
-------- ----------- ----------- --------- =========== -----------
BALANCE, SEPTEMBER 30, 2000........ $250,000 $22,048,517 $(4,669,930) $ 340,109 $17,968,696
======== =========== =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(4,698,157) $(4,640,676)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Loss (gain) on sale of marketable securities............ (4,493) (86,560)
Deferred income taxes................................... (3,843,947) (3,796,915)
Depreciation............................................ 3,200,376 3,962,655
Amortization............................................ 641,390 597,314
Reserve for doubtful accounts receivable................ 30,000 30,000
Decrease (increase) in:
Accounts receivable................................... (262,585) 2,482,890
Inventories........................................... 5,381,113 406,232
Prepaid expenses and other current assets............. 690,585 150,137
Deferred lease expense................................ 4,117 --
Deposits and other noncurrent assets.................. 6,456 77,744
Increase (decrease) in:
Accounts payable...................................... 1,261,767 1,500,106
Accrued expenses and other current liabilities........ (1,517,685) 2,898,843
Other long-term liabilities........................... (527,676) (741,156)
----------- -----------
Net cash provided by operating activities............... 361,261 2,840,614
----------- -----------
Cash flows from investing activities:
Proceeds from sale of fixed assets........................ -- 845,762
Additions to property, plant and equipment................ (7,428,749) (12,877,205)
Purchase of transportation contract rights................ -- (11,782)
Due from parent company................................... -- 30,279
Notes receivable.......................................... 1,672 15,901
Marketable securities sold (purchased), net............... 243,909 (877,655)
----------- -----------
Net cash used in investing activities................... (7,183,168) (12,874,700)
----------- -----------
Cash flows from financing activities:
Proceeds of additional borrowings......................... 6,469,809 9,753,000
Principal payments on borrowings.......................... (165,574) (311,326)
Deferred financing and organization costs................. -- (105,111)
----------- -----------
Net cash provided by financing activities............... 6,304,235 9,336,563
----------- -----------
Net increase (decrease) in cash and cash equivalents........ (517,672) (697,523)
Cash and cash equivalents, beginning of period.............. 855,983 2,502,575
----------- -----------
Cash and cash equivalents, end of period.................... $ 338,311 $ 1,805,052
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................ $ 8,651,538 $ 9,231,690
Income taxes............................................ 45,625 126,256
Supplemental schedule of noncash investing and financing
activities:
Loans incurred for purchase of property, plant and
equipment............................................... $ 340,000 $ 88,500
Liability incurred for acquisition of contract rights..... 415,320 --
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF ACCOUNTING
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and related notes contained in the
Company's financial statements as of and for the year ended June 30, 2000 as
filed on Form 10-K. In the opinion of management, all adjustments and accruals
(consisting only of normal recurring adjustments) which are necessary for a fair
presentation of operating results are reflected in the accompanying financial
statements. Operating results for the periods presented are not necessarily
indicative of the results for the full fiscal year.
2. INVENTORIES
Inventories comprised the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
2000 2000
----------- -------------
<S> <C> <C>
Parts and fuel..................................... $ 5,339,198 $5,033,687
Buses.............................................. 4,940,285 4,839,564
----------- ----------
$10,279,483 $9,873,251
=========== ==========
</TABLE>
On August 11, 1999, after receiving a fairness opinion issued by an
investment bank of national standing, Central New York Coach Sales and
Service, Inc. and Jersey Bus Sales, Inc., both wholly-owned subsidiaries of the
Company (collectively "Central") entered into an agreement with Atlantic Bus
Distributors, Inc. ("ABD"), a wholly owned subsidiary of Atlantic Express
Transportation Group, Inc. ("AETG") (the parent company), to order certain buses
through ABD. Central is required to deposit from fifteen to thirty 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 purchase of any such vehicles. During the quarter ended September 30, 2000,
total payments made by Central were $28,041,324. In addition, as of
September 30, 2000, Central was obligated to purchase $10,188,835 of vehicles
from ABD.
As of September 30, 2000, $1,029,887 of deposits is classified as prepaid
expenses.
3. RELATED PARTY TRANSACTIONS
In August 2000, AETG purchased $5.5 million of buses which it is leasing to
the Company. These operating leases, with terms ranging from 3 to 5 years,
provide for annual lease payments of approximately $0.7 million.
4. SUBSEQUENT EVENT
Effective October 31, 2000, after receiving a fairness opinion issued by an
investment bank of national standing, the Company sold four subsidiaries to an
affiliate, Atlantic Transit, Corp. (ATC) for a purchase price of $4.3 million.
The proceeds were used to reduce borrowings under the Company's revolving line
of credit. Subject to compliance with the revolving credit agreement, the
Company may re-borrow such amounts to provide the Company with additional
working capital. In accordance with the Indenture for the Company's 10 3/4%
Senior Secured Notes due 2004 (the "Notes"), the four subsidiaries were
terminated as guarantors of the Notes, and all of the capital stock and the
assets of
F-30
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUBSEQUENT EVENT (CONTINUED)
the four subsidiaries were released as collateral for the Notes. For the quarter
ended December 31, 2000, the Company will reflect a loss from sale of
subsidiaries of approximately $3.6 million. The following tables reflect the
effect such sales would have had on the statements of operations for the year
ended June 30, 2000 and the three months ended September 30, 2000 had such sales
been made as of July 1, 1999, and the effect on the balance sheet as of
September 30, 2000 had such sales been made as of that date:
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ----------- ------------
<S> <C> <C> <C>
Revenues............................................. $353,481,004 $(9,586,748) $343,894,256
------------ ----------- ------------
Gross profit......................................... 52,467,506 (2,294,189) 50,173,317
------------ ----------- ------------
Income (loss) before nonrecurring items, benefit from
(provision for) income taxes and cumulative effect
of a change in accounting principle................ (4,565,170) 1,295,493 (5,860,663)
------------ ----------- ------------
Net income (loss).................................... $ (3,778,929) $ 712,521 $ (4,491,450)
============ =========== ============
</TABLE>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ----------- ------------
<S> <C> <C> <C>
Revenues............................................. $ 89,542,385 $(1,314,251) $ 88,228,134
------------ ----------- ------------
Gross profit......................................... 7,515,074 (54,426) 7,460,648
------------ ----------- ------------
Income (loss) before nonrecurring items, benefit from
(provision for) income taxes and cumulative effect
of a change in accounting principle................ (8,437,591) (259,309) (8,178,282)
------------ ----------- ------------
Net income (loss).................................... $ (4,640,676) (142,620) $ (4,498,056)
============ =========== ============
</TABLE>
F-31
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUBSEQUENT EVENT (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
ADJUSTMENTS
AND
HISTORICAL ELIMINATIONS PRO FORMA
------------ ------------ ------------
<S> <C> <C> <C>
Current assets....................................... $ 69,232,442 $ 2,857,485 $ 72,089,927
Contract rights and other non current assets......... 172,564,973 (5,766,965) 166,798,008
------------ ----------- ------------
Total assets....................................... $241,797,415 $(2,909,480) $238,887,935
============ =========== ============
Current liabilities.................................. $ 35,331,113 $ (356,566) $ 34,974,547
Inter-company........................................ 954,747 954,747
Non current liabilities.............................. 188,497,606 -- 188,497,606
------------ ----------- ------------
Total liabilities.................................. $223,828,719 $ 598,181 $224,426,900
============ =========== ============
Shareholder's equity................................. 17,968,696 (3,507,661) 14,461,035
------------ ----------- ------------
Total liabilities and shareholder's equity........... $241,797,415 $(2,909,480) $238,887,935
============ =========== ============
</TABLE>
5. SUPPLEMENTAL FINANCIAL INFORMATION
The following are unaudited condensed consolidating financial statements
regarding the Company (on a stand-alone basis and on a consolidated basis) and
its subsidiaries which are guarantors and non-guarantors of the Company's
10 3/4% Senior Secured Notes due 2004 as of and for the three months ended
September 30, 2000, and a consolidating balance sheet as of June 30, 2000 and
consolidating statements of operations and cash flows for the three months ended
September 30, 1999. The following information does not give effect to the
subsequent event described in Note 4.
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
ATLANTIC
EXPRESS NON-
TRANSPORTATION GUARANTOR GUARANTOR ELIMINATION
CORP. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Current assets................. $ 614,577 $ 64,578,398 $ 4,039,467 $ -- $ 69,232,442
Investment in affiliates....... 50,963,486 -- -- (50,963,486) --
Total assets................... 221,603,587 218,034,267 10,083,264 (207,923,703) 241,797,415
Current liabilities............ 3,020,536 28,068,324 4,242,253 -- 35,331,113
Total liabilities.............. 179,049,832 184,587,696 6,147,413 (145,956,222) 223,828,719
Stockholder's equity........... 42,553,755 33,446,571 3,935,851 (61,967,481) 17,968,696
</TABLE>
F-32
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
ATLANTIC
EXPRESS NON-
TRANSPORTATION GUARANTOR GUARANTOR ELIMINATION
CORP. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues................... $ -- $ 89,392,164 $ 1,150,079 $ (999,858) $ 89,542,385
Income (loss) from
operations................... -- (2,456,901) 99,225 -- (2,357,676)
Income (loss) before income
taxes........................ -- (8,536,816) 99,225 -- (8,437,591)
Net loss of subsidiaries....... (4,640,676) -- -- 4,640,676 --
Net income (loss).............. (4,640,676) (4,695,250) 54,574 4,640,676 (4,640,676)
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2000
<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......... $ (9,514,939) $ 12,356,898 $ (1,345) $ -- $ 2,840,614
Net cash provided by (used in)
investing activities......... (342,061) (11,654,984) (877,655) -- (12,874,700)
Net cash provided by (used in)
financing activities......... 9,753,000 (416,437) -- -- 9,336,563
------------ ------------ ----------- ------------- ------------
Increase (decrease) in cash and
cash equivalents............. $ (104,000) $ 285,477 $ (879,000) $ -- $ (697,523)
Cash and cash equivalents,
beginning of period.......... 150,000 613,575 1,739,000 -- 2,502,575
------------ ------------ ----------- ------------- ------------
Cash and cash equivalents,
end of period................ $ 46,000 $ 899,052 $ 860,000 $ -- $ 1,805,052
============ ============ =========== ============= ============
</TABLE>
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2000
<TABLE>
<CAPTION>
ATLANTIC
EXPRESS NON-
TRANSPORTATION GUARANTOR GUARANTOR ELIMINATION
CORP. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Current assets................. $ 5,460,699 $ 62,668,334 $ 3,257,092 $ -- $ 71,386,125
Investment in affiliates....... 55,601,639 -- -- (55,601,639) --
Total assets................... 216,113,405 206,708,073 10,209,264 (199,218,578) 233,812,164
Current liabilities............ 6,949,572 19,691,884 3,208,001 -- 29,849,457
Total liabilities.............. 182,396,073 168,566,252 5,819,797 (146,087,520) 210,694,602
Stockholder's equity........... 33,717,332 38,141,821 4,389,467 (53,131,058) 23,117,562
</TABLE>
F-33
<PAGE>
ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
ATLANTIC
EXPRESS NON-
TRANSPORTATION GUARANTOR GUARANTOR ELIMINATION
CORP. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues................... $ -- $ 82,319,712 $ 64,499 $ -- $ 82,384,211
Income (loss) from
operations................... -- (2,079,720) 15,738 -- (2,063,982)
Income (loss) before benefit
from income taxes and
cumulative effect of a change
in accounting principle...... -- (8,011,454) 15,738 -- (7,995,716)
Cumulative effect of a change
in accounting principle, net
of benefit from income
taxes........................ -- (300,511) -- -- (300,511)
Net loss of subsidiaries....... (4,698,157) -- -- 4,698,157 --
Net income (loss).............. (4,698,157) (4,706,813) 8,656 4,698,157 (4,698,157)
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 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......... $ (5,548,384) $ 6,388,054 $ (478,409) $ -- $ 361,261
Net cash provided by (used in)
investing activities......... (63,269) (7,363,808) 243,909 -- (7,183,168)
Net cash provided by financing
activities................... 6,129,809 174,426 -- -- 6,304,235
------------ ------------ ----------- ------------- ------------
Increase (decrease) in cash and
cash equivalents............. $ 518,156 $ (801,328) $ (234,500) $ -- $ (517,672)
Cash and cash equivalents,
beginning of period.......... (324,134) 522,117 658,000 -- 855,983
------------ ------------ ----------- ------------- ------------
Cash and cash equivalents,
end of period................ $ 194,022 $ (279,211) $ 423,500 $ -- $ 338,311
============ ============ =========== ============= ============
</TABLE>
F-34
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder
Atlantic Transit, Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Atlantic
Transit, Corp. and Subsidiaries (a New York corporation) as of June 30, 2000 and
1999, and the related consolidated statements of operations, stockholder's
equity and cash flows for the year ended June 30, 2000 and the period from
inception (February 22, 1999) through June 30, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Atlantic Transit,
Corp. and Subsidiaries as of June 30, 2000 and 1999, and the results of their
operations and their cash flows for the year ended June 30, 2000 and the period
from inception (February 22, 1999) through June 30, 1999 in conformity with
accounting principles generally accepted in the United States.
[LOGO]
New York, New York
September 27, 2000
F-35
<PAGE>
ATLANTIC TRANSIT, CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 3,083,326 $ 1,725,389
Accounts receivable....................................... 7,134,494 1,998,032
Inventories............................................... 396,123 162,731
Prepaid expenses and other current assets................. 964,059 500,865
----------- -----------
Total current assets.................................... 11,578,002 4,387,017
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated
depreciation.............................................. 33,850,677 9,421,253
----------- -----------
OTHER ASSETS:
Transportation contract rights, net....................... 18,257,315 6,979,456
Deferred financing cost, net.............................. 832,045 613,888
Covenant not to compete, net.............................. 441,000 94,500
Deposits and other noncurrent assets...................... 1,110,881 120,028
----------- -----------
Total other assets...................................... 20,641,241 7,807,872
----------- -----------
Total assets............................................ $66,069,920 $21,616,142
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 806,557 $ 460,932
Accrued compensation...................................... 760,276 431,018
Accrued interest.......................................... 297,625 164,296
Accrued expenses and other current liabilities............ 1,236,497 385,972
Due to affiliates, net.................................... 163,901 8,509
----------- -----------
Total current liabilities............................... 3,264,856 1,450,727
----------- -----------
LONG-TERM DEBT.............................................. 36,200,000 14,075,000
OTHER LONG-TERM LIABILITIES................................. 75,000 --
DEFERRED INCOME TAXES....................................... 1,314,438 789,326
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, no par value, 200 shares authorized, issued
and outstanding......................................... 4,000,000 4,000,000
Additional paid-in capital................................ 20,660,000 750,000
Retained earnings......................................... 565,626 551,089
----------- -----------
Total stockholder's equity.............................. 25,215,626 5,301,089
----------- -----------
Total liabilities and stockholder's equity.............. $66,069,920 $21,616,142
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE>
ATLANTIC TRANSIT, CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED JUNE 30, 2000 AND
FOR THE PERIOD FROM INCEPTION
(FEBRUARY 22, 1999) THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEAR ENDED THROUGH
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
REVENUES $48,890,412 $8,826,654
COST AND EXPENSES:
Cost of operations........................................ 36,002,189 6,185,245
General and administrative expenses....................... 4,885,030 687,315
Depreciation and amortization expense..................... 4,925,135 559,111
----------- ----------
Total operating costs and expenses.................... 45,812,354 7,431,671
----------- ----------
Income from operations................................ 3,078,058 1,394,993
INTEREST EXPENSE, net....................................... 3,011,560 392,700
OTHER EXPENSES, net......................................... 40,062 312
----------- ----------
Income before provision for income taxes.............. 26,436 1,001,981
PROVISION FOR INCOME TAXES.................................. 11,899 450,892
----------- ----------
Net income............................................ $ 14,537 $ 551,089
----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE>
ATLANTIC TRANSIT, CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED JUNE 30, 2000 AND
FOR THE PERIOD FROM INCEPTION
FROM (FEBURARY 22, 1999) THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
BALANCE, February 22, 1999.................... $ -- $ -- $ -- $ --
Issuance of common stock.................... 4,000,000 -- -- 4,000,000
Contribution from parent company............ -- 750,000 -- 750,000
Net income.................................. -- -- 551,089 551,089
---------- ----------- -------- -----------
BALANCE, June 30, 1999........................ 4,000,000 750,000 551,089 5,301,089
---------- ----------- -------- -----------
Contribution from parent company............ -- 19,900,000 -- 19,900,000
Net income.................................. -- -- 14,537 14,537
---------- ----------- -------- -----------
BALANCE, June 30, 2000........................ $4,000,000 $20,650,000 $565,626 $25,215,626
========== =========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE>
ATLANTIC TRANSIT, CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2000 AND
FOR THE PERIOD FROM INCEPTION
(FEBRUARY 22, 1999) THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEAR ENDED THROUGH
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 14,537 $ 551,089
Adjustments to reconcile net income to cash provided by
operating activities:
Deferred income taxes................................. 11,899 108,697
Depreciation.......................................... 3,452,004 408,690
Amortization.......................................... 1,739,163 186,534
Loss on sale of fixed assets.......................... 3,674 --
(Increase) in:
Accounts receivable................................. (3,475,285) (696,915)
Inventories......................................... (154,321) (6,778)
Prepaid expenses and other current assets........... (303,467) (345,672)
Deposits and other noncurrent assets................ (984,523) (40,675)
Increase (decrease) in:
Accounts payable.................................... (90,096) (64,543)
Accrued expenses and other current liabilities...... 182,322 149,809
Other long-term liabilities......................... 75,000 --
------------ ------------
Net cash provided by operating activities......... 470,907 250,236
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiaries (net of cash acquired of
$97,584 and $699,808 in 2000 and 1999, respectively).... (14,885,349) (10,577,043)
Proceeds from sale of fixed assets........................ 22,309 --
Additions to property, plant and equipment................ (13,501,252) (162,245)
Payments for covenant not to compete...................... (225,000) --
Due to affiliates, net.................................... 155,392 (8,509)
------------ ------------
Net cash used in investing activities............. (28,433,900) (10,747,797)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 4,000,000
Contribution from parent company.......................... 19,900,000 750,000
Net borrowings under revolving credit agreement........... 22,125,000 14,075,000
Borrowing of debt......................................... -- 250,000
Repayments of debt........................................ (12,247,538) (6,202,050)
Deferred financing costs.................................. (456,532) (650,000)
------------ ------------
Net cash provided by financing activities......... 29,320,930 12,222,950
------------ ------------
Net increase in cash.............................. 1,357,937 1,725,389
CASH, beginning of period................................... 1,725,389 --
------------ ------------
CASH, end of period......................................... $ 3,083,326 $ 1,725,389
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................ $ 2,640,473 $ 55,882
Income taxes............................................ 63,571 4,000
------------ ------------
</TABLE>
F-39
<PAGE>
ATLANTIC TRANSIT, CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2000 AND
FOR THE PERIOD FROM INCEPTION
(FEBRUARY 22, 1999) THROUGH JUNE 30, 1999
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
For the year ended June 30, 2000.
The Company purchased all of the capital stock of the following companies
for $25,657,468.
<TABLE>
<CAPTION>
ROBERT L.
T-NT BUS MCCARTHY &
SERVICE, INC. TRANSCOMM, INC. SON, INC. TOTAL
------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Fair value of assets acquired........... $11,063,986 $11,476,460 $ 5,266,830 $ 27,807,276
Cash paid for the capital stock......... (3,967,746) (7,373,192) (3,641,995) (14,982,933)
Repayment of debt upon closing.......... (6,349,390) (3,156,934) (1,168,211) (10,674,535)
----------- ----------- ----------- ------------
Liabilities assumed................. $ 746,850 $ 946,334 $ 456,624 $ 2,149,808
=========== =========== =========== ============
</TABLE>
For the period from inception (February 22, 1999) through June 30, 1999.
The Company purchased all of the capital stock of the following companies
for $16,928,901. In conjunction with the acquisitions, liabilities were assumed
as follows:
<TABLE>
<CAPTION>
FIORE BUS
SERVICE, INC.,
MCINTIRE
TRANSPORTATION, JAMES H.
INC., R. FIORE MCCARTY
BUS SERVICE, LIMOUSINE
INC. AND GROOM SERVICE, INC. AND
TRANSPORTATION MOUNTAIN TRANSIT, AIRPORT SERVICES,
INC. INC. WINSALE, INC. INC. TOTAL
--------------- ----------------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Fair value of assets
acquired............. $ 7,654,207 $ 3,864,876 $ 3,322,901 $ 3,979,453 $ 18,821,437
Cash paid for the
capital stock........ (6,020,011) (1,306,104) (1,685,554) (2,265,182) (11,276,851)
Repayment of debt upon
closing.............. (760,062) (1,940,042) (1,286,701) (1,665,245) (5,652,050)
----------- ----------- ----------- ----------- ------------
Liabilities
assumed.......... $ 874,134 $ 618,730 $ 350,646 $ 49,026 $ 1,892,536
=========== =========== =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-40
<PAGE>
ATLANTIC TRANSIT, CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
1. COMPANY STRUCTURE
Atlantic Transit, Corp. and Subsidiaries ("ATC") is a wholly owned
subsidiary of Atlantic Express Transportation Group, Inc. ("AETG") (the parent
company) operating in the transportation industry through its subsidiaries ATC,
a New York corporation, was incorporated on February 22, 1999. ATC is primarily
engaged in providing school bus transportation services for various
municipalities located in Massachusetts, New Jersey, Vermont, California, New
York and Illinois. ATC also provides services to a public transit system for
physically or mentally challenged passengers in Arizona.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of ATC and its
subsidiaries. All intercompany transactions and balances have been eliminated.
REVENUES
Revenues are recognized when services are performed.
INVENTORIES
Inventories consist of fuel, parts and supplies which are valued at the
lower of cost or market value. Cost is determined on a first-in, first-out
("FIFO") basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and depreciated utilizing
the straight-line method over the lives of the related assets. The useful lives
of property, plant and equipment for purposes of computing depreciation are as
follows:
<TABLE>
<CAPTION>
YEARS
---------------
<S> <C>
Leasehold improvements...................................... 15-31.5
Transportation equipment.................................... 5-15
Furniture and fixtures...................................... 5-7
Machinery and equipment..................................... 3-7
</TABLE>
TRANSPORTATION CONTRACT RIGHTS
Transportation contract rights primarily represent the value ATC assigns to
the excess of cost of investments in school bus companies in excess of the book
value of these companies. These costs are being amortized over the lesser of the
expected life of the contracts or 12 years. Accumulated amortization at
June 30, 2000 and 1999 was $1,536,801 and $145,172, respectively.
DEFERRED FINANCING
Deferred financing costs are amortized over the life of the related debt.
Accumulated amortization at June 30, 2000 and 1999 was $302,145 and $36,112,
respectively.
F-41
<PAGE>
ATLANTIC TRANSIT, CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
ATC follows the liability method under Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes". The primary
objectives of this statement 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 ATC's
financial statements or tax returns.
ATC files consolidated federal and to the extent permitted and beneficial,
state income tax returns with its parent, affiliates and fellow subsidiaries.
The income tax charge allocated to ATC is based upon the proportion of ATC's
income to that of the consolidated group.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments including accounts receivable,
accounts payable, and long-term debt approximated fair value as of June 30, 2000
and 1999 due to either short maturity or terms similar to those available to
similar companies in the open market.
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, 2000.
3. ACQUISITION OF SUBSIDIARIES
FOR THE YEAR ENDED JUNE 30, 2000
On November 12, 1999, ATC consummated the acquisition of T-NT Bus Service,
Inc. ("TNT"), located in New York. While the TNT acquisition closed on
November 12, 1999, ATC managed the TNT operations from September 1, 1999. The
consolidated statements of operations, stockholder's equity and cash flows
include the operations of TNT from September 1, 1999 through June 30, 2000.
On January 19, 2000, ATC consummated the acquisition of TRANSCOMM, Inc.
("Transcomm"), located in Massachusetts. While the Transcomm acquisition closed
on January 19, 2000, ATC managed
F-42
<PAGE>
ATLANTIC TRANSIT, CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
3. ACQUISITION OF SUBSIDIARIES (CONTINUED)
the Transcomm operations from October 1, 1999. The consolidated statements of
operations, stockholder's equity and cash flows include the operations of
Transcomm from October 1, 1999 through June 30, 2000.
On February 17, 2000 ATC consummated the acquisition of Robert L. McCarthy &
Son, Inc. ("RLM"), located in central Massachusetts. The consolidated statements
of operations, stockholder's equity and cash flows include the operations of RLM
from February 1, 2000 through June 30, 2000.
FOR THE PERIOD FROM INCEPTION (FEBRUARY 22, 1999) THROUGH JUNE 30, 1999
Effective April 1, 1999, ATC purchased five subsidiaries from AETC (the
"Acquisition") for $7.5 million. This purchase price represented AETC's original
investment plus the net earnings of these subsidiaries from dates of acquisition
by AETC. In addition, ATC repaid AETC $2.8 million representing intercompany
advances made by AETC to these subsidiaries. The purchase price was paid on
April 28, 1999 from proceeds of ATC's new credit facility with the Bank of Nova
Scotia ("Scotia Bank") (see Note 5).
Concurrent with the creation of ATC, AETG assigned its rights to ATC in the
letter of intent to purchase Winsale, Inc. ("Winsale"). While the Winsale
acquisition closed on March 2, 1999, AETG managed the Winsale operations from
August 31, 1998. As such, the consolidated statements of operations,
stockholder's equity and cash flows include the operations of Winsale from
August 31, 1998 through June 30, 1999.
On June 15, 1999, ATC consummated the acquisition of James H. McCarty
Limousine Service, Inc. and Airport Services, Inc. ("McCarty"). The consolidated
statements of operations, stockholder's equity and cash flows include the
operations of McCarty from June 15, 1999 through June 30, 1999.
The above mentioned acquisitions were accounted for as a purchase for
financial accounting purposes.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following as of June 30:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Land............................................... $ 15,500 $ --
Leasehold improvements............................. 918,394 192,831
Transportation equipment........................... 35,329,796 9,579,213
Machinery and equipment............................ 1,850,191 549,083
Furniture and fixtures............................. 177,885 89,211
----------- -----------
38,291,766 10,410,338
Less: Accumulated depreciation..................... 4,441,089 989,085
----------- -----------
$33,850,677 $ 9,421,253
=========== ===========
</TABLE>
F-43
<PAGE>
ATLANTIC TRANSIT, CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
5. DEBT
On April 28, 1999, ATC entered into a $25 million revolving credit agreement
(the "Facility") with The Bank of Nova Scotia. On February 17, 2000, the parties
mutually agreed to increase the facility to $45 million. Borrowings under the
Facility were for acquisitions and are also available for working capital and
general corporate purposes, including letters of credit, subject to the
borrowing conditions contained therein.
The Facility expires on April 28, 2002 and is collateralized by a security
interest in all of the cash, accounts receivable, inventory, equipment, general
intangibles and documents and instruments related thereto of ATC and its
subsidiaries. In addition, AETG has guaranteed the obligations and members of
GSCP Holdings (AE), LLC (the "Greenwich Parties"), the majority shareholder of
AETG have signed a "Keepwell Agreement" whereby the Greenwich Parties agree to
make available sufficient funds to ATC, if necessary, for ATC to comply with the
financial covenants set forth in the agreement.
The interest rate per annum applicable to the Facility is either the prime
rate or, at ATC's option, LIBOR rate, both rates adjusted by additional
percentages which vary depending on the Debt to EBITDA ratio as calculated on a
quarterly basis. The Facility contains various negative covenants that restrict
the borrower from taking various actions and require the borrower to achieve and
maintain certain financial covenants, as defined.
ATC's debt under the Facility as of June 30, 2000 and 1999 was $36,200,000
and $14,075,000, respectively, with interest rates varying from 8.94% to 9.5%
and 7.75% to 8.08%, respectively.
6. INCOME TAXES
The provision for income taxes consists of the following for the year ended
June 30, 2000 and the period from inception (February 22, 1999) through
June 30, 1999:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEAR ENDED THROUGH
JUNE 30, FEBRUARY 22,
2000 1999
---------- ------------
<S> <C> <C>
Current:
Federal............................................. $ $256,016
State............................................... -- 86,179
------- --------
$ -- $342,195
------- --------
Deferred:
Federal............................................. $ 8,988 $ 80,816
State............................................... 2,911 27,881
------- --------
$11,899 $108,697
======= ========
Total provision................................. $11,899 $450,892
======= ========
</TABLE>
F-44
<PAGE>
ATLANTIC TRANSIT, CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
6. INCOME TAXES (CONTINUED)
Deferred tax assets (liabilities) consist of the following as of June 30:
<TABLE>
<CAPTION>
2000 1999
----------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................... $ 1,638,612 $ --
Transportation contract rights and covenant not to
compete............................................ 283,917 32,275
Deferred tax liability -- Depreciation............... (3,236,967) (821,601)
----------- ---------
Deferred tax liability, net.......................... $(1,314,438) $(789,326)
=========== =========
</TABLE>
7. RETIREMENT PLANS
Beginning in fiscal year 2000, ATC adopted a tax qualified 401(k) plan
whereby eligible employees can invest up to 15% of base earnings subject to a
specified maximum amount among several investment alternatives. An employer
matching contribution up to a maximum of 2.5% of the employee's contribution is
also invested. ATC's contribution was approximately $28,000 for the year ended
June 30, 2000.
8. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
During the period from inception (February 22, 1999) through June 30, 1999,
four customers accounted for approximately 23%, 13%, 12% and 10% of revenues.
Accounts receivable from these customers were $366,758, $117,493, $82,872 and
$94,484 as of June 30, 1999, respectively. During the year ended June 30, 2000
no customer accounted for more than 8% of revenues.
9. RELATED PARTY TRANSACTIONS
AETC provides ATC with general administrative services such as payroll,
accounts payable, bookkeeping and accounting services in exchange for a monthly
administrative fee equal to $30 times the total number of revenue vehicles
maintained by ATC and its wholly owned subsidiaries. During the year ended
June 30, 2000 and the period from inception (February 22, 1999) through
June 30, 1999, the Company paid administrative fees of $459,900 and $44,010,
respectively and paid advisory fees of $42,000 and $5,000 respectively, to an
affiliate of the majority shareholder of AETG.
F-45
<PAGE>
ATLANTIC TRANSIT, CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
10. COMMITMENTS AND CONTINGENCIES
LEASES
Minimum rental commitments as of June 30, 2000 for noncancellable
transportation equipment and real property operating leases are as follows:
<TABLE>
<CAPTION>
REAL TRANSPORTATION
PROPERTY EQUIPMENT TOTAL
---------- -------------- ----------
<S> <C> <C> <C>
2001.................................... $1,442,920 $ 73,733 $1,516,653
2002.................................... 924,820 73,733 998,553
2003.................................... 891,720 73,733 965,453
2004.................................... 798,270 24,578 822,848
2005.................................... 642,400 642,400
Thereafter.............................. 4,558,200 4,585,200
---------- -------- ----------
Total............................. $9,285,330 $245,777 $9,531,107
---------- -------- ----------
</TABLE>
Total rental charges included in cost of operations for the year ended
June 30, 2000 and for the period from inception (February 22, 1999) through
June 30, 1999 was $1,256,472 and $202,880, respectively.
LITIGATION
ATC 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 ATC.
PERFORMANCE SECURITY
ATC's transportation contracts generally provide for performance security,
which ATC has opted to satisfy by posting performance bonds. At June 30, 2000,
ATC has provided performance bonds aggregating approximately $12 million.
F-46
<PAGE>
ATLANTIC TRANSIT, CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................ $ 827,509
Accounts receivable......................................... 8,342,329
Inventories................................................. 436,623
Prepaid expenses and other current assets................... 1,220,446
-----------
Total current assets...................................... 10,826,907
-----------
PROPERTY, PLANT & EQUIPMENT, less accumulated
depreciation.............................................. 36,377,759
-----------
OTHER ASSETS:
Transportation contract rights, net......................... 17,859,034
Deferred financing costs, net............................... 750,953
Covenant not to compete, net................................ 407,000
Deposits and other noncurrent assets........................ 556,729
-----------
Total other assets........................................ 19,573,716
-----------
Total assets.............................................. $66,778,382
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 1,018,652
Accrued compensation........................................ 1,074,088
Accrued interest............................................ 333,884
Other accrued expenses and current liabilities.............. 1,737,242
Due to affiliates, net...................................... 204,534
-----------
Total current liabilities................................. 4,368,400
-----------
LONG-TERM DEBT.............................................. 38,200,000
OTHER LONG-TERM LIABILITIES................................. 50,000
DEFERRED INCOME TAXES....................................... 247,901
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common Stock, no par value, 200 shares authorized, issued
and outstanding........................................... 4,000,000
Additional paid-in capital.................................. 20,650,000
Accumulated deficit......................................... (737,919)
-----------
Total stockholder's equity................................ 23,912,081
-----------
Total liabilities and stockholder's equity................ $66,778,382
===========
</TABLE>
F-47
<PAGE>
ATLANTIC TRANSIT, CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDING SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<S> <C>
REVENUES.................................................... $10,761,783
COSTS AND EXPENSES:
Costs of Sales.............................................. 9,111,545
General and Administrative.................................. 1,350,311
Depreciation and Amortization............................... 1,735,342
-----------
Total operating costs and expenses...................... 12,197,198
-----------
Loss from Operations.................................... (1,435,415)
INTEREST EXPENSE, (net)..................................... 921,167
OTHER EXPENSE, net.......................................... 13,500
-----------
Loss before benefit from income taxes................... (2,370,082)
BENEFIT FROM INCOME TAXES................................... 1,066,537
-----------
Net loss................................................ $(1,303,545)
===========
</TABLE>
F-48
<PAGE>
ATLANTIC TRANSIT, CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net loss.................................................... $(1,303,545)
Adjustments to reconcile net loss to net cash used in
operating activities:
Deferred income taxes................................... (1,066,537)
Depreciation............................................ 1,276,219
Amortization............................................ 540,215
Decrease (increase) in:
Accounts receivable................................... (1,207,835)
Inventories........................................... (40,500)
Prepaid expenses and other current assets............. (256,387)
Deposits and other non current assets................. 554,152
Increase (decrease) in:
Accounts payable...................................... 212,095
Accrued expenses and other current liabilities........ 850,816
Other long-term liabilities........................... (25,000)
-----------
Net cash used in operating activities............... (466,307)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets........................ 2,932,188
Additions to property, plant and equipment................ (6,735,487)
Purchase of transportation contract rights................ (26,844)
Due to/from parent/affiliates............................. 40,633
-----------
Net cash used in investing activities............... (3,789,510)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of additional borrowings......................... 2,000,000
-----------
Net cash provided by financing activities........... 2,000,000
-----------
Net decrease in cash................................ (2,255,817)
Cash, beginning of period................................... 3,083,326
-----------
Cash, end of period......................................... 827,509
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................ 862,502
Income taxes............................................ 14,535
</TABLE>
F-49
<PAGE>
ANNEX A
PROPOSED AMENDMENTS TO THE INDENTURE
Set forth below are the provisions of the Indenture that
would be added or modified by the Proposals. In addition, certain conforming
and related changes would be made as may be appropriate to implement the
Proposals. The following is qualified in its entirety by reference to the
Indenture and the Supplemental Indenture, copies of which can be obtained
without charge from the Company or the Information Agent. Capitalized terms
not otherwise defined in this Annex A have the meanings assigned thereto in
the Indenture.
A. IF THE PROPOSALS BECOME EFFECTIVE, THE FOLLOWING NEW
SECTIONS WILL BE ADDED IN THEIR ENTIRETY TO THE INDENTURE:
SECTION 4.11 LIMITATION ON TRANSACTIONS WITH AFFILIATES
[NOTE: THE FOLLOWING LANGUAGE WOULD BE ADDED AS A NEW SECOND
PARAGRAPH TO SECTION 4.11]
In addition, with respect to any Affiliate Transaction with
an aggregate value of more than $1.0 million that is also an Asset Sale (i)
the Company must deliver to the Trustee opinions as to the fairness to the
Company from a financial point of view of such Asset Sale, issued by two
investment banking firms of national standing each with a net worth of at
least $200.0 million as set forth in its most recently published financial
information and (ii) the aggregate value of all such transactions in any one
fiscal year may not exceed 10% of the Company's consolidated total assets as
shown on the Company's audited consolidated balance sheet as most recently
delivered to the Trustee in accordance with Section 4.3.
SECTION 4.19 LIMITATION ON ACQUISITIONS
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly acquire the assets or
Capital Stock of any Person that immediately prior to the time of such
acquisition is not a Restricted Subsidiary if the portion of the purchase
price for such acquisition funded through the permitted incurrence of
Indebtedness, together with the portion of the aggregate purchase prices for
all other such acquisitions funded through the permitted incurrence of
Indebtedness during the same fiscal year, would exceed $5.0 million (the
"Acquisition Allowance"); provided, however, that any unused portion of the
Acquisition Allowance in a given fiscal year shall be added to the following
fiscal year's Acquisition Allowance. Notwithstanding the foregoing, nothing in
this Section shall be deemed to limit the ability of the Company or any of its
Restricted Subsidiaries to bid for, purchase or otherwise acquire contracts
that comply with Section 4.18 or to fund the expenditures associated with such
contracts.
SECTION 4.20 ANNUAL LEVERAGE TEST
As of the last day of each fiscal year, the Company shall
maintain a ratio of (x) consolidated Indebtedness to (y) Consolidated EBITDA
for such fiscal year PLUS "New Equity" (as defined below) for such year (the
"Annual Leverage Test") not greater than (i) 5.35
A-1
<PAGE>
to 1 for the year ending June 30, 2001, (ii) 5.20 to 1 for the year ending
June 30, 2002, and (iii) 5.00 to 1 for the year ending June 30, 2003.
For purposes of the Annual Leverage Test, "New Equity" shall
mean the net cash proceeds, plus, in the case of non-cash consideration, the
fair market value thereof as determined in good faith by the Board of
Directors of the Company, received by the Company as capital contributions,
other than from a Subsidiary, or from the issuance or sale, other than to a
Subsidiary, of Equity Interests of the Company (other than Disqualified
Stock), during the fiscal year as to which the Annual Leverage Test is being
conducted and, at the election of the Company, within 90 days of the end of
such year (provided that the Company must designate whether such amounts
received in such 90 day period shall be credited to the calculation of the
Annual Leverage Test either for the immediately preceding fiscal year or the
fiscal year in which they are received, but not both). With respect to the
calculation of the Annual Leverage Test for the fiscal year ending June 30,
2001, there shall be excluded the contribution by AETG to the Company of
Atlantic Transit, Corp. and its subsidiaries, and there shall be included (i)
only $2.0 million of the additional $10.0 million being contributed by AETG on
or about the date of the Fifth Supplemental Indenture to the Indenture and
(ii) any other New Equity received by the Company following the date of the
Fifth Supplemental Indenture to the Indenture and prior to June 30, 2001 and
90 days thereafter (subject to the Company making the previously referred to
election and designation).
The Company shall deliver an Officer's Certificate to the
Trustee within 15 Business Days of the filing of the Company's fiscal year-end
financial statements in accordance with Section 4.3(a), such Certificate to
indicate whether based on such year-end financial statements the Company met
the Annual Leverage Test as of the date of the latest balance sheet contained
therein, and showing in reasonable detail the calculations supporting such
conclusion.
Notwithstanding any other provision of this Indenture, the
failure of the Company to meet the applicable ratio with respect to any Annual
Leverage Test shall not constitute a Default or Event of Default; the sole
consequence thereof shall be that the interest rate payable per annum on the
Securities shall be increased by 0.50% per annum, commencing on the Interest
Payment Date immediately preceding the determination that such additional
interest is required.
B. IF THE PROPOSALS BECOME EFFECTIVE, THE FOLLOWING SECTIONS
WILL BE AMENDED AS FOLLOWS (STRIKE THROUGHS INDICATE TEXT TO BE DELETED; BOLD
ITALICS INDICATES TEXT TO BE ADDED):
DEFINITION OF REVOLVING CREDIT FACILITY IN SECTION 1.1 OF THE INDENTURE
"Revolving Credit Facility" means THAT CERTAIN CREDIT
FACILITY DATED DECEMBER , 2000 BY AND BETWEEN CONGRESS FINANCIAL CORPORATION,
AS LENDER, THE COMPANY AND THOSE SUBSIDIARIES OF THE COMPANY NAMED THEREIN,
AS BORROWERS, AND THE RESTRICTED SUBSIDIARIES, AS GUARANTORS, IN THE AMOUNT
OF UP TO $125.0 MILLION, (BEGIN DELETION)the Loan and Security Agreement,
entered into on the Closing Date between Congress Financial Corporation, as
lender, and the Restricted Subsidiaries, as borrowers, and the Company, as
Guarantor,(END DELETION) as the same may be amended, modified, renewed,
refunded, replaced or refinanced from time to time, including (i) any related
notes, letters of credit, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or
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refinanced from time to time, and (ii) any notes, guarantees, collateral
documents, instruments and agreements executed in connection with such
amendment, modification, renewal, refunding, replacement or refinancing.
SECTION 4.7 LIMITATION ON RESTRICTED PAYMENTS
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any
distribution on account of any Equity Interests of the Company or any of its
Subsidiaries (other than (x) dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or (y) dividends or
distributions payable to the Company or any 90% Owned Subsidiary);
(ii) purchase, redeem or otherwise acquire or
retire for value any Equity Interest of the Company, any Subsidiary or any
other Affiliate of the Company (other than any such Equity Interest owned by
the Company or any Wholly Owned Subsidiary);
(iii) make any principal payment on, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness of
the Company or any Guarantor that is subordinated in right of payment to the
Notes or such Guarantor's Guarantee thereof, as the case may be, prior to any
scheduled principal payment, sinking fund payment or other payment at the
stated maturity thereof;
(iv) make any Restricted Investment, or
(v) make any payment or transfer any assets to, or
on behalf of, AETG or any of its Affiliates
(all such payments and other actions set forth in clauses (i) through (v)
above being collectively referred to as "RESTRICTED PAYMENTS"). (BEGIN
DELETION) unless, at the time of such Restricted Payment).
(1) no Default or Event of Default has occurred and is
continuing or would occur as a consequence thereof;
(2) immediately after giving effect thereto on a PRO FORMA,
basis, the Company could incur at least $1.00 of additional Indebtedness under
Section 4.9(a) hereof, and
(3) such Restricted Payment (the value of any such payment,
if other than cash, being determined in good faith by the Board of Directors
and evidenced by a resolution set forth in an Officers' Certificate delivered
to the Trustee), together with the aggregate of all other Restricted Payments
made after the date of this Indenture (including Restricted Payments permitted
by clauses (i) and (ii) of Section 4.7(b) and excluding Restricted Payments
permitted by the other clauses therein), is less than the sum of (x) 50% of
the Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first quarter commencing
immediately after the Closing Date to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are available at
the time of such Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, 100% of such deficit), plus (y) 100% of the
aggregate net cash proceeds (or the net cash proceeds received upon the
conversion of non-cash proceeds into cash) received by the Company from the
issuance or sale, other than to a Subsidiary, of Equity Interests of the
Company ) other than Disqualified Stock) after the date of this Indenture and
on or prior to the time of such Restricted Payment, plus (z) 100% of the
aggregate net cash proceeds ( or of the net cash proceeds
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received upon the conversion of non-cash proceeds into cash) received by the
Company from the issuance or sale, other than to a Subsidiary, of any
convertible or exchangeable debt security of the Company that has been
converted or exchanged into Equity Interests of the Company (other than
Disqualified Stock) pursuant to the terms thereof after the date of this
Indenture and on or prior to the time of such Restricted Payment (including
any additional net cash proceeds received by the Company upon such conversion
or exchange.)(END DELETION)
SECTION 4.9 LIMITATION ON INCURRENCE OF INDEBTEDNESS
(b) The limitations of Section 4.9(a) shall not prohibit the
incurrence of:
(i) Indebtedness under the Revolving Credit
Facility, provided, that the aggregate principal amount of
Indebtedness so incurred on any date, together with all other
Indebtedness incurred pursuant to this clause (i) and outstanding on
such date, shall not exceed (BEGIN DELETION) $30.0 (END DELETION)
$125.0 million, less any repayments thereunder pursuant to
Section 4.10 hereof.
THE PROPOSED WAIVERS
In addition to the foregoing, the Proposals would effect the
waivers described above under the caption "The Proposals."
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Manually signed copies of the Consent and Letter of Transmittal
will be accepted. The Consent and Letter of Transmittal, Securities and any
other required documents should be sent or delivered by each Holder or such
Holder's broker, dealer, bank, trust company or other nominee to the
Depositary at one of its addresses set forth below.
THE DEPOSITARY FOR THE OFFER AND THE SOLICITATION IS:
<TABLE>
<S> <C> <C>
BY REGISTERED OR CERTIFIED MAIL: FACSIMILE TRANSMISSIONS: BY HAND OR OVERNIGHT DELIVERY:
The Bank of New York (212) 815-6339 The Bank of New York
101 Barclay Street 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attention: Kin Lau TO CONFIRM BY TELEPHONE OR FOR Ground Level
Reorganization Section INFORMATION CALL: New York, New York 10286
Floor 7E Attention: Kin Lau
Reorganization Section
(212) 815-3750 Floor 7E
</TABLE>
Any questions or requests for assistance or additional
copies of this Statement, the Consent and Letter of Transmittal or the Notice
of Guaranteed Delivery may be directed to the Financial Advisor at its
telephone number set forth below or such Holder's broker, dealer, commercial
bank or trust company or nominee for assistance concerning the Offer and the
Solicitation.
THE INFORMATION AGENT FOR THE OFFER AND THE SOLICITATION IS:
JEFFERIES & COMPANY, INC.
11100 Santa Monica Boulevard
10th Floor
Los Angeles, CA 90025
Attn: Paul Phillips
Collect: (310) 575-5236
Toll-Free: (800) 933-6656
